By GCI Forex Research
Fundamental Outlook at 1500 GMT (EDT + 0500)
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The euro appreciated vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.3625 level and was supported around the $1.3500 figure. The common currency advanced higher after Federal Reserve Chairman said the U.S. economy is in a “nascent” recovery that still requires low interest rates. Bernanke added “A sustained recovery will depend on continued growth in private-sector final demand for goods and services. Private final demand does seem to be growing at a moderate pace.” Additionally, Bernanke reported the recent 25bps hike in the discount rate to 0.75% should not be construed “as a shift in monetary policy.” Recent U.S. economic data have suggested the U.S. economy could be moderating. This week’s consumer confidence data were quite weak and data released today saw January new home sales plummet to 309,000 from a revised 348,000, off 11.2% m/m. Other data released today saw MBA mortgage applications weaker by 8.5% from the prior reading of -2.1%. Data to be released in the U.S. tomorrow include January durable goods orders, weekly initial jobless claims, continuing claims, and December house prices. Some economists are speculating jobless claims data could worsen and re-approach the 500,000 level. In eurozone news, EMU-16 industrial new orders expanded 0.8% m/m and 9.5% y/y in December. Also, German March GfK consumer confidence is estimated to decline to 3.2 from February’s print of 3.3. Other dat saw German Q4 gross domestic product remain unchanged q/q and decline 1.7% y/y. The eurozone sovereign credit crisis stills remains the dominant issue impacting the common currency. Euro bids are cited around the US$ 1.3335 level.
¥/ CNY
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 ¥90.35 level. Bank of Japan Deputy Governor Yamaguchi said recent consumer price movements have been consistent with forecasts and said the market views Japanese finances as being “stable” but noted the “fiscal situation is very severe.” Yamaguchi added the central bank is “always ready to take necessary action” and noted economic growth should be soft until the summer. Data released in Japan overnight saw the February retail investor sentiment index slump 22 index points to -48. Most traders believe Japan’s deflationary pressures will persist through at least fiscal year 2011. Bank of Japan yesterday reported the economic recovery is continuing but added “there is not yet sufficient momentum to support a self-sustaining recovery in domestic private demand.” BoJ also noted exports and production will continue to improve and regarding deflation, the BoJ added “the year-on-year pace of decline in consumer prices…to remain more or less unchanged for the time being, and then moderate as the aggregate supply and demand balance improves gradually.” The Nikkei 225 stock index lost 1.48% to close at ¥10,198.83. 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 ¥121.60 level and was capped around the ¥122.60 level. The British pound moved lower vis-à-vis the yen as sterling tested bids around the ¥138.35 level while the Swiss franc moved higher vis-à-vis the yen and tested offers around the ¥83.75 level. In Chinese news, the U.S. dollar appreciated vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8269 in the over-the-counter market, up from CNY 6.8267. Chinese financial markets were closed for the Chinese New Year holiday. The Chinese government reported its recent sales of U.S. Treasuries were “commendable,” leading to speculation China may continue to reduce their massive war chest of U.S. assets. Last week, People’s Bank of China reconfirmed it will “gradually guide monetary conditions back to normal levels from the counter-crisis mode.”
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The British pound moved lower vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.5385 level and was capped around the $1.5475 level. Sterling got a little bid of a bid during the European session after it was reported that Santander – formerly Abbey National Building Society – will increase its maximum loan sizes available to first-time home buyers. Bank of England Monetary Policy Committee Posen reported the central bank can extend quantitative easing if required. Cable bids are cited around the US$ 1.5340 level. The euro moved higher vis-à-vis the British pound as the single currency tested offers around the ₤0.8810 level and was supported around the ₤0.8750 level.
CHF
The Swiss franc appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.0735 level and was capped around the CHF 1.0840 level. Data released in Switzerland this week saw the January trade surplus climb to CHF 2.42 billion from CHF 1.36 billion in December. Also, the ZEW February expectations survey fell to 52.5 from 56.2 in January. Dealers this week again speculated the Swiss National Bank sold francs for euro in an intervention to help Swiss foreign trade. Many dealers believe the Swiss National Bank will not be able to prevent the Swiss U.S. dollar offers are cited around the CHF 1.0930 level. The euro moved lower vis-à-vis the Swiss franc as the single currency tested bids around the CHF 1.4625 level while the British pound depreciated vis-à-vis the Swiss franc and tested bids around the CHF 1.6605 level.
Forex Daily Market Commentary provided by GCI Financial Ltd.
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