Forex Fundamental Outlook

Daily Market Commentary - Fundamental Outlook

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The euro came off vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.4610 level and was capped around the $1.4690 level. Technically, today's intraday low was right around the 38.2% retracement of the move from $1.4015 to $1.4965. The common currency ceded some of the gains it scored on Friday following the weak U.S. Federal Reserve Bank of New York Empire manufacturing index and University of Michigan consumer sentiment index prints. Liquidity was reduced on account of market holidays in the U.S. and Ontario. Bundesbank's monthly report indicated "The concern with regards to long-term inflation risks, which had previously prompted the ECB Governing Council to withdraw in stages the degree of expansion, remains unchanged in their view. Stability risks are also linked with the robust economy as well as the increasing tensions in labour markets." Notably, EMU-13 harmonized consumer prices were up 2.9% y/y in Q4 and EMU-15 harmonized consumer prices were up 3.2% y/y. The German media reported a major German trade union may call for strikes in the public service sector and seek wage growth of 8%. In U.S. news, fed funds futures are currently pricing in about a 45% chance the Federal Open Market Committee will ease the fed funds target rate by 75bps on 18 March. This week's housing data will be closely watched by traders. Euro bids are cited around the US$ 1.4490 level.

¥/ CNY

The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥108.30 level and was supported around the ¥107.75 level. Technically, the pair continues to orbit the ¥108.15 level, representing the 61.8% retracement of the move from ¥110.10 to ¥104.95. Data released in Japan overnight saw the December index of leading economic indicators upwardly revised to 45.0 from 40.0 while the coincident index was upwardly revised to 70.0. Other data saw average monthly cash earnings including bonuses off 1.7% y/y in December while the December tertiary index was off 0.6% m/m in December. Bank of Japan Governor Fukui speaks later in the week and the central bank is expected to keep the overnight call rate unchanged at 0.50% for the foreseeable future. The Nikkei 225 stock index climbed 0.09% to close at ¥13,365.40. 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 ¥158.55 level and was supported around the ¥158.10 level. The British pound and Swiss franc moved lower vis-à-vis the yen as the crosses tested bids around the ¥210.55 and ¥97.95 levels, respectively. The Chinese yuan appreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 7.1623 in the over-the-counter market, down from CNY 7.1825. Data released in China saw January actual foreign direct investment print at US$ 11.2 billion, up 109.78% y/y. Also, January producer price inflation was up 6.1% y/y

₤

The British pound depreciated vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.9475 level and was capped around the $1.9635 level. Technically, today's intraday high was right around the 50% retracement of the move from $1.8090 to $2.1160. Sterling was pressured lower on news that that the U.K. government plans to nationalize troubled U.K. financial institution Northern Rock Plc. Traders pushed the pair lower on concerns that other U.K. financial institutions might have significant exposure to asset-backed securities and collateralized debt obligations. Additionally, Bank of England Monetary Policy Committee member Besley – a putative monetary hawk – dovishly said "With credit conditions tightening, we might expect a significant reduction in consumption growth over the coming months." Traders await Wednesday's MPC meeting minutes to see if Besley voted for a rate cut this month. Besley added "My time on the MPC, before and after the events of last summer, has reinforced my view that considerable weight should be placed on conditions in financial markets in understanding the transmission of monetary policy to the real economy." Data released in the U.K. today saw January retail sales in central London climb 3.7% y/y, the second slowest rise since November 2005. Cable bids are cited around the US$ 1.9260 level. The euro moved higher vis-à-vis the British pound as the single currency tested offers around the ₤0.7520 level and was supported around the ₤0.7480 level.

CHF

The Swiss franc depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.1045 level and was supported around the CHF 1.0930 level. Technically, today's intraday low was right around the 23.6% retracement of the move from CHF 1.1595 to CHF 1.0730. Data released in Switzerland today saw December retail sales up 1.2% y/y. U.S. dollar offers are cited around the CHF 1.1155 level. The euro and British pound appreciated vis-à-vis the Swiss franc as the crosses tested offers around the CHF 1.6170 and CHF 2.1540 levels, respectively.

GCI Financial

Posted in: Forex