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Daily Market Commentary

Discussion in 'Forex Daily News & Outlook' started by gcitrading, Feb 1, 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$ 1.3815 level and was supported around the $1.3690 level. Technically, today’s intraday high was above the $1.3744 level, representing the 61.8% retracement of the $1.4281 – 1.2873 range. The common currency reached its highest level since 11 November as traders reacted to better-than-expected U.S. economic data and reduced Middle Eastern tensions. It was reported that the January ISM manufacturing survey climbed to 60.8 from the prior reading of 57.0, outstripping expectations, while the January ISM prices paid sub-index soared to 81.5 from the prior reading of 72.5, far above expectations. It was also reported that December construction spending was off 2.5% m/m, down from the prior reading of -0.2% m/m. Traders also cited reduced concerns regarding elevated geopolitical tensions in the Middle East. The Israeli shekel and the Jordanian dinar are being closely watched for clues as to what is happening in the Middle East and both traded stronger today. Many dealers still anticipate some regime changes and complete governmental reconfigurations in the region with Egypt the most likely candidate. The biggest implication for the markets will likely be the impact of political turmoil on energy prices. NYMEX crude oil futures traded above the $92 level today and traders are eyeing its recent high of $93.50 as the next important level. Some energy traders are speculating that if OPEC weakens on account of tensions, energy prices could move lower. Dealers also chased the euro higher on growing speculation the European Financial Stability Facility may purchase distressed government debt via private placements. In eurozone news, data released today saw EMU-17 January manufacturing PMI tick higher to 57.3 while the December EMU-16 unemployment rate remained steady at 10.0%. Also, German January unemployment was off 13,000 with the unemployment rate lower at 7.4%. Also, German manufacturing PMI ticked higher to 60.5 while French manufacturing PMI climbed to 54.9. Finally, French December producer prices were up 1.0% m/m and 5.4% y/y. European Central Bank member Nowtony warned inflation is “dangerous” while ECB President Trichet said “quasi-automaticity” of sanctions is required for European Union members who violate fiscal deficit rules. The ECB is expected to keep monetary policy unchanged on Thursday. Euro bids are cited around the US$ 1.3610 level.
    ¥/ CNY
    The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥81.30 level and was capped around the ¥82.15 level. Stops were reached below the ¥81.57 level, representing the 23.6% retracement of the ¥85.93 – 80.23 range. Traders again shunned U.S. dollars today and the yen was strong across the board. Dealers have not been put off by Standard & Poors’ recent announcement that it downgraded Japan’s credit rating for the first time in nine years, lowering it to AA- from AA. The Ministry of Finance sold ¥2.2 trillion in 10-year debt today and it was reported that Japanese banks increase their holdings of JGBs by 2.6% in December to the highest level on record. Bond yields have moved lower and the yen has gained ground since S&P’s announcement, evidence that institutional investors are not currently focusing on Japan’s massive debt burden. Bank of Japan Governor Shirakawa was this week quoted as saying the central bank’s commitment to keeping rates near zero per cent will keep bond yields stabile as the economy strengthens. Shirakawa also suggested the yen appreciated the second half of last year because investors perceived it to be a “relatively stable” asset. Data released in Japan overnight saw December labour cash earnings decline 0.4% y/y, down from the revised prior reading of +0.2% y/y. Data to be released tonight include the January monetary base, January official reserve assets, December coincident index, and December leading index. The Nikkei 225 stock index lost 1.18% to close at ¥10,237.92. 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 ¥111.85 level and was capped around the ¥112.70 level. The British pound moved lower vis-à-vis the yen as sterling tested bids around the ¥130.90 level while the Swiss franc moved lower vis-à-vis the yen and tested bids around the ¥86.50 level. In Chinese news, the U.S. dollar appreciated vis-à-vis the Chinese yuan today the greenback closed at CNY 6.5962 in the over-the-counter market, up from CNY 6.5950. Data released in China overnight saw January manufacturing PMI fall to 52.9 from the prior reading of 53.9 while HSBC manufacturing PMI ticked higher to 54.5. Data to be released this week include January services PMI and January HSBC services PMI. People’s Bank of China reported its 2011 M2 money supply growth rate target will be 16%, down from the 19.7% increase last year. PBoC adviser Li reported the Chinese economy will continue to expand at a clip of at least 9.5% and said the inflation rate may exceed 5% in the first quarter. People’s Bank of China Governor Zhou warned China may need to raise reserve requirements to reduce capital inflows, adding inflation is “still higher than many people expected.” The State Administration of Foreign Exchange reported China’s 2010 current account surplus rose 25% y/y to US$ 306.2 billion while the 2010 capital account surplus printed at US$ 165.6 billion. Liquidity is expected to remain muted during 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$ 1.6140 level and was supported around the US$ 1.6010 level. Stops were reached above the $1.6076 level, representing the 76.4% retracement of the $1.6298 – 1.5344 range. Many data were released in the U.K. today. First, January Nationwide house prices were off 0.1% m/m and off 1.1% y/y. Second, January manufacturing PMI climbed to 62.0 from the revised prior reading of 58.7. Third, December net consumer credit printed at £200 million. Fourth, December net lending secured on dwellings printed at -£300 million. Fifth, December mortgage approvals came in at 42,600. Sixth, the December M4 money supply was off 1.3% m/m and off 1.5% y/y. NIESR reported Bank of England will raise its key Bank Rate three times this year and sees the benchmark rate at 1.25% by the end of 2011. Bank of England Monetary Policy Committee member Weale this week dovishly reported “Were the recent weakness to mark the state of a sustained new downturn, inflationary pressures would be likely to fade without a bank rate increase. If growth resumes shortly, my concerns about inflationary expectations would remain. A major risk is that the longer inflation remains above target and the more it exceeds its target, the greater the adverse effects on output of bringing it down.” Notably, Weale and MPC colleague Andrew Sentance both voted to raise the main Bank Rate by 25bps this month in the minority. Cable bids are cited around the US$ 1.5965 level. The euro depreciated vis-à-vis the British pound as the single currency tested bids around the £0.8510 level and was capped around the £0.8565 level.
    CHF
    The Swiss franc appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 0.9390 level and was capped around the CHF 0.9445 level. Technically, the pair continues to orbit the CHF 0.9415 level, representing the 76.4% retracement of the CHF 1.0065 – 0.9299 range. Data released in Switzerland today saw December retail sales off 0.4% y/y while the January PMI survey ticked lower to 60.5. Swiss National Bank member Jordan verbally intervened against the franc’s strength saying “For Switzerland’s export industry, such a strong franc is a big and barely tolerable burden. Given the importance of the export sector for the overall economy, its problems are also showing a negative impact on overall economic growth.” Jordan added “a significant overshooting” of the franc could threaten “the existence of basically sound companies.” Swiss Economy Minister Schneider-Ammann this weekend said he “fully trusts the competence of the Swiss National Bank.” U.S. dollar offers are cited around the CHF 0.9540 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 1.5200 figure.
     
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