Forex Market Commentary and Analysis (22 March 2010)
The euro depreciated vis-√†-vis the U.S. dollar today as the single currency tested bids around the US$ 1.3495
level and was capped around the $1.3545 level. The common currency came off on fresh
fireworks regarding Greece‚Äôs acute fiscal situation.German Chancellor Merkel said policymakers must
not create ‚Äúillusions‚ÄĚ this week regarding a possible agreement regarding
financial assistance for Greece.Greek
Prime Minister Papandreou and European Commission President Barroso said this
week‚Äôs summit of European Union leaders on 25-26 March should provide details
about what type of assistance may be available to Greece.Many dealers believe the International
Monetary Fund will end up providing financial assistance to Greece if required
while others believe Greece will have to obtain additional assistance from
elsewhere.Ecofin head Juncker said Greece
‚Äúwill not be abandoned if aid is needed.‚ÄĚGermany‚Äôs Bundesbank reported financial deficits is not part of the IMF‚Äôs
mandate with one Bundesbank official suggesting Greece should just consider
itself insolvent.European Central Bank
member Weber warned Germany will need to rely on domestic demand more for
economic growth, warning recent export performance is not sustainable.Data to be released in the eurozone tomorrow
include EMU-16 March industrial confidence followed by PMI data later this
week.In U.S. news, data released in the U.S. today saw the February
Chicago Fed National Activity Index decline to -0.64 from the downwardly
revised prior reading of -0.04.Traders
and economists alike are still discussing the Obama administration‚Äôs success in
passing some initial health care reform overnight through the U.S.
Congress.Two major questions concern
how this will impact the U.S. politically ‚Äď particularly in November‚Äôs mid-term
elections ‚Äď and what impact a health care deal will have on U.S. debt levels,
credit ratings, and market sentiment.There is renewed talk the U.S. may lose its ‚ÄėAAA‚Äô credit rating on
account of concerns the sustainability of the U.S.‚Äôs massive debt.The U.S. Treasury has sold some US$ 2.59
trillion in debt since the beginning of 2009 and the U.S. budget deficit now
exceeds 10% of U.S. gross domestic product.In recent weeks, some U.S. corporate debt has become more highly-valued
than U.S. Treasuries.About 7% of U.S.
tax revenue this year will be spent on servicing the U.S.‚Äôs massive debt
load.St. Louis Fed President Bullard
today said the U.S. is ‚Äúabout to turn the corner‚ÄĚ in the U.S. labour market
with some ‚Äúgood months of jobs data coming up very, very soon.‚ÄĚBullard speculated March will provide a good
tally of non-farm payrolls data and said he expects a ‚Äúreasonable‚ÄĚ economic
recovery.Fed Chairman Bernanke on
Friday said the U.S. needs a mechanism where financial firms can be unwound
without having to resort to taxpayer money. Euro bids are cited around
the US$ 1.3335 level.
The yen appreciated vis-√†-vis the U.S. dollar today as the
greenback tested bids around the ¬•90.40 level and was capped around the ¬•90.75
level. Japanese financial markets were
closed overnight and will reopen tonight.Dealers cited lingering repatriation flows back into Japan ahead of the
fiscal year end next week.It was
reported overnight that Bank of Japan‚Äôs Japanese government bond holdings now
total ¬•51.6 trillion, a fresh two-year high.National Strategy Minister Sengoku last week reported Japan has
‚Äúextremely little‚ÄĚ room for additional fiscal stimulus.In contrast, Financial Services Minister
Kamei last week reported the government should compile a stimulus package.Bank of Japan last week expanded monetary
policy further, doubling a three-month lending facility to ¬•20 trillion. Data to be released in Japan overnight include
February merchandise trade and February convenience and supermarket store
sales.The Nikkei 225 stock index
climbed 0.75% on Friday to close at ¬•10,824.72. 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 ¬•122.15 level and was capped around
the ¬•122.60 level.The British pound moved lower vis-√†-vis the yen as sterling tested bids
around the ¬•135.85 level while the Swiss
franc moved lower vis-√†-vis the yen and tested bids around the ¬•85.05 level.
In Chinese news, the U.S. dollar appreciated
vis-√†-vis the Chinese yuan as the greenback closed at CNY 6.8267 in the
over-the-counter market, up from CNY 6.8266. Traders are starting to focus on a U.S.
government report due 15 April that could potentially identify China as a ‚Äúcurrency
remain quite embittered at the moment with China suggesting most of the U.S.‚Äôs
economic and financial problems are of its own making.U.S. Ambassador to China Huntsman verbally
intervened last week, saying the U.S. ‚Äúhopes to see more flexibility on the
exchange rate. I would be misleading you if I left you with the impression that
this wasn‚Äôt a very, very important issue in the United States, and will
continue to be. We‚Äôll see how the next few weeks play out.‚ÄĚThe central bank is expected to tighten monetary
policy further imminently. February industrial profits data will be released
British pound depreciated vis-√†-vis the U.S. dollar today as cable tested bids
around the US$ 1.4930 level and was capped around the $1.5025 level. Bank of England Monetary Policy Committee
member Sentance last week reported he‚Äôs ‚Äúbeen relatively encouraged by the
turnaround we've seen in the last year, both in the UK and in the global
economy.You have to recognize there is
some risk of a double dip, but that's not the central forecast. You'd have to
see some factors bring that about: we've seen big shocks in the international
economy over the last couple of years, so you couldn't rule out some new shocks
emerging on the financial front which could set back the economy. But that's
not my central expectation.‚ÄĚIt was
reported last week that Bank of England reported net business lending fell 9.3%
m/m, the sharpest decline since record-keeping began in 1999.Cable
bids are cited around the US$ 1.4455 level.The euro moved lower
vis-√†-vis the British pound as the single currency tested bids around the US$
0.9000 figure and was capped around the ¬£0.9045 level.
franc weakened vis-√†-vis the U.S. dollar today as the greenback tested
offers around the CHF 1.0635 level and was supported around the CHF 1.0575 level.
Swiss National Bank published its quarterly
economic report today and noted it will continue to ‚Äúact decisively‚ÄĚ to prevent
an ‚Äúexcessive‚ÄĚ appreciation of the franc.In recent days, many dealers speculated the SNB would be less likely to
sell francs for euro given the recent improvement in the U.S. economy and the
cross has fallen to fresh multi-month lows as a result. SNB today indicated it
expects the Swiss recovery to be ‚Äúmoderate and fragile.‚ÄĚ Data released in Switzerland last week saw Q4
industrial production rise 6.4% q/q and decline 1.1% y/y while the February
trade surplus declined to CHF 1.29 billion from CHF 2.42 billion.The
euro came off vis-√†-vis the Swiss franc as the single currency tested bids
around the CHF 1.4325 level while the
British pound moved higher vis-√†-vis the Swiss franc and tested offers
around the CHF 1.5950 level.
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