Forex Fundamental Outlook

Daily Market Commentary - Fundamental Outlook

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The euro appreciated vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.4640 level and was supported around the $1.4550 level. Traders pushed the common currency to intraday highs following testimony from Federal Reserve Chairman Bernanke and Treasury Secretary Paulson regarding the U.S. economy. Bernanke reiterated that downside economic risks to growth persist on account of the housing, employment, and credit markets. He added “My baseline outlook involves a period of sluggish growth, followed by a somewhat stronger pace of growth starting later this year as the effects of monetary and fiscal policy stimulus begin to be felt…(the Fed) will act in a timely manner as needed to support growth and provide adequate insurance against downside risks.” Paulson said the government is continuing “aggressive action” to assist homeowners who are facing difficulties on account of the credit crunch. The May federal funds futures contract is now pricing in about a 94% chance the fed funds target rate will be lowered by 25bps at the 20-30 April Federal Open Market Committee meeting. Data released in the U.S. today saw weekly initial jobless claims fall 9,000 to 348,000 while continuing jobless claims rose to 2.76 million. Also, the December trade balance improved to -US$ 58.8 billion from -US$ 63.1 billion in November. The U.S.'s trade deficit with China improved to -US$ 18.79 billion from -US$ 23.95 billion in November. In eurozone news, EMU-13 Q4 GDP growth slowed to 0.4% in the three months to December from 0.8% in Q3. On an annualized basis, the economy expanded 2.3% in Q4, down from 2.7% in Q3. The European Central Bank reported housing prices are “normalizing” and economists surveyed by the ECB cut their 2008 GDP growth forecasts and raised their 2008 inflation forecasts. The ECB acknowledged EMU-15 economic growth risks are “tilted to the downside” and ECB's Quaden said the ECB's December baseline scenario for growth forecasts may need to be reviewed. Euro bids are cited around the US$ 1.4380 level.

¥/ CNY

The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids ¥108.00 figure and was capped around the ¥108.60 level. Technically, today's intraday high was right around the 38.2% retracement of the move from ¥114.65 to ¥104.95. Some demand for yen emerged overnight after decent Japanese economic data were released and Japanese markets responded favourably. First, December industrial output was up 1.4% m/m with shipments up 1.6%. Second, January machine tool orders wwre flat y/y at ¥119.9 billion, up from the provisional 1.0% y/y decline. Third, GDP was up a real 0.9% in the October - December quarter, or an annualized 3.7% - above estimates. Capital spending and consumption improved in the most recent quarter. Most traders believe Bank of Japan's Policy Board will keep the overnight call rate unchanged at 0.50% for the foreseeable future. The Nikkei 225 stock index gained 4.27% to close at ¥13,626.45. Dollar bids are cited around the ¥105.65/ 104.95 levels. The euro gained ground vis-à-vis the yen as the single currency tested offers around the ¥158.45 level and was supported around the ¥157.30 level. The British pound and Swiss franc moved higher vis-à-vis the yen as the crosses tested offers around the ¥213.85 and ¥98.25 levels, respectively. The Chinese yuan appreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 7.1904 in the over-the-counter market, down from CNY 7.2000.

₤

The British pound appreciated vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.9740 level and was supported around the $1.9610 level. Technically, today's intraday high was right around the 61.8% retracement of the move from $1.9955 to $1.9385. There was a dearth of data released in the U.K. today and traders bid sterling higher on improving risk appetites. Cable bids are cited around the US$ 1.9670 level. The euro moved higher vis-à-vis the British pound as the single currency tested offers around the ₤0.7430 level and was supported around the ₤0.7405 level.

CHF

The Swiss franc appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.0980 level and was capped around the CHF 1.1095 level. Data released in Switzerland today saw the ZEW February economic expectations indicator fall to -55.5 from -32.7 in January. U.S. dollar offers are cited around the CHF 1.1155 level. The euro and British pound weakened vis-à-vis the Swiss franc as the crosses tested bids around the CHF 1.6070 and CHF 2.1625 levels, respectively.

GCI Financial

Posted in: Forex