Forex Market Commentary and Analysis (15 March 2010)
The euro depreciated vis-√†-vis the U.S. dollar today as the single currency tested bisa around the US$ 1.3685
level and was capped around the $1.3775 level. The Federal Open Market Committee is not
expected to make any significant changes to monetary policy tomorrow when its
interest rate decision is announced.The
Obama administration is said to favour San Francisco Fed President Yellen to
replace retiring Vice Chairman Kohn.It
is believed Obama may stack the Fed Board with so-called monetary doves to
retain a downward bias on interest rates.Data released in the U.S. today saw February capacity utilization rise
to 72.7% from 72.5% while February industrial production fell to +0.1% from the
prior reading of +0.9%.Also, January
total net Treasury International Capital flows printed at ‚ÄďUS$ 33.4 billion,
down from a revised +US 53.6 billion for December.Net long-term TIC flows tumbled to US$ 19.1 billion
from the prior reading of US$ 63.3 billion.These data mean the U.S. did not cover its trade deficit in January
through foreign investment inflows.Other data released today saw the March Empire State manufacturing index
decline to +22.86 from the previous reading of +24.91.Dealers await the March NAHB housing market
index later in the day and details about new financial services regulation legislation
making its way through Congress.In eurozone news, EMU-16 Q4 unemployment
was off 0.2% q/q and 2.0% y/y.Eurozone
CPI data will be released tomorrow along with German ZEW data.Traders remain fixated on Greece, especially
as French finance minister Lagarde and other eurozone officials have intimated
Greece may be able to resolve its massive fiscal deficit without external
financial assistance.European Union
officials are said to have a ‚Äúcontingency‚ÄĚ plan in place that they can implement
‚Äúwith the push of a button.‚ÄĚEuro
bids are cited around the US$ 1.3335 level.
The yen depreciated vis-√†-vis the U.S. dollar today as the
greenback tested offers around the ¬•90.85 level and was supported around the ¬•90.55
level. Traders await Bank of Japan
Policy Board‚Äôs interest rate decision tomorrow night with strong expectations
of additional monetary easing.The
central bank may expand a ¬•10 trillion fund that provides funding to banks when
policymakers convene on 16-17 March and this is important because an unlimited
uncollateralized loan facility expires on 31 March.The central bank remains under significant
pressure to do more to combat the deflation problem further.BoJ Governor Shirakawa and other Policy Board
members have recently indicated deflationary pressures are persisting because there
is insufficient final private demand. Shirakawa overnight said he is ‚Äúnot against
inflation targeting‚ÄĚ and said the central bank should not make policy based on
short term price movements.He also said
that additional Japanese government bond purchases would mean the central bank
will sell them eventually. Concerning the yen, Shirakawa said the central
bank‚Äôs accommodative policy is impacting the yen and ‚Äúproper action needs to be
taken.‚ÄĚIt appears the Hatoyama
government is becoming increasingly concerned with the yen‚Äôs strength and there
is growing speculation the government may begin to officially intervene in the
market, especially as the government increased the size of the funding it has
available for intervention in its draft budget.Data released in Japan overnight saw February consumer confidence
improve to 40.0 while February Tokyo-area condominium sales climb 10.7%
y/y.Machine tool orders and tertiary
index data will be released tomorrow.The
Nikkei 225 stock index climbed 0.01% to close at ¬•10,751.98.U.S. dollar offers are cited around the
¬•94.75 level.The euro moved lower vis-√†-vis the yen as the single currency
tested bids around the ¬•124.25 level and was capped around the ¬•125.15 level.The
British pound moved lower vis-√†-vis the yen as sterling tested bids around
the ¬•136.10 level while the Swiss franc moved
higher vis-√†-vis the yen and tested offers around the ¬•85.85 level. In Chinese news, the U.S. dollar depreciated
vis-√†-vis the Chinese yuan as the greenback closed at CNY 6.8262 in the
over-the-counter market, up from CNY 6.8256. Data released in China overnight saw February
actual foreign direct investment decrease to +1.08% from the prior reading of
+7.80%.Premier Wen Jinbao reported the
yuan is ‚Äúnot undervalued.‚ÄĚChinese and
U.S. tensions are definitely increasing and it remains to be seen how quickly
China may liberalize its yuan exchange rate policy.
British pound depreciated sharply vis-√†-vis the U.S. dollar today as cable
tested bids around the US$ 1.5020 level and was capped around the $1.5205
level. Sterling moved lower on remarks from Bank of England Monetary Policy
Committee member Barker who reported the U.K. economy could recede again,
adding the economic recovery will continue to be ‚Äúbumpy and fragile.‚ÄĚCable continues to suffer from political
uncertainty ahead of the upcoming mandatory General Election.Prime Minister Brown is expected to lose to
Tory leader Cameron but Cameron may not be able to form a majority government
if he wins, and this could lead to a weaker pound.U.K. DCLG house prices data will be released
tomorrow.On Friday, Bank of England
Chief Economist and Monetary Policy Committee member Dale reported that from
the time quantitative easing was implemented last year, ‚Äúthe economy has
stabilized, household and business confidence have recovered, and financial
market conditions have improved.‚ÄĚDale
noted the BoE is poised to make additional purchases of assets if required but
noted the central bank could also withdraw monetary stimulus at any time.Cable
bids are cited around the US$ 1.4455 level.The euro moved higher
vis-√†-vis the British pound as the single currency tested offers around the US$
0.9130 level and was supported around the $0.9045 level.
The Swiss franc depreciated vis-√†-vis the U.S. dollar today as the
greenback tested offers around the CHF 1.0615 level and was supported around
the CHF 1.0575 level.Data released in
Switzerland today saw February producer and import prices decline 0.3% m/m and
fall 1.0% y/y.SECO March 2010 economic
forecasts will be released tomorrow.As
expected, Swiss National Bank last week kept its three-month Swiss franc Libor
target rate unchanged at 0.2% today.SNB
reported ‚ÄėThe Swiss National Bank is maintaining its expansionary monetary
policy. It will act decisively to prevent an excessive appreciation of the Swiss
franc against the euro.‚ÄĚSNB is
forecasting the Swiss economy will expand about 1.5% this year.SNB Chairman Hildebrand said the main risks
to Swiss economic growth are ‚Äúexternal‚ÄĚ and reiterated foreign exchange
intervention remains one of its tools. January M2 money supply growth was an
annualized 16.5%.U.S. dollar offers are
cited around the CHF 1.1045 level.The euro moved lower vis-√†-vis the
Swiss franc as the single currency tested bids around the CHF 1.4525 level
while the British pound moved lower and
tested bids around the CHF 1.5915 level.
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