By GCI Forex Research
Fundamental Outlook at 1500 GMT (EDT + 0500)
€
The euro depreciated vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.4365 level and was capped around the $1.4510 level. The common currency was pressured overnight on rumours that German Chancellor Merkel may resign following a media report that she was losing the support of her coalition partners. Merkel dismissed this talk as “absurd” and pledged to move forward with her pledge to reduce taxes. Data released in the eurozone saw the November trade surplus print at €4.8 billion, down from €6.6 billion in October, while EMU-16 consumer price inflation rose 0.3% m/m and 0.9% y/y. The common currency has also been pressured this week following ongoing concerns that Greece’s fiscal position may require drastic intervention from the European Union. European Central Bank President spoke after the ECB’s decision to keep rates unchanged yesterday and provided a mixed assessment of the eurozone economy. Trichet also talked up the U.S. dollar, an ongoing dialog he has had with the market that is designed to limit the amount of upside potential for euro appreciation. In U.S. news, data released today saw December consumer price inflation up a smaller-than-expected +0.1% m/m and 2.8% y/y at the headline level and 0.1% m/m and 1.8% y/y at the core level. Also, the January Empire State manufacturing index improved to 15.92 from a revised prior reading of 4.50. Additionally, December industrial production printed at 0.6% and capacity utilization improved to 72.8%. Finally, the mid-January University of Michigan consumer sentiment index receded to 72.8 from the prior reading of 72.5. Data to be released on Tuesday include net long-term TIC flows and the NAHB housing market index. Most Federal Reserve officials – but not all – have talked up the U.S. economy’s recent strengthening and Fed officials are said to be reviewing ways to drain upwards of US$ 1 trillion in excess cash from the financial system. Euro bids are cited around the US$ 1.3885 level.
¥/ CNY
The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥90.60 level and was capped around the ¥91.30 level. Bank of Japan Chief Economist Momma reported “the pace of Japan’s economic growth may slow temporarily because of decreasing public works spending…but overall, the Japanese economy is likely to continue to pick up. Momma said the rate of deflation will ease in one to two years because “the huge output gap has to be erased.” This week, finance minister Kan reported Bank of Japan can enact more measures to ease monetary policy and it is likely the government will increase pressure on the central bank to expand monetary policy further. New finance minister Kan reported he plans to address the yuan at the Group of Seven meeting in February and indicated “there are still various policy measures that could be taken” by Bank of Japan to relax monetary conditions further. The Nikkei 225 stock index gained 0.68% to close at ¥10,982.10. 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 ¥130.30 level and was capped around the ¥132.40 level. The British pound moved lower vis-à-vis the yen as sterling tested bids around the ¥147.40 level while the Swiss franc moved lower vis-à-vis the yen and tested bids around the ¥88.20 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, down from CNY 6.8272. Data released in China overnight confirmed China’s foreign reserves raced higher to a new record level in December, up 23% to US$ 2.4 trillion. At the same time, banks provided CNY 379.8 billion in new loans, lifting the 2009 total to a record CNY 9.59 trillion. This huge growth in loan demand evidences the risk of additional overheating in the Chinese economy and the pressure People’s Bank of China faces to restrict additional monetary growth this year. PBoC this week decided to lift reserve requirements at commercial banks by 50bps from 15.50% to 16.00%, effective from 18 January. China Investment Corporation executive Peng moved the markets this week when he said “I think the dollar is at its bottom now. There will be very limited space for the dollar to drop further. The yen is what, I think, has the worst outlook. The yen will continue to drop, unlike the dollar, which will not serve for long as a source of funding carry trades.”
₤
The British pound depreciated vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.6270 level and was capped around the $1.6355 level. Data released in the U.K. today saw the November leading indicator index decline 0.9%. Bank of England Monetary Policy Committee member this Posen called for additional business lending while MPC member Barker said she does not expect the economy to gather steam in the first six months of the year. Barker also indicated she sees first half growth prospects as “patchy.” MPC member Sentance moved the markets this week when he said “At some point you have to say we have increased the amount of stimulus enough. It doesn’t mean you are going to withdraw it but you don’t have to keep adding to it. The Bank is approaching the point where we need to hold back and wait and see how that’s flowing into the recovery.” Data released in the U.K. this week saw November manufacturing production flat m/m and off 5.4% y/y while November industrial production was up 0.4% m/m and off 6% y/y. Cable bids are cited around the US$ 1.5730 level. The euro lost ground vis-à-vis the British pound as the single currency tested bids around the ₤0.8810 level and was capped around the ₤0.8880 level.
CHF
The Swiss franc depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.0285 level and was supported around the CHF 1.0180 level. Data released in Switzerland today saw December producer price inflation up 0.1% m/m and decline 2.5% y/y. The OECD today called on Switzerland to keep interest rates unchanged until the economic recovery takes hold. U.S. dollar offers are cited around the CHF 1.0420 level. The euro moved lower vis-à-vis the Swiss franc as the single currency tested bids around the CHF 1.4750 level while the British pound gained ground vis-à-vis the Swiss franc and tested offers around the CHF 1.6750 level.
Daily Market Commentary provided by GCI Financial Ltd.
GCI Financial Ltd (”GCI”) is a regulated securities and commodities trading firm, specializing in online Foreign Exchange (”Forex”) brokerage. GCI executes billions of dollars per month in foreign exchange transactions alone. In addition to Forex, GCI is a primary market maker in Contracts for Difference (”CFDs”) on shares, indices and futures, and offers one of the fastest growing online CFD trading services. GCI has over 10,000 clients worldwide, including individual traders, institutions, and money managers. GCI provides an advanced, secure, and comprehensive online trading system. Client funds are insured and held in a separate customer account. In addition, GCI Financial Ltd maintains Net Capital in excess of minimum regulatory requirements.
DISCLAIMER: GCI’s Daily Market Commentary is provided for informational purposes only. The information contained in these reports is gathered from reputable news sources and is not intended to be U.S.ed as investment advice. GCI assumes no responsibility or liability from gains or losses incurred by the information herein contained.
