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Daily Market Commentary

Discussion in 'Forex Daily News & Outlook' started by gcitrading, Jan 22, 2010.

  1. gcitrading

    gcitrading Contributing Member

    Dec 16, 2008
    Likes Received:
    The euro appreciated vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.4180 level and was supported around the $1.4065 level. The common currency clawed back one day after the Obama administration introduced some policy initiatives that would greatly alter the landscape of the U.S. banking industry. There is a general sense among investors that the plan to curtail banks’ activities and limit their size could dissuade some foreign investors from investing in U.S. equities, particularly banking shares. Also, the plan to limit banks’ proprietary trading activities could boost the U.S. dollar and force traders to unwind their carry trades that were funded by borrowing and selling the dollar in the first place in favour of higher-yielding assets. Many dealers see Obama’s plan as a chance to try and save face following the Democratic Party’s humiliating defeat this week in the state of Massachusetts, a defeat that has at least temporarily derailed his health care agenda. Some political pundits believe Obama will try to capitalize on some populist anti-bank sentiment but many economists believe the plan could be a net negative for the banking sector and the U.S. economy at large. While further deleveraging of banks’ balance sheets may be needed, many dealers believe the Obama administration is going about it the wrong way. There was also news today that the House Financial Services Committee may seek to abolish Fannie Mae and Freddie Mac. Data to be released in the U.S. next week include December existing home sales and Dallas Fed manufacturing activity data on Monday. Traders are also paying very close attention to the Senate reconfirmation vote for Fed Chairman Bernanke. There is some grumbling that Bernanke may lack sufficient votes in the Senate for his reconfirmation even though the Senate Banking Committee suggested a positive vote in his favour. In eurozone news, European Central Bank member Gonzalez-Paramo reported it is Greece’s responsibility to solve its own problems and said the idea of trying to arrange a loan for Greece is “absurd.” Data released in the eurozone today saw November industrial new orders up 1.6% m/m, a sharp reversal from October’s 2.2% decline, but were off -1.5% y/y. Euro bids are cited around the US$ 1.3885 level.

    The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥89.75 level and was capped around the ¥90.55 level. Traders continued to lift the yen following the Obama administration’s decision to try and limit the size of U.S. banks and drastically curtail some of their profitable business activities. Finance minister Kan said “it would be going too far if the government asked the Bank of Japan to implement specific monetary policy measures.” Finance minister Kan yesterday reported the Chinese yuan may be discussed at the upcoming Group of Seven meeting and said any such discussion could have a “significant impact” on Japan. Canadian finance minister Flaherty said Kan has been clear about his desire to discuss the yuan at the meeting in Canada, contrary to what Kan has said. Data released in Japan today saw November all industry activity climb +0.1% m/m, down from October’s +1.1% gain. Some BoJ-watchers, including Bank of Tokyo-Mitsubishi, said the central bank may adopt measures to weaken the yen following renewed risk aversion and the chance of a “deflationary shock.” BoJ Governor Shirakawa said it is “critical” that the central bank helps to put the nation’s economy back onto a “sustainable growth path.” The Nikkei 225 stock index lost 2.56% to close at ¥10,590.55. 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 ¥126.50 level and was capped around the ¥128.20 level. The British pound moved lower vis-à-vis the yen as sterling tested bids around the ¥144.65 level while the Swiss franc moved lower vis-à-vis the yen and tested bids around the ¥86.20 level. In Chinese news, the U.S. dollar appreciated vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8268 in the over-the-counter market, down from CNY 6.8269. Data released in China this week saw inflation accelerate 1.9% in December with gross domestic product climbing to 10.7% and this renders it likely People’s Bank of China will tighten monetary policy this year. PBoC Governor Zhou reaffirmed the central bank’s moderately loose policy and noted the need to control inflation.

    The British pound came off vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.6075 level and was capped around the $1.6280 level. Sterling was kept on the defensive after the U.K. government lifted its ********* warning to “severe” from “substantial.” Data released in the U.K. today saw December retail sales expand a modest 0.3% y/y, up from November’s 0.3% decline but below expectations. Retail sales were up 2.1% y/y and this means the U.K. holiday season registered its slowest growth in eleven years. Cable bids are cited around the US$ 1.6030 level. The euro moved higher vis-à-vis the British pound as the single currency tested offers around the ₤0.8785 level and was supported around the ₤0.8685 level.

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