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Daily Market Commentary

Discussion in 'Forex Daily News & Outlook' started by gcitrading, Jan 27, 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$ 1.3755 level and was supported around the $1.3635 level. Technically, today’s intraday low was right around the 38.2% retracement of the $1.2587 – 1.4281 range. The common currency absorbed technical resistance around the $1.3745 level and euro bulls now have their sights set on the $1.3880 level. European Central Bank member Gonzalez-Paramo said eurozone governments should consider enhancing the flexibility and size of the European Financial Stability Facility – the bailout fund that is being utilized to assist highly-indebted eurozone countries. Paramo also said the economic environment is “still fragile” and said new European Union stress tests need to be “more comprehensive.” ECB President Trichet yesterday suggested the EFSF may want to consider purchasing government bonds, much in the same way the ECB has purchased €76.5 billion in government bonds since May 2010 to address the credit crisis and try to keep a lid on sovereign interest rates. ECB member Bini-Smaghi called the potential bond purchases by EFSF a “win-win solution.” French President Sarkozy verbally intervened to support the euro saying neither he nor German Chancellor Merkel will ever turn their backs on the euro, adding the common currency will never be “abandoned or dropped.” Trichet also said sanctions against countries that exceed fiscal limits must be “automatic.” Dealers are closely watching political developments in Ireland, particularly as they relate to possible future debt restructurings in that country. Data released in the eurozone today saw the January EMU-17 business climate indicator improve to 1.58 while January consumer confidence ticked higher to -11.2. Eurozone economic and industrial confidence improved while services confidence retreated. German provisional January headline consumer price inflation was off 0.5% m/m and up 1.9% y/y and off 0.5% m/m and up 2.0% y/y on a harmonized basis. In U.S. news, the Federal Open Market Committee yesterday indicated the Fed intends to exhaust its US$ 600 billion U.S. Treasury asset purchase program on schedule by the middle of the year. The FOMC’s policy statement noted the economy is improving but not enough to lead to a sustainable decrease in the unemployment rate. Data released in the U.S. today saw the December Chicago Fed national activity index improve to +0.03 from the revised prior reading of -0.40. December durable goods orders were off 2.5% at the headline level with the ex-transportation component weaker at +0.5%. Also, weekly initial jobless claims moved higher to +454,000 from the revised prior reading of +403,000 with continuing jobless claims higher at 3.991 million. Other data saw December pending home sales up 2.0% m/m and off 3.6% y/y. 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 ¥83.20 level and was supported around the ¥82.00 figure. Technically, today’s intraday low was right around the 61.8% retracement of the ¥80.92 – 83.67 range. Japan’s credit rating was reduced to AA- by Standard & Poors overnight with the ratings agency warning Japan’s fiscal deficits will remain elevated over the next few years, adding the Democratic Party of Japan lacks a “coherent strategy” to address Japan’s debt problems. Data released in Japan overnight saw the December merchandise trade balance improve to ¥707.3 billion as export growth increased and import growth moderated. Data to be released overnight include December jobless data, December household spending, January Tokyo-area consumer price inflation, December nationwide CPI, and December retail trade. Economy Minister Yosano this week 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 this week 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. Earlier this week, 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. The Nikkei 225 stock index climbed 0.74% to close at ¥10,478.66. 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 ¥113.95 level and was supported around the ¥112.45 level. The British pound moved higher vis-à-vis the yen as sterling tested offers around the ¥132.65 level while the Swiss franc moved higher vis-à-vis the yen and tested offers around the ¥88.10 level. In Chinese news, the U.S. dollar appreciated vis-à-vis the Chinese yuan today the greenback closed at CNY 6.5840 in the over-the-counter market, up from CNY 6.5830. Non-deliverable yuan forwards traded near a 2.5-year high today as People’s Bank of China adviser Li Daokui reported the yuan should climb about 5% annually to help reduce asset bubbles and inflation. Data to be released in China overnight include the January Business Conditions Survey. People’s Bank of China Governor Zhou said China is not ruling out the further use of “quantitative and price” tools to reduce surplus liquidity and tighten credit. Zhou added the shift to a “prudent” monetary policy this year will lower inflation and push money supply and credit growth down to “normal” levels. The central bank is expected to keep the financial system awash in liquidity heading into the upcoming Chinese New Year holiday.
    £

    The British pound appreciated vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.5970 level and was supported around the US$ 1.5880 level. Technically, today’s intraday low was just below the 23.6% retracement of the $1.5344 – 1.6058 range. Data released in the U.K. today saw a dramatic decrease in CBI January reported sales to +37 from the prior reading of +56. The January GfK consumer confidence survey will be released later during the Australasian session. A Bank of England paper released today reported the capital adequacy requirements stipulated in Basel III blueprints are “too weak” and indicated the U.K. banking system can withstand tougher capital requirements. Cable appreciated yesterday after it was reported that Bank of England’s Monetary Policy Committee voted 6-to-3 in January to not change rates. Two members voted to increase interest rates while one voted to expand the BoE’s asset purchase program. Former Bank of England Monetary Policy Committee member Blanchflower this week reported the central bank sought a weaker pound when he was a policymaker there. Chancellor of the Exchequer Osborne this week said the BoE has the ability to keep interest rates “lower for longer” because the Cameron government has a “credible” plan to reduce the budget deficit. In contrast, BoE MPC member Sentance reported “When it is clear that global inflationary pressures, coupled with a substantial decline in the exchange rate and reasonably healthy growth of domestic demand are all contributing to a sustained period of above-inflation target, then the time has come to act. The lack of a substantive policy response (to CPI gains) enhances the risk of a loss of credibility in the inflation target itself and a loss of belief in the commitment of the MPC to achieving it.” Cable bids are cited around the US$ 1.5695 level. The euro appreciated vis-à-vis the British pound as the single currency tested offers around the £0.8630 level and was supported around the £0.8580 level.

    CHF
    The Swiss franc depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 0.9465 level and was supported around the CHF 0.9390 level. Technically, the pair continues to orbit the CHF 0.9415 level, representing the 76.4% retracement of the CHF 0.9299 - 0.9783 range. The January KOF Swiss leading indicator will be released tomorrow. Swiss National Bank Chairman Hildebrand reported “If Europe doesn’t do well, it’s sooner or later a problem in Switzerland as well. We can see with a certain optimism that Europe is tackling the problems.” Hildebrand also noted Swiss economic growth may moderate to +1.5% this year from the estimate GDP growth rate of +2.5%. Swiss National Bank Board member Danthine this week 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. 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 appreciated vis-à-vis the Swiss franc as the single currency tested offers around the CHF 1.2975 level while the British pound moved higher vis-à-vis the Swiss franc and tested offers around the CHF 1.5085 level.
     
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