Forex Market Commentary and Analysis (24 March 2010)
The euro depreciated sharply vis-Ă -vis the U.S. dollar
today as the single currency tested bids
around the US$ 1.3325 level and was capped around the $1.3505 level. The common currency was pressured lower after
ratings agency Fitch downgraded Portgualâ€™s debt from AA to AA- and adopted a
negative outlook for the country.Risk
appetite diminished as traders fear that Greeceâ€™s significant fiscal problems are
being complented by worsening woes in other eurozone countries including
Portugal and Spain.Greece is widely
expected to receive some financial assistance from the International Monetary
Fund, if not other eurozone members, but a worsening in other countriesâ€™ financial
conditions could precipitate a much larger crisis that could impact the entire
bloc and keep downward pressure on the euro.Data released in the eurozone today saw EMU-16 January new industrial
orders decrease 2% m/m and rise 7% y/y. Also, Germanyâ€™s March Ifo business
climate survey improved to its highest level since June 2008, reaching 98.1 â€“ a
sharp increase from Februaryâ€™s print of 95.2.The Ifo expectations survey reached its highest level since February
2007 at 101.9 in March.Additionally,
the EMU-16 PMI services index rallied to 53.7 from 51.8 in February and the
EMU-16 manufacturing PMI survey improved to 56.3 with German services and
manufacturing PMI surveys also notching gains.These data evidence the dichotomy between the improving eurozone economy
and a struggling eurozone finnacial environment.In
U.S. news, data released there saw MBA mortgage applications decline 4.2%
in the latest week while February durable goods at the headline level were up a
smaller-than-expected +0.5%, down from an upwardly-revised 3.9%. The
ex-transportation component came in above expectations at +0.9%, a sharp reversal
from the -0.6% decline last month.Other
data saw February new home sales off 2.2% m/m to an annualized 308,000, defying
expectations of an increase.Data to be
released tomorrow include weekly initial jobless claims and continuing jobless
claims.Chicago Fed President Evans said
recent economic growth has been precipitated by inventory adjustment following
the end of the recession but noted new sources of economic growth will need to
emerge.Evans yesterday said he would
not be surprised if the Fedâ€™s easy interest rate stance carried through to
2011.Kansas City Fed President Hoenig
reported U.S. economic growth will be about 3% this year and said the Fed
should continue normalizing monetary policy.Euro bids are cited around the US$ 1.3335 level.
The yen depreciated vis-Ă -vis the U.S. dollar today as the
greenback tested offers around the ÂĄ91.95 level and was supported around the ÂĄ90.35
level. The greenback appreciated across
the board in response to heightened concerns about the severe fiscal problems
in the eurozone with many traders focusing on Portugal now.The Hatoyama government reported the postal
bank will double the amount of deposits it can accept from individual investors
and many of those proceeds are expected to find their way into the Japanese
government bond market.Hatoyama also
had his budget passed by Japanâ€™s Parliament today, a record ÂĄ92.3
trillion.Japan is expected to issue
around ÂĄ44 trillion in new bonds to help finance its massive spending programs
in the fiscal year beginning next month.Japanâ€™s fiscal situation is becoming perilous with very little room for
the government to enact supplementary fiscal budgets and additional stimuli on
account of the major growth in government expenditures.Data released in Japan overnight saw the
February trade balance print at +ÂĄ651 billion.Data to be released in Japan overnight include the February corporate
service price index with many economists expecting a 1.2% y/y decline.The Nikkei 225 stock index climbed 0.38% to
close at ÂĄ10,815.03.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 ÂĄ122.75 level and was supported
around the ÂĄ121.40 level.The British pound moved higher vis-Ă -vis
the yen as sterling tested offers around the ÂĄ137.20 level while the Swiss franc moved higher vis-Ă -vis
the yen and tested offers around the ÂĄ86.05 level. In Chinese news, the U.S. dollar depreciated vis-Ă -vis the Chinese yuan
as the greenback closed at CNY 6.8267 in the over-the-counter market, up from
CNY 6.8264. Peopleâ€™s Bank of China
Governor Zhou reported â€śIf you can be sure about the recovery, then some of the
extraordinary stimulus policies can gradually phase out. On the other hand, you
should know itâ€™s not a W-shaped recovery.â€ťZhou yesterday intimated that Chinese officials might hold bilateral
talks with U.S. officials to discuss exchange rates, noting â€śvery high profile
noiseâ€ť isnâ€™t â€śhelpful.â€ť Traders are focusing on a U.S. government report due 15
April that could potentially identify China as a â€ścurrency manipulator.â€ťU.S. Senators Schumer and Graham are seeking
to pass legislation by the end of May that would enact penalties against China
for not liberalizing its yuan exchange rate enough.
British pound depreciated sharply vis-Ă -vis the U.S. dollar today as cable
tested bids around the US$ 1.4875 level and was capped around the $1.5045
level. The U.K. is suffering from significant
debt levels and sterling fell following the downgrade of Portugal by Fitch.Chancellor of the Exchequer Darling today
reduced his budget deficit forecast for the next five fiscal years by ÂŁ44
billion.On the whole, Darlingâ€™s fiscal
report was more proactive than expected about addressing the U.K.â€™s fiscal
problems.Darlingâ€™s announcement was
important today as it represented Labourâ€™s last major chance to reassure global
investors about that the party is committed to fiscal and economic reform.U.K. gilt sales are expected to decline about
18% in the next fiscal year.The U.K.â€™s
2009-2010 budget deficit is expected to total around ÂŁ167 billion and be
slightly less in the 2010-2011 fiscal year.Cable bids are cited around the US$ 1.4455 level.The
euro moved higher vis-Ă -vis the British pound as the single currency tested
offers around the ÂŁ0.8910 level and was capped around the ÂŁ0.8980 level.
franc weakened vis-Ă -vis the U.S. dollar today as the greenback tested
offers around the CHF 1.0715 level and was supported around the CHF 1.0555 level.
Swiss National Bank Vice Chairman Jordan
reiterated the central bank will work to prevent excessive franc
appreciation.Swiss National Bank
President Hildebrand yesterday reported the central bank will â€śdecisivelyâ€ť act
against â€śexcessiveâ€ť franc strength, noting the central bank can intervene to a
â€śvery large extent.â€ťSwiss National Bank
on Monday published its quarterly economic report today and noted it will
continue to â€śact decisivelyâ€ť to prevent an â€śexcessiveâ€ť 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 â€śmoderate and fragile.â€ť U.S.
dollar offers are cited around the CHF 1.1180 level. The euro came off vis-Ă -vis the Swiss franc as the single currency
tested bids around the CHF 1.4230 level while the British pound moved higher vis-Ă -vis the Swiss franc and tested
offers around the CHF 1.6025 level.
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