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Daily Market Commentary

Discussion in 'Forex Daily News & Outlook' started by gcitrading, Jan 25, 2011.

  1. gcitrading

    gcitrading Contributing Member

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    The euro appreciated vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.3685 level and was supported around the $1.3570 level. Technically, today’s intraday low was just below the 50% retracement of the $1.4281 – 1.2873 range. The common currency reached its strongest level since 22 November as traders speculated U.S. President Obama will seek a five-year freeze on non-security discretionary spending in his State of the Union address tonight. The U.S. dollar came off on this rumour as a decrease in discretionary government spending would mean consumers, businesses, and net foreign trade would need to expand in order to keep gross domestic product at current levels. Additionally, many traders are reluctant to add to long U.S. dollar positions ahead of the Federal Open Market Committee’s monetary policy announcement tomorrow. Most FOMC-watchers believe Fed policymakers will keep short-term interest rate targets unchanged tomorrow and will paint a little more optimistic picture about the U.S. economy. The Fed may also comment about its ongoing US$ 600 billion U.S. Treasury purchase program and its commitment to complete that program in its entirety. Another catalyst for the higher euro today was the success of the European Financial Stability Facility’s inaugural bond sale of €5 billion in five-year debt, an offering that attacted about €44.5 billion in orders from 500 different bidders with Japan purchasing more than 20% of the issue. The success of this debt placement means the market may provide eurozone policymakers with a funding mechanism through which they can refinance maturing debt of highly-indebted members like Greece, Ireland, Portugal, Spain, and others. European Central Bank member Nowotny today reported he sees “no marked increase” in full-year inflation in 2011. Data released in Germany today saw the February GfK consumer confidence survey improve to 5.7% from the revised prior reading of 5.5 while French December consumer spending was up 0.6% m/m and 0.4% y/y. In U.S. news, traders expect the Fed will announce tomorrow that its balance sheet will remain around its current US$ 2.4 trillion level. Data released in the U.S. today saw Case-Shiller November home prices off 0.54% m/m and off 1.59% y/y. Also, January consumer confidence improved to 60.6 and the January Richmond Fed manufacturing index printed at +18, down from the prior reading of +25. Euro bids are cited around the US$ 1.3220 level.
    ¥/ CNY
    The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥82.10 level and was capped around the ¥82.65 level. Technically, today’s intraday low was right around the 23.6% retracement of the ¥83.67 – 81.84 range. As expected, Bank of Japan raised its economic growth forecast for the fiscal year ending in March to 3.3% from the previous estimate of 2.1%. Also as expected, the BoJ Policy Board kept the benchmark overnight call rate target range unchanged between 0% and 0.1% and did not announce any plans to expand its ¥5 trillion securities purchase program. BoJ policymakers also now see consumer prices expanding 0.3% in the fiscal year beginning this April, up from the prior estimate of +0.1%. Most dealers do not expect a shift in interest rates by the central bank for at least a couple of quarters. BoJ Governor Shirakawa today reported “The economy will probably emerge from its slump soon and return to a moderate recovery path. That’s important is that we can foresee a path leading toward deflation’s end, in which price declines will moderate and start rising, and we’re approaching that point.” Vice Finance Minister Igarashi warned “Japanese government dent is nearing its limit, and we need to find more places to sell government bonds, including overseas.” Notably, yields on Japanese government bonds notched their largest quarterly jump since 2008. The January small business confidence index will be released overnight. Data released in Japan this week saw December supermarket sales decline 1.6% y/y. The Nikkei 225 stock index climbed 1.15% to close at ¥10,464.42. U.S. dollar offers are cited around the ¥84.60 level. The euro moved lower vis-à-vis the yen as the single currency tested bids around the ¥111.80 level and was capped around the ¥112.80 level. The British pound moved lower vis-à-vis the yen as sterling tested bids around the ¥129.80 level while the Swiss franc moved higher vis-à-vis the yen and tested offers around the ¥87.30 level. In Chinese news, the U.S. dollar was unchanged vis-à-vis the Chinese yuan today as the greenback closed at CNY 6.5850 in the over-the-counter market. Liquidity will likely be reduced as the Lunar New Year approaches and Chinese banks today offered record-high deposit rates to secure funds from a government auction. People’s Bank of China adviser Li Daokui reported US$ 100 oil prices will impact the Chinese economy. The ongoing theme involving the yuan is the view the government will allow the yuan to appreciate to reduce inflation pressures. French President Sarkozy has called on the yuan to be added to the International Monetary Fund’s Special Drawing Rights currency.
    £

    The British pound depreciated sharply vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.5750 level and was capped around the US$ 1.6015 level. Stops were reached below the $1.5785 level, representing the 38.2% retracement of the $1.5344 – 1.6058 range. Sterling fell sharply following news that U.K. gross domestic product growth came in much weaker-than-expected in the fourth quarter, off 0.5% q/q and up 1.7% y/y. Other data saw the December public sector net cash requirement climb to £25.5 billion while public sector net borrowing narrowed to £15.3 billion. Traders reacted to these weaker-than-expected U.K. GDP growth data by knocking cable lower to its lowest level since 13 January. Former Bank of England Monetary Policy Committee member Blanchflower today reported the central bank sought a weaker pound when he was a policymaker there. Chancellor of the Exchequer Osborne today said the BoE has the ability to keep interest rates “lower for longer” because the Cameron government has a “credible” plan to reduce the budget deficit. Today’s weak U.K. GDP data could delay a rate hike by the BoE even if inflation continues to remain elevated. In contrast, BoE MPC member Sentance reported “When it is clear that global inflationary pressures, coupled with a substantial decline in the exchange rate and reasonably healthy growth of domestic demand are all contributing to a sustained period of above-inflation target, then the time has come to act. The lack of a substantive policy response (to CPI gains) enhances the risk of a loss of credibility in the inflation target itself and a loss of belief in the commitment of the MPC to achieving it.” Cable bids are cited around the US$ 1.5695 level. The euro appreciated vis-à-vis the British pound as the single currency tested offers around the £0.8640 level and was supported around the £0.8525 level.
    CHF
    The Swiss franc appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 0.9415 level and was capped around the CHF 0.9520 level. Technically, today’s intraday low was just above the 76.4% retracement of the CHF 0.9299 – 0.9783 range. Swiss Economy Minister Schneider-Ammann this week 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. Data released in Switzerland today saw the December UBS consumption indicator improve to 1.841 from the revised prior reading of 1.624. 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 1.2825 level while the British pound moved lower vis-à-vis the Swiss franc and tested bids around the CHF 1.4860 level.
     
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