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Daily Market Commentary

Discussion in 'Forex Daily News & Outlook' started by gcitrading, Jan 26, 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 right around the 38.2% retracement of the $1.2587 – 1.4281 range. The common currency ground higher today as the pair traded at its highest level since 22 November. As expected, the Federal Open Market Committee kept its federal funds target rate range unchanged 0% to 0.25% today. The FOMC reported “Information received since the Federal Open Market Committee met in December confirms that the economic recovery is continuing, though at a rate that has been insufficient to bring about a significant improvement in labor market conditions. Growth in household spending picked up late last year, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software is rising, while investment in nonresidential structures is still weak. Employers remain reluctant to add to payrolls. The housing sector continues to be depressed. Although commodity prices have risen, longer-term inflation expectations have remained stable, and measures of underlying inflation have been trending downward. Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. Currently, the unemployment rate is elevated, and measures of underlying inflation are somewhat low, relative to levels that the Committee judges to be consistent, over the longer run, with its dual mandate. Although the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, progress toward its objectives has been disappointingly slow. To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to continue expanding its holdings of securities as announced in November. In particular, the Committee is maintaining its existing policy of reinvesting principal payments from its securities holdings and intends to purchase $600 billion of longer-term Treasury securities by the end of the second quarter of 2011. The Committee will regularly review the pace of its securities purchases and the overall size of the asset-purchase program in light of incoming information and will adjust the program as needed to best foster maximum employment and price stability. The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels for the federal funds rate for an extended period. The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to support the economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate.” Data released in the U.S. today saw MBA mortgage applications off 12.9% while December new home sales outpaced expectations and were up 17.5% m/m to an annualized 329,000 units. In eurozone news, data released today saw the German December import price index up 2.3% m/m and 12.0% y/y while French December total jobseekers increased. European Central Bank President Trichet reported the future European Stability Mechanism may be empowered by member governments to purchase sovereign debt. Euro bids are cited around the US$ 1.3220 level.
    ¥/ CNY
    The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥81.95 level and was capped around the ¥82.35 level. Technically, today’s intraday high was right around the 50.0% retracement of the ¥80.24 – 84.50 range. Economy Minister Yosano reported Bank of Japan “has done all it can do to support the economy over the last two years. It’s wrong to expect too much from the central bank. Some in Japan hold too high of expectations for the impact of the bank’s monetary policy.” Bank of Japan today reported “Japan’s economy is expected to gradually overcome the deceleration in the pace of improvement and return to a moderate recovery path…(the economy) still shows signs of a moderate recovery, but the recovery seems to be pausing,” a characterization that was unchanged from last month. Yesterday, 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 yesterday 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.” Data released in Japan overnight saw the January corporate services price index off 1.3% y/y while January small business confidence ticked lower to 45.8. 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 higher vis-à-vis the yen as the single currency tested offers around the ¥112.70 level and was supported around the ¥112.15 level. The British pound moved higher vis-à-vis the yen as sterling tested offers around the ¥130.80 level while the Swiss franc moved higher vis-à-vis the yen and tested offers around the ¥87.35 level. In Chinese news, the U.S. dollar depreciated vis-à-vis the Chinese yuan today the greenback closed at CNY 6.5830 in the over-the-counter market, down from CNY 6.5850. People’s Bank of China adviser Li warned “Rate increases are necessary. We should gradually increase rates in the first and second quarter.” Li added real estate price increases are the “biggest challenge” to China’s economy and are a “thousand times worse than inflation.” Li also added he expects Chinese economic growth of 9.5% in 2011. Liquidity will likely be reduced as the Lunar New Year holiday.
    £

    The British pound appreciated vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.5900 figure and was supported around the US$ 1.5770 level. Technically, today’s intraday high was right around the 50% retracement of the $1.6058 – 1.5750 range. Cable raced higher today as it was reported that Bank of England’s Monetary Policy Committee voted 6-to-3 in January to not change rates. Two members voted to increase interest rates while one voted to expand the BoE’s asset purchase program. Data released in the U.K. today saw December BBA loans for house purchases moderate and data to be released tomorrow include the January Hometrack housing survey. Former Bank of England Monetary Policy Committee member Blanchflower this week reported the central bank sought a weaker pound when he was a policymaker there. Chancellor of the Exchequer Osborne this week said the BoE has the ability to keep interest rates “lower for longer” because the Cameron government has a “credible” plan to reduce the budget deficit. In contrast, BoE MPC member Sentance reported “When it is clear that global inflationary pressures, coupled with a substantial decline in the exchange rate and reasonably healthy growth of domestic demand are all contributing to a sustained period of above-inflation target, then the time has come to act. The lack of a substantive policy response (to CPI gains) enhances the risk of a loss of credibility in the inflation target itself and a loss of belief in the commitment of the MPC to achieving it.” Cable bids are cited around the US$ 1.5695 level. The euro depreciated vis-à-vis the British pound as the single currency tested bids around the £0.8595 level and was capped around the £0.8670 level.
    CHF
    The Swiss franc appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 0.9405 level and was capped around the CHF 0.9465 level. Technically, today’s intraday low was below the 23.6% retracement of the CHF 1.0065 – 0.9299 range. Swiss National Bank Board member Danthine reiterated the central bank’s role is to “ensure price stability.” 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 this week 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 1.2870 level while the British pound moved higher vis-à-vis the Swiss franc and tested offers around the CHF 1.5020 level.
     
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