By GCI Forex Research
Fundamental Outlook at 1500 GMT (EDT + 0500)
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The euro depreciated sharply vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.3725 level and was capped around the $1.3900 figure. Several factors contributed to common currency’s weakness and the dollar’s strength. First, there is growing concern that eurozone debt will continue to weaken. Credit default swaps in the so-called “PIIGS” countries – Portugal, Ireland, Italy, Greece, and Spain – blew out 15 – 40 pips further today. Second, the European Central Bank kept its benchmark interest rate at 1.0%, as expected. ECB President Trichet said the ECB is “confident the Greek government will take all the decisions that will permit” Greece to reduce its budget deficit, including tax rises, public-sector wage freezes, and pension reform. Third, dealers are nervous ahead of tomorrow’s U.S. January non-farm payrolls report amid reports there will be a sizable downward revision to previous calculations. Fourth, G7 officials are convening in northern Canada from tomorrow and it is not known if officials will address the ballooning deficits in many countries or exchange rate misalignments. Fifth, New York State Attorney General Cuomo announced lawsuits against Bank of America and former CEO Ken Lewis regarding its acquisition of Merrill Lynch. Sixth, there have been some notable credit downgrades including one impacting Warren Buffett and warnings about the U.S.’s credit outlook. Data released in the eurozone today saw German factory orders decrease 0.2% m/m and climb 8.4% y/y. In U.S. news, data released today saw Q4 non-farm productivity up 6.2%, down from a revised 7.2%, while Q4 unit labour costs came off 4.4%, down from a revised -1.5%. Additionally, weekly initial jobless claims worsened to 480,000 from a revised 472,000 and continuing jobless claims increased to 4.602 million from a revised 4.600 million. Also, December factory orders printed at 1.0%, unchanged from the revised November print. In addition to tomorrow’s non-farm payrolls data, December consumer credit data will be released. Euro bids are cited around the US$ 1.3530 level.
¥/ CNY
The yen appreciated sharply vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥88.55 level and was capped around the ¥91.05 level. The yen moved sharply higher across the board as traders shunned risk following a major sell-off in international equities markets, gold, crude oil, and other commodities. Bank of Japan Governor Shirakawa will attend the Group of Seven meeting from tomorrow in northern Canada and will likely team up with finance minister Kan to express Japan’s dissatisfaction with China’s yuan currency policy. BoJ Policy Board member Nakamura today called on the government to improve the country’s fiscal health and said it would be “disastrous” if interest rates move higher on debt woes. Furthermore, Nakamura reported the downward pressure on prices in Japan will continue. Data released in Japan yesterday saw January PMI services decline to 54.5 from 56.8 in December. The Nikkei 225 stock index lost 0.46% to close at ¥10,355.98. 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 ¥121.55 level and was capped around the ¥126.45 level. The British pound moved lower vis-à-vis the yen as sterling tested bids around the ¥139.35 level while the Swiss franc moved lower vis-à-vis the yen and tested bids around the ¥82.95 level. In Chinese news, the U.S. dollar appreciated vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8268 in the over-the-counter market, up from CNY 6.8266. Beijing reacted coolly today to pressure from the Obama administration regarding its yuan currency, saying “it is China’s own business.” Li also said there “will not be any sudden or major yen appreciation.” It was reported that new Chinese loans last month exceeded CNY 1.5 trillion.
₤
The British pound moved lower vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.5730 level and was capped around the $1.5920 level. As expected, Bank of England’s Monetary Policy Committee voted to keep its benchmark Bank Rate unchanged at 0.50% and decided to pause its ₤200 billion asset purchase program for the first time since March 2009. BoE kept the door open to enact more purchases if need be in the future. Dealers are increasingly concerned about the growing level of U.K. deficits and debt. Data released in the U.K. overnight saw Halifax house prices up 0.6% m/m and 3.6% y/y. Cable bids are cited around the US$ 1.5720 level. The euro moved lower vis-à-vis the British pound as the single currency tested offers around the ₤0.8710 level and was capped around the ₤0.8755 level.
Forex Daily Market Commentary provided by GCI Financial Ltd.
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