Tuesday February 16, 2010 - 19:25:57 GMT
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GCI Financial - www.gcitrading.com
Forex Market Commentary and Analysis (16 February 2010)
The euro appreciated vis-Ă -vis the U.S. dollar today as the single currency tested offers around the US$ 1.3755
level and was supported around the $1.3585 level. The common currency snapped higher despite
lingering concerns about eurozone sovereign credit risk. Traders expressed some satisfaction today,
however, with the hard line approach that eurozone officials are showing Greece. The European Union today announced it is
with 30 days to confirm it is serious about improving its fiscal problems. Eurogroup Chairman Juncker said a financial
lifeline for Greece â€śdepends
on how far Greece
agrees to additional measures in case those are warranted.â€ť Greece will likely be forced to
curtail fiscal spending and raise taxes to qualify for credit assistance from
eurozone members. U.K. Chancellor of the
Exchequer Darling called on Greece
to â€śresolve its own budget problems.â€ť Eurozone
finance ministers today nominated Portgualâ€™s Constancio â€“ a known monetary dove
- to become the next Vice President of the ECB and some believe this heightens
the likelihood that Germanyâ€™s
Weber â€“ a monetary hawk - will become the new ECB President in 2011. Data released in the eurozone today saw the German
February ZEW economic sentiment survey decline to 45.1 from 47.2 in January
while the EMU-16 economic sentiment index receded to 40.2 from 46.4 in
January. In U.S. news, it was reported that foreign demand for U.S. Treasury
securities fell by its largest amount on record in December after China reduced
its holdings by US$ 34.2 billion. Net
long-term TIC flows fell to US$ 63.3 billion from US$ 126.4 billion in
is now officially the largest holder of U.S. Treasuries with US$ 768.8 billion
in its war chest, more than Chinaâ€™s
official tally of US$ 755.4 billion. For
2009 as a whole, foreign holdings of U.S. Treasuries fell by US$ 500 million
whereas foreign holdings of U.S. Treasuries expanded by US$ 456 billion in
2008. Other data released today saw the
February Empire manufacturing survey print at 24.91, up from the January
reading of 15.92, while the February NAHB housing market index printed at +17,
up from +15 in January. Minneapolis Fed
President Kocherlakota reported the â€śnascentâ€ť U.S.
economic recovery will â€śslowly continueâ€ť while Kansas City Fed President Hoenig
reported the U.S.
must take â€śdifficultâ€ť steps to reduce spending and increase revenue so that the
Fed is not forced to finance the â€śunsustainableâ€ť federal deficit. Euro bids are cited around the US$ 1.3530
The yen depreciated vis-Ă -vis the U.S. dollar today as the
greenback tested offers around the ÂĄ90.30 level and was supported around the ÂĄ89.70
level. Bank of Japan Governor
Shirakawa reported the central bank is ready to act â€śdecisivelyâ€ť and is â€śalways
ready to provide abundant fundsâ€ť adding it will maintain low interest rates
â€śpersistently.â€ť Finance minister Kan suggested the BoJ
should adopt some sort of inflation-targeting measure, reporting a CPI around
1% should be a â€śpolicy target.â€ť Shirakawa
also reported the central bank has expanded its balance sheet more than the
Federal Reserve and European Central Bank have.
BoJâ€™s balance sheet was equivalent to about 26% of Japanese gross
domestic product in December, compared with 21% at the ECB at 16% in the U.S. He also noted Japanâ€™s previous quantitative
easing measures have had a â€śvery limitedâ€ť impact on reducing deflation but
added BoJ policy alone cannot end deflation.
Traders are awaiting Bank of Japan Policy Boardâ€™s monetary policy decision
this week with most expecting no change in policy despite an apparent
intensification of deflationary pressures.
The central bank is likely to keep its bank lending program and intact
along with its monthly purchases of Japanese government bonds. Despite a recent 4.6% annualized increase in
Q4 gross domestic product, some prices declined more than they have in more
than 50 years and others dealers believe this decrease will result in
additional easing measures from the central bank this week. The GDP deflator tumbled 3% - the largest
drop since at least 1955 â€“ and the domestic demand deflator was off 2.9%. The Nikkei 225 stock index climbed 0.21% to
close at ÂĄ10,034.25. U.S. dollar offers
are cited around the ÂĄ94.75 level. The euro moved higher vis-Ă -vis the yen
as the single currency tested offers around the ÂĄ123.85 level and was supported
around the ÂĄ122.30 level. The British pound moved higher vis-Ă -vis
the yen as sterling tested offers around the ÂĄ141.40 level while the Swiss franc moved higher vis-Ă -vis
the yen and tested offers around the ÂĄ84.40 level. In Chinese news, the U.S. dollar remained steady vis-Ă -vis the
Chinese yuan as the greenback closed at CNY 6.8333 in the over-the-counter
market. Chinese financial markets were
closed for the Chinese New Year holiday.
Last week, Peopleâ€™s Bank of China reconfirmed it will â€śgradually guide
monetary conditions back to normal levels from the counter-crisis modeâ€ť but
then the central bank lifted reserve requirements by 0.5%, effective 25 February.
The central bank is clearly trying to contain inflationary pressures and avert
asset bubbles. Some China-watchers
believe the central bank could allow the yuan to appreciate some 5% in the
The British pound moved higher vis-Ă -vis
the U.S. dollar today as cable tested offers around the US$ 1.5745 level
and was supported around the $1.5625 level. Data released in the U.K. today saw January
consumer price inflation decline 0.2% m/m and rise 3.5% y/y, the highest level
since November 2008 and consistent with economistsâ€™ forecasts. Bank of England Governor King last week
prepared the market for a temporary spike in inflation, noting it should be
back at target in two yearsâ€™ time.
Yields on ten-year U.K.
gilts are actually higher than Spanish and Italian ten-year debt, suggesting
dealers are unhappy about the U.K.
debt level or its prospects for inflation.
Other data released today saw December DCLG house prices expand
2.2%. Chancellor Darling today said he â€śstrongly
supportsâ€ť the central bankâ€™s determination to curb inflation. Cable bids are cited around the US$ 1.5340
level. The euro moved higher vis-Ă -vis the British pound as the single
currency tested offers around the â‚¤0.8745 level and was supported around the â‚¤0.8675
franc appreciated vis-Ă -vis the U.S. dollar today as the greenback tested bids
around the CHF 1.0675 level and was capped around the CHF 1.0790 level. Many dealers believe the Swiss National Bank
will not be able to prevent the Swiss franc from appreciating too much in the
wake of the euroâ€™s widespread depreciation.
There is speculation the central bank has intervened at least eight
times in recent weeks by selling francs for euro. SNB member Jordan was quoted
as saying â€ścentral banks need to be independent and have a clear mandate to
ensure price stability.â€ť Data released in Switzerland yesterday saw January
producer price inflation climb 0.3% m/m and decline 1.3% y/y. Swiss financial markets will likely be closed
for most of the week for Carnival holidays.
U.S. dollar offers are cited around the CHF 1.0810 level. The
euro moved higher vis-Ă -vis the Swiss franc as the single currency tested offers
around the CHF 1.4685 level while the
British pound depreciated vis-Ă -vis the Swiss franc and tested bids around
the CHF 1.6780 level.
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