By GCI Forex Research
Fundamental Outlook at 1500 GMT (EDT + 0500)
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The euro depreciated vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.3595 level and was capped around the $1.3800 figure. The common currency continues to trade on rumours and news headlines regarding a European bailout plan for Greece’s fiscal deficit. German Chancellor Merkel reported “Greece is part of the European Union and will not be left on its own” while U.K. Chancellor of the Exchequer Darling said a Greek resolution is in “all our interests.” The lack of an explicit bailout package for Greece at this time indicates some likely political pressure against a deal. EU leaders promised to “take determined and coordinated action, if needed, to safeguard financial stability in the euro area as a whole.” European Central Bank President Trichet said “one can count on our permanent alertness.” The EU seems to be resisting the possibility of Greece getting a bailout from the International Monetary Fund. Aside from Greece’s problems, there is a concern that there could be contagion with the credit crisis spreading to other countries that have their own credit problems, including Spain, Ireland, and Portugal. The euro will likely continue to suffer from downward pressure as long as there is no overt financial package to help Greece refinance its mountain of debt. The European Union may be stalling on such an announcement as it assesses the likelihood of other eurozone countries requiring fiscal assistance. The report of “solidarity” has so far not been enough to counter euro bears who want to see an actual deal announced. ECB official member Nowotny warned “contagion would be worse than the negatives of helping” while EU’s Juncker reported the Masstricht Treaty’s “no bailout clause” will be respected and said the EU’s assistance will “avoid moral hazard.” Interestingly, Greek Prime Minister Papandreou said his country is “not seeking” outside assistance to resolve its fiscal crisis. ECB member Weber warned the German economy could shrink in Q1 and added current interest rates “are appropriate.” Weber also added the ECB will phase out some liquidity programs and said the next likely step is a return to auctions for long-term refis, as opposed to full allotments. In U.S. news, data released saw weekly initial jobless claims narrow to +440,000 while continuing jobless claims fell to 4.538 million. Tomorrow’s data will include January retail sales, December business inventories, and February University of Michigan consumer sentiment. The Federal Reserve is said to be in discussions with money market mutual funds on agreements to drain as much as US$ 1 trillion from the financial system. The industry is about US$ 3.2 billion in size compared with around US$ 100 billion of capacity held by the eighteen primary dealers that trade directly with the Fed. Fed Chairman Bernanke’s prepared testimony yesterday made it clear that the Fed will be unwinding some programs but averted an explicit timetable. On the political front, Senate Democrats unveiled a new US$ 85 billion jobs stimulus plan. Euro bids are cited around the US$ 1.3530 level.
¥/ CNY
The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥89.55 level and was capped around the ¥90.15 level. Traders are awaiting Q4 2009 gross domestic product data that will be released on Monday and they are expected to show annualized growth of 3.6% for the October through December period, up from the 1.3% expansion in the third quarter. Even if output is reported to have expanded, Bank of Japan Governor Shirakawa reported this month that “there is still a long way to go.” Other data released in Japan this week saw December machinery orders up 20% m/m, defying expectations of an 8% increase. It was also reported that January producer prices declined for a thirteenth consecutive month, off 2.1% – the longest streak in six years. Even though this was better than December’s 3.9% slide, the negative print coincided with increases in commodity costs and these data simply reaffirm the deflationary pressures evident in the economy from a lack of final private demand. BoJ Deputy Governor Yamaguchi this week warned economic growth “may stall” temporarily and said “growth may be in a pretty severe state through this summer, so we can’t really expect a rapid expansion.” The Nikkei 225 stock index lost 0.19% yesterday to close at ¥9,932.90. 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 ¥122.05 level and was capped around the ¥124.15 level. The British pound moved higher vis-à-vis the yen as sterling tested offers around the ¥140.95 level while the Swiss franc moved lower vis-à-vis the yen and tested bids around the ¥83.25 level. In Chinese news, the U.S. dollar appreciated vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8338 in the over-the-counter market, up from CNY 6.8320. People’s Bank of China reconfirmed it will “gradually guide monetary conditions back to normal levels from the counter-crisis mode.” Data released in China today saw the M2 money supply up 26% y/y and it was reported that CNY 1.39 trillion of new loans were issued last month. Also, January producer prices expanded 4.3% y/y and consumer prices came in lighter-than-expected, up +1.5% y/y. There is some speculation that the yuan has depreciated over the past couple of days ahead of the Chinese New Year as a signal that China is displeased with the U.S.’s recent military deal with Taiwan.
₤
The British pound moved higher vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.5715 level and was supported around the $1.5560 level. Bank of England Governor King reported the U.K. economy is “bumping along the bottom.” Bank of England released its quarterly inflation report yesterday and noted inflation remains low in the U.K. and added the strength of the economic recovery of the U.K. economy remains “highly uncertain.” Notably, BoE Governor King reported economic growth has decelerated from November 2009 but said Q4 GDP numbers could be upwardly revised. Specifically on the inflation front, the central bank said inflation could move above 3% this year but added it should moderate within two years. King also noted it is too early to say if the Bank will expand its quantitative easing purchase program by resuming bond and asset purchases. Data released in the U.K. yesterday saw December manufacturing production climb 0.9% m/m and decline 1.9% y/y while December industrial production was up 0.5% m/m and off 3.6% y/y. Cable bids are cited around the US$ 1.5340 level. The euro moved lower vis-à-vis the British pound as the single currency tested bids around the ₤0.8700 figure and was capped around the ₤0.8840 level.
CHF
The Swiss franc depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.0680 level and was supported around the CHF 1.0615 level. Data released in Switzerland today saw January consumer price inflation decline 0.1% m/m and climb 1% y/y, a faster-than-expected acceleration. Swiss National Bank member Jordan this week indicated it is premature to raise interest rates from their near zero per cent level. Jordan also reported the SNB will continue to prevent an “excessive” appreciate of the Swiss franc, adding the franc is seen as a “safe haven.” U.S. dollar offers are cited around the CHF 1.0810 level. The euro moved lower vis-à-vis the Swiss franc as the single currency tested bids around the CHF 1.4655 level while the British pound appreciated vis-à-vis the Swiss franc and tested offers around the CHF 1.6845 level.
Forex Daily Market Commentary provided by GCI Financial Ltd.
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