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Daily Market Commentary

Discussion in 'Forex Daily News & Outlook' started by gcitrading, Jan 24, 2011.

  1. gcitrading

    gcitrading Contributing Member

    Dec 16, 2008
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    The euro appreciated vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.3660 level and was supported around the $1.3540 level. Technically, today’s intraday low was just below the 23.6% retracement of the $1.3244 – 1.3641 range. North American dealers lifted the common currency higher as an increasing amount of traders seem to be adopting the view that the European debt crisis will be resolved, albeit with financial pain, and not result in a fracture of the eurozone. Yields on ten-year Portuguese debt receded to their lowest level all month last week and countries like Spain have held debt auctions where demand has been increasing, indications that investors in eurozone assets are not shunning the common currency. Traders expect the European Financial Stability Facility will be enlarged from its current €440 billion scope, especially after German Chancellor Merkel said her government “supports whatever is needed to support the euro, also with respect to the rescue fund.” German Finance Minister Schaeuble reported a “comprehensive package” to bolster the rescue facility will be compiled by March. European Central Bank member Stark again reiterated the euro “will not fail.” Three-month eurodollar risk reversals, a measure of demand for options to sell the euro, have recently declined at the fastest pace in about five months – an indication that fewer traders are willing to put on short euro positions. Despite the improved tenor in the market, many dealers expect at least one eurozone sovereign will be forced to restructure its debt with Greece seen as being the most likely candidate. The Greek media this weekend reported Bank of Greece held formal talks with the European Union regarding Greece possibly buying back some of its debt with proceeds from loans to be issued by the European Financial Stability Fund. European Central Bank President Trichet was interviewed in the Wall Street Journal and suggested ECB policymakers may resist the urge to tighten interest rates if higher inflation does not result in wage increases, also called “second round effects.” Trichet was hawkish in his comments on 13 January but since then ECB policymakers have softened their rhetoric. ECB member Tumpel-Gugerell said there is no indication of a double dip recession. Data released in the eurozone today saw the EMU-17 January PMI composite rally to 56.3 as manufacturing ticked lower to 56.9 and services rallied to 55.2. Also, EMU-16 November industrial new orders were up 2.1% m/m and 19.9% y/y. In U.S. news, data to be released tomorrow include November Case-Shiller house prices, January consumer confidence, and the January Richmond Fed manufacturing index. U.S. President Obama will give his State of the Union address tomorrow and is expected to champion a reduction in the deficit and unemployment, two usual themes. Euro bids are cited around the US$ 1.3220 level.
    ¥/ CNY
    The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥82.90 level and was supported around the ¥82.55 level. Technically, today’s intraday low was right around the 38.2% retracement of the ¥83.67 – 81.84 range. Bank of Japan’s Policy Board’s monetary policy announcement is expected overnight and officials are expected to keep the benchmark overnight call rate target range unchanged between 0% and 0.1%. Deputy Chief Cabinet Secretary Fujii reported he is opposed to a change in the Bank of Japan law that would force the central bank to adopt an inflation target. The government last night reported “While the yen’s abrupt movements appear to be receding, an excessive strengthening of the current can’t be tolerated because of the adverse effects it may have on the economy and financial markets over the long term. We will continue to take bold action when necessary.” The government also again called on the BoJ to pursue “appropriate and flexible” monetary policy. Notably, the government last week raised its assessment for the economy in seven months following the first improvement in industrial production since May. Data released in Japan overnight saw December supermarket sales decline 1.6% y/y. BoJ will release its monthly economic report tomorrow night and data to be released around the same time include the December corporate service price index and January small business confidence. Last week, the Japanese media speculated Bank of Japan may increase its economic growth forecast for the current fiscal year ending in March to around 3.0% from the current projection of 2.1%. A 3% growth projection would be more consistent with the government’s official projection of 3.1% but the government then sees a dramatic shift lower to 1.5% growth for the fiscal year starting in April. The Nikkei 225 stock index climbed 0.69% to close at ¥10,345.11. U.S. dollar offers are cited around the ¥84.60 level. The euro moved higher vis-à-vis the yen as the single currency tested offers around the ¥112.65 level and was supported around the ¥112.20 level. The British pound moved higher vis-à-vis the yen as sterling tested offers around the ¥132.30 level while the Swiss franc moved higher vis-à-vis the yen and tested offers around the ¥86.65 level. In Chinese news, the U.S. dollar depreciated vis-à-vis the Chinese yuan today as the greenback closed at CNY 6.5850 in the over-the-counter market, down from CNY 6.5870. Benchmark money market rates fell by the largest amount since 2007 on speculation People’s Bank of China will inject liquidity into the system ahead of the Lunar New Year holiday that is being celebrated 2 – 8 February. Some dealers believe the government may hike interest rates before the Chinese New Year period. The yuan was near seventeen-year highs overnight on speculation policymakers will permit it to appreciate to help counter inflationary pressures.

    The British pound depreciated vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.5920 level and was capped around the US$ 1.6010 level. Technically, today’s intraday low was right around the 38.2% retracement of the $1.5296 – 1.6298 range. Bank of England Monetary Policy Committee member Posen last week dovishly reported “Where I am right now is that in terms of underlying U.K. inflation, driven by domestic forces, my position is unchanged…that by the time you take the one-time shocks of the exchange rate move, commodity prices and obviously V.A.T., underlying inflation in the U.K. is low. The underlying spare capacity in the U.K. economy, the likelihood in my estimation that British households will consume less in the next year, and the short-term impact of the fiscal consolidation, all leave me believing that inflation will be well below target and well below the November Inflation Report forecast.” Data to be released in the U.K. tomorrow include Q4 gross domestic product, the December public sector net cash requirement, and December public sector net borrowing. Q4 GDP data are expected to evidence a pullback in economic activity. Minutes from Bank of England’s January Monetary Policy Committee meeting will be released on Wednesday along with housing data. Cable bids are cited around the US$ 1.5695 level. The euro appreciated vis-à-vis the British pound as the single currency tested offers around the £0.8530 level and was supported around the £0.8490 level.
    The Swiss franc appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 0.9485 level and was capped around the CHF 0.9620 level. Technically, today’s intraday high was right around the 38.2% retracement of the CHF 0.9783 – 0.9519 range. Swiss Economy Minister Schneider-Ammann today reiterated Swiss National Bank is independent and its main function is to foster price stability. Swiss National Bank Chairman Hildebrand last week reported the franc’s ascent is limiting exports and having a negative impact on the Swiss economic recovery. Hildebrand added “The danger of deflation has largely vanished. At the same time, the economic environment abroad has developed positively.” Speaking about the eurozone’s ongoing economic issues, Hildebrand reported “The euro area’s stability is an absolutely essential factor for the Swiss franc and for the Swiss economy as a whole. Not only European Union citizens, but Swiss citizens also have a major interest in the euro’s stability.” It is clear the central bank is trying to reduce the market’s perception of the franc as a safe haven asset. The December UBS consumption indicator will be released tomorrow. U.S. dollar offers are cited around the CHF 0.9810 level. The euro depreciated vis-à-vis the Swiss franc as the single currency tested bids around the CHF 1.2975 level while the British pound moved lower vis-à-vis the Swiss franc and tested bids around the CHF 1.5250 level.

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