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$ 1.4695 level and was supported around the $1.4630 level. Technically, today's intraday low was right around the 50% retracement of the move from $1.4310 to $1.4950. European Central Bank policymakers remained hawkish in their comments yesterday and today. ECB's Liikanen said “price stability is a prerequisite” to guarantee good economic growth. ECB President Trichet said globalization's effect of reducing inflation may be coming to an end. ECB's Weber said interest rate expectations don't “adequately reflect” the EMU-15 inflation outlook and reiterated risks are “clearly to the upside.” He added the average rise in CPI should “significantly” exceed the ECB's price stability goals in 2008. Data released in the eurozone today saw the EMU-13 December trade balance print at -€4.2 billion, down from +€2.4 billion in November and the first deficit since February 2007. Germany's DIW research institute is now forecasting Q1 German GDP growth to climb 0.3% q/q. In U.S. news, former Federal Reserve Chairman Greenspan said the U.S. economy is “clearly on the edge” of a recession. The Chicago Fed's economic index is now indicating there is more than a 50% chance of a recession. Chicago Fed President Evans said real GDP should increase in H1 2008 “at a very sluggish rate.” Data released in the U.S. today saw January import prices up 1.7% m/m and 13.7% y/y while export prices rose 1.2%. Also, the New York Fed's Empire State manufacturing index fell to -11.72. Also, January industrial production was up 0.1% and capacity utilization printed at 81.5%. Additionally, the mid-February University of Michigan consumer sentiment index fell to 69.6 from 78.4 in January. Moreover, monthly net purchases of U.S. securities by overseas investors totaled US$ 60.4 billion in December with net long-term purchases of US$ 45.2 billion. 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 around the ¥107.55 level and was capped around the ¥108.30 level. As expected, Bank of Japan's Policy Board kept the overnight call rate unchanged at 0.50% today. BoJ Governor Fukui said there is heightened global financial markets uncertainty and said rising input costs are squeezing profits. Many economists do not believe the Japanese economy will sustain the decent performance it registered in the October – December quarter. The central bank kept its economic assessment unchanged this month but highlighted the deceleration in economic growth. Fukui added “investors are still risk averse” and said the U.S. economic slowdown is intensifying while noting Japanese industrial output is likely to remain flat. The Nikkei 225 stock index lost 0.03% to close at ¥13,622.56. Dollar bids are cited around the ¥105.65/ 104.95 levels. The euro weakened vis-à-vis the yen as the single currency tested bids around the ¥157.65 level and was capped around the ¥158.80 level. The British pound slumped vis-à-vis the yen as sterling tested bids around the ¥210.85 level while the Swiss franc appreciated vis-à-vis the yen and tested offers around the ¥98.80 level. The Chinese yuan appreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 7.1825 in the over-the-counter market, down from CNY 7.1904. The IMF called on China to allow the yuan to appreciate at a faster pace. The media reported China's January trade surplus expanded 22.6% y/y.

₤

The British pound depreciated vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.9600 figure and was capped around the $1.9720 level. Technically, today's intraday low was right around the 38.2% retracement of the move from $1.9955 to $1.9385. Traders sold sterling heavily on news that Swiss bank UBS could announce another US$ 18 billion in write-downs on collateralize debt obligations. There is growth speculation that U.K. banks may be forced to follow suit. Cable bids are cited around the US$ 1.9520 level. The euro moved higher vis-à-vis the British pound as the single currency tested offers around the ₤0.7480 level and was supported around the ₤0.7430 level.

CHF

The Swiss franc appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.0885 level and was capped around the CHF 1.0985 level. News that Swiss banking giant UBS may announce upwards of US$ 18 billion in CDO write-downs is being digested by traders. 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 1.5990 and CHF 2.1355 levels, respectively.

A$/ NZ$

The Australian dollar gained ground vis-à-vis the U.S. dollar today as the Aussie tested offers around the US$ 0.9095 level and was supported around the $0.9005 level. Traders continue to speculate Reserve Bank of Australia will tighten monetary policy by another 25bps. Australian dollar bids are cited around the US$ 0.8955 level. The New Zealand dollar appreciated vis-à-vis the U.S. dollar as the kiwi tested offers around the US$ 0.7915 level and was supported around the $0.7840 level. New Zealand dollar bids are cited around the US$ 0.7840 level.

C$

The Canadian dollar appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the C$ 0.9920 level and was capped around the C$ 1.0005 level. The pair reached its lowest level since 4 January. Data released in Canada today saw December manufacturing shipments fall 3.4% compared with a 1.1% gain in November. U.S. dollar offers are cited around the C$ 1.0125 level.

GCI Financial

Posted in: Forex