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Daily Market Commentary

Discussion in 'Forex Daily News & Outlook' started by gcitrading, Jan 20, 2010.

  1. gcitrading

    gcitrading Contributing Member

    Dec 16, 2008
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    The euro depreciated sharply vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.4080 level and was capped around the $1.4295 level. Dealers are talking about the victory in the U.S. state of Massachusetts by a Republican in a special Senate election and the impact this will have on the Obama administration’s ability to pass legislation. Banks and financial institutions are trying to repair their balance sheets and the removal of Obama’s filibuster-free legislative ability could be positive for the U.S. dollar. The common currency was also weighed down today by ongoing concerns regarding Greece’s fiscal position. Greek finance minister Papaconstantinou today said the country is “reviewing all options” as to how to raise funds to improve its fiscal position. Dealers cite concerns that the credit crisis could spread to other eurozone countries and engender a greater panic in capital markets there, possibly requiring intervention from the European Central Bank. European Central Bank member Stark reported said the ECB wil “not change its rules” for Greece and that Greece’s situation requires a “radical turnaround.” German Chancellor Merkel called on Germany to remain a net exporter. In U.S. news, data released in the U.S. saw MBA mortgage applications decline to +9.1% from +14.3% in the latest reporting week. Also, December headline producer prices were up 0.2% m/m and 4.4% y/y while the core ex-food and energy components were up 0.0% m/m and 0.9% y/y. Also, December housing starts fell to an annualized 557,000 from a revised 580,000 in November and building permits were up 10.9% y/y to print at 653,000, up from a revised 589,000. Euro bids are cited around the US$ 1.3885 level.

    The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥91.45 level and was supported around the ¥90.80 level. Data released in Japan overnight saw revised December machine tool orders up 27.2% m/m and +63.4% y/y. As expected, Bank of Japan kept its assessment of the economy unchanged overnight and did not include exchange rates and stock price volatility as risk in its assessment. Notably, the central bank also improved its assessment of the domestic housing market and upgraded its view on financial market conditions for the first time in four months. BoJ said the economy is “picking up” but remains in a “difficult condition.” BoJ Governor Shirakawa reported demand for funds from small companies remains weak. Data released in Japan yesterday saw December consumer confidence print at 37.6. Former Bank of Japan Policy Board member Hirano reported a weak yen is positive for Japan’s economy. Prime Minister Hatoyama, whose government is embroiled in a funds scandal, said the government and BoJ must cooperate in combating deflation. This scandal has been brewing for several months but some traders believe the problems are worsening and could prevent the government from enacting needed reforms and budget agreements. There is increasing speculation the central bank will extend its near-zero per cent interest rate policy and possibly ramp up fund injections into the economy. Group of Seven finance ministers are expected to discuss exchange rates in Canada when they convene on 5-6 February. The Nikkei 225 stock index lost 0.25% to close at ¥10,737.52. U.S. dollar offers are cited around the ¥94.75 level. The euro moved lower vis-à-vis the yen as the single currency tested bids around the ¥128.40 level and was capped around the ¥130.30 level. The British pound moved higher vis-à-vis the yen as sterling tested offers around the ¥147.55 level while the Swiss franc moved lower vis-à-vis the yen and tested bids around the ¥86.95 level. In Chinese news, the U.S. dollar appreciated vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8270 in the over-the-counter market, down from CNY 6.8277. People’s Bank of China today instructed some banks to restrict lending and will restrict overall credit growth in China to CNY 7.5 trillion in 2010. People’s Bank of China guided its benchmark one-year bill yield to its highest level in fourteen months to moderate record loan growth and slow asset bubbles. PBoC sold bills at a rate of 1.9264% in open-market operations and this is the central bank’s latest signal that it is intent on tightening monetary policy this year. Many economists foresee a GDP growth rate above 10% this year.

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