Forex Market Review by Finexo.com
Past Events:
• GBP Trade Balance out at -8.0%, versus expected -6.9B, prior -7.0B
• AUD Westpac Consumer Sentiment at 0.2%, versus prior -2.6%
• AUD Home Loans m/m out at -7.9%, versus expected 2.1%, prior -5.1%
• JPY Core Machinery Orders m/m out at -3.7%, versus expected -1.4%, prior -2.1%
Upcoming Events:
• GBP Manufacturing Production m/m (930GMT)
• ECB President Trichet Speaks (1800GMT)
• USD Federal Budget Balance (1900GMT)
• JPY Final GDP q/q (2350GMT)
• AUD Employment Change (tomorrow 1230GMT)
• AUD Unemployment Rate (tomorrow 0030GMT)
• USD Trade Balance (tomorrow 1330GMT)
• CAD Trade Balance (tomorrow 1330GMT)
Market Commentary
Britain’s goods trade deficit with the rest of the world unexpectedly swelled in January to reach its widest level since August 2008, fuelling concerns about the strength of the country’s broader economic recovery. Yesterday, the Office for National Statistics reported that Britain’s trade deficit widened to 7.987 billion pounds from 7.010 billion in December, well above market expectations of 7 billion, as lower sales of chemicals and other commodities prompted a steep slump in exports. This disappointing figure will most likely fuel policymaker’s concerns that the sharp depreciation in the value of the Pound has not led to the expected increase in exports. Bank of England policy maker Kate Barker said yesterday that Britain’s economy has shown a “disappointing” response to the weakness of the pound, which has fallen about a quarter in the past three years on a trade-weighted basis. Government Officials want gross domestic product to refocus on exporting as they try to entrench Britain’s recovery. The deterioration in the global trade balance was the direct result of a 6.9% fall in exports, the biggest decrease since July 2006; while there was speculation that the Britain’s unseasonably harsh winter could have hampered the movement of goods, according to officials there was no firm evidence to support this theory. Imports fell just 1.6%.
Following the release of this disappointing news, the GBP slipped as much as 0.2% against the U.S Dollar and was trading down 0.9% on the day at $1.4957. After closing at $1.49991 yesterday, the Sterling plunged another 0.54% this morning to touch on $1.49176.
Later this morning (930GMT), the Office for National Statistics will announce the U.K’s manufacturing production for January. After increasing 0.9% between November and December of last year, the growth in manufacturing production is expected to slow, with the market expecting a rise of 0.3% between December and January.
While Britain’s currency continued on its rocky decline, across the Atlantic, Canada’s dollar rose for the eighth consecutive day, the currencies longest streak in over five and half years, as gains in both stocks and persistent strength in commodity prices pushed investors into currencies tied to economic growth. Yesterday, the Loonie reached its strongest level in over seven weeks, as crude oil, the nation’s biggest export, traded above $80 a barrel for a fifth consecutive session. The Canadian currency strengthened 0.3% against the neighboring U.s currency, hitting to 1.0240, its strongest value since January 15th.
Another one of Britain’s former colonies, Australia, continued to produce positive signs of recovery as consumer confidence edged higher this month, a sign that households are weathering the central bank’s decision to raise borrowing costs last week for the fourth time in five meetings. Yesterday, the Westpac Banking Corp. released its consumer confidence sentiment- Survey of about 1,200 consumers which asks respondents to rate the relative level of past and future economic conditions, employment, and climate for major purchases. The sentiment index gained 0.2% to 117.3 points. The survey was conducted during the same week that the RBA raised the benchmark lending rate by a 0.25bps to 4%, adding to similar to moves made in December, November and October of last year. According to central bank officials, Australia’s economy is likely to expand at or above its average pace over the next few years, boosted by rising employment and investment spending by resources companies. Yesterday, the AUD/USD continued its bullish trend- rising 0.718% over the course of the day to close at 0.91516.
While consumers continue to shrug off the recent string of interest rate hike, rising borrowing costs continue to hurt the housing market as home loans fell the most in nearly eight years in January. The Australian Bureau of Statistics reported that the number of home loans plummeted by 7.9%, the biggest fall since June 2000, after the phasing out of last year’s first-home buyers’ grant boost and interest rate rises sapped demand. This unexpected fall marks the fourth decline in housing finances since the RBA commenced tightening its monetary policy. The Australian Bureau of Statistics reported that January’s disappointing result follows a revised 5.1% drop in December- the market had predicted 2% increase in January.
At half past midnight tonight Australia will release its Unemployment Rate for February. Unlike some of the other developed nations, Australia’s Unemployment is well within the single digits and has been steadily decreasing. Last month, Australian employment beat expectations for four months in a row, rising by 52,700, more than three times the expected number. As a result, the unemployment rate slipped to 5.3%, the lowest in a year. This time the market predicts that the jobless rate will hold steady at 5.3%, after employment change is predicted to increase by 15.3K for February.
Later this afternoon (1800GMT), the European Central Bank president Jean-Claude Trichet will speak. As head of the ECB, which controls short term interest rates, Trichet has more influence over the Euro’s value than any other person, and so his words will be carefully listened to. Today’s speech, held at the the inauguration ceremony of the Language of Money in Frankfurt, will be followed by a second, held at Institute of Economic Policy Research in Stanford, this Friday.
Also later today (1900GMT), the U.S Treasury Department will release the Federal Budget Balance. While it is no secret that the U.S government is in serious debt, last month the size of the budget fell to a more acceptable level of -42.6B. This month, the market predicts that the deficit will to surge back up to 207.5B, weighing heavily on the value of the U.S dollar.
Tomorrow, both the US and Canada will simultaneously release their Trade Balance. This double-feature release always triggers action in USD/CAD. The American deficit is expected to remain high at around 40 billion, while Canada is expected to turn from a deficit of 0.2 to a surplus of 0.4 billion.
Forex Market Review & Analysis by Finexo.com
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highly psychological 90 level. That being said, the 90 area has had a considering influence on the USD/JPY in the past, so investors shouldn’t be surprised if the currency pair opts to gravitate around the psychological zone over the near-term. On the other hand, today’s rally has extended the USD/JPY beyond what is now our 1st tier downtrend line. Our 1st tier runs through 2/17 highs, or the 91.40 area. Hence, the USD/JPY could be in for additional solid upward movements should fundamentals comply. Therefore, investors should keep a sharp eye on tomorrow’s U.S. Trade Balance and weekly Unemployment Claims releases. Positive U.S. economic data could push the USD/JPY higher as investors favor the U.S. economy over Japan’s. China will also release an important data set during tomorrow’s Asia trading session, meaning the USD/JPY could remain active for the next 24-48 hours. Keep in mind Japan will print its Real GDP tomorrow, and this fact shouldn’t be lost amidst all the news releases from China and Australia.
