Forex Market Commentary and Analysis (26 March 2010)
The euro appreciated vis-Ă -vis the U.S. dollar today as the single currency tested offers around the US$ 1.3405
level and was supported around the $1.3265 level. The common currency has been quite volatile
for weeks on account of uncertainty regarding financial assistance for Greece.Ecofin ministers convened last night and
today and an aid package for Greece was formally agreed to involving both
financial assistance from the European Union via bilateral loans and the
International Monetary Fund.Late last
night, European Central Bank President Trichet said IMF involvement would be â€śvery,
very badâ€ť whereas today he indicated he was â€śhappyâ€ť with the results.Greek Prime Minister Papandreou reported
Greece will sell more debt at an â€śopportune time.â€ťThe Greek aid package was structured so that
Greece can tap the credit facilities if required but it is possible that Greece
may never need to utilize these facilities.Achieving a Europeanconsensus on
this issue was difficult but was facilitated by agreement between Germany and
France.Attention will now shift to fiscal
woes in Portugal, Spain, and Italy.Data
released in France today saw March consumer confidence worsen to -34 from the
prior reading of -33.In U.S. news, data released today saw revised
Q4 gross domestic product print at +5.6% from the prior reading of +5.9% while
the GDP price index ticked higher to +0.5% from +0.4%.Also, the Q4 core personal consumption
expenditures index increased 1.8% q/q from the prior reading of +1.6% q/q.Final March University of Michigan consumer
sentiment printed at 73.6, up from the prior reading of 72.5.Personal income and spending data and PCE
numbers will be released on Monday.Traders
are paying very close attention to rising U.S. Treasury yields.The 10-year Note is now yielding right around
the 3.90% level and some economists believe the rate will move significantly
higher to the 4.30% level.The Federal
Reserve will continue to normalize monetary policy in the coming quarters.Fed Chairman Bernanke yesterday reported â€śrestoring
the size and compositionâ€ť of the Fedâ€™s record US$ 2.32 trillion balance sheet
to a â€śmore normal configurationâ€ť is a long-term policy goal.Similarly, St. Louis Fed President Bullard
added â€śWe want to someday get back to a pre-crisis balance sheet â€“ both the
size of it and the fact that it would be an all-Treasuries balance sheet.â€ť 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 ÂĄ92.80 level and was supported around the ÂĄ92.30
level. Data released in Japan overnight
reinforced the view that deflation remains a serious problem in Japan.First, Tokyo-area headline consumer price
inflation was off 1.8% y/y with the ex-food and energy component off 1.2%
y/y.Second, nationwide consumer price
inflation at the headline level was off 1.1% y/y and off 1.1% y/y at the
ex-food and energy core level.These
data suggest deflation will remain a problem in Japan through 2011.Bank of Japanâ€™s Policy Board is likely to
keep a very accommodative monetary policy for several more business
quarters.New Policy Board member Miyao
reported â€śLowering interest rates even a little bit, or keeping interest rates
at very low levels amid a recovery, may be able to provide more stimulus and
help sustain economic growthâ€¦it is important for the central bank to maintain
its accommodative policy stance and provide monetary support for companies and
householdsâ€¦the economy has been picking up recently, but incomes and employment
remain in a severe state, and there are various risks and uncertainties to the
outlook.â€ťThe three-month euroyen
futures rate is trading around 0.439% with the December 2010 rate currently
trading at 0.380%, evidencing a lower market bias on interest rates through the
end of the year.The Nikkei 225 stock
index climbed 1.55% to close at ÂĄ10,996.37.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 ÂĄ124.15 level and was supported around the ÂĄ122.95 level.The
British pound moved higher vis-Ă -vis the yen as sterling tested offers
around the ÂĄ137.95 level while the Swiss
franc moved higher vis-Ă -vis the yen and tested offers around the ÂĄ86.80 level.
In Chinese news, the U.S. dollar depreciated
vis-Ă -vis the Chinese yuan as the greenback closed at CNY 6.8270 in the
over-the-counter market, down from CNY 6.8271. China announced it will launch
stock index futures trading from 16 April on the CSI 300 Index.Traders are focusing on a report from the
U.S. due on 15 April that may possibly label China as a currency
manipulator.Some observers suggest a
major trade war might develop if China is labeled a currency manipulator by the
Obama administration.Peopleâ€™s Bank of
China advisor Fan Gang said the central bank may adopt a managed float of the
British pound appreciated vis-Ă -vis the U.S. dollar today as cable tested offers
around the US$ 1.4890 level and was supported around the $1.4805 level. Data released in the U.K. today saw Q4 total
business investment off 4.3% q/q and 23.5% y/y.Chancellor of the Exchequer Darling this week reported his latest
economic growth forecast is â€śin line with the Bank of England forecast.â€ťDarling said he plans to â€średuce borrowing
furtherâ€ť and reduced his budget deficit forecast for the next five fiscal years
by ÂŁ44 billion.On the whole, Darlingâ€™s
fiscal report was more proactive than expected about addressing the U.K.â€™s
fiscal problems.The U.K.â€™s 2009-2010
budget deficit is expected to total around ÂŁ167 billion and be slightly less in
the 2010-2011 fiscal year.Cable bids
are cited around the US$ 1.4455 level.The euro moved higher vis-Ă -vis the
British pound as the single currency tested offers around the ÂŁ0.9025 level and
was supported around the ÂŁ0.8955 level.
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 1.0745 level. The Swiss KOF Research Institute upgraded its
2010 and 2011 economic growth forecasts for the Swiss economy today to 1.7% and
2.2%, respectively. Consumer price inflation is expected to be around 0.9% and
1.0%, respectively â€“ also an upgrade from previous forecasts.Swiss President Leuthard yesterday said the
franc is â€śat a quite crucial levelâ€ť and said it is up to the Swiss National
Bank to decide whether to intervene.Swiss
National Bank Vice Chairman Jordan reiterated this week that the central bank
will work to prevent excessive franc appreciation.Swiss National Bank President Hildebrand this
week 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 this week and noted it will continue to â€śact
decisivelyâ€ť to prevent an â€śexcessiveâ€ť appreciation of the franc.U.S. dollar offers are cited around the CHF
1.1180 level. The euro moved higher
vis-Ă -vis the Swiss franc as the single currency tested offers around the CHF
1.4310 level while the British pound
moved lower vis-Ă -vis the Swiss franc and tested bids around the CHF 1.5825
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