Daily Market Commentary - Fundamental Outlook

Daily Forex Fundamentals | Written by GCI Financial | Mar 13 09 15:47 GMT |

€ The euro depreciated marginally vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.2865 level and was capped around the $1.2955 level. There is a sense of cautious optimism among some economists that the U.S. economic problems may slowly be improving given recent economic data and other factors. First, Citigroup indicated it may not need any additional capital injections from the U.S. government. Second, General Electric said its ratings downgrade yesterday will not impact its business activities. Third, Citigroup, JPMorgan Chase, and Bank of America indicated January and February were profitable for the banks. Data released in the U.S. today saw the mid-March consumer sentiment index improve to 56.6 from 56.3 at the end of February. Also, the January U.S. trade deficit narrowed 9.7% to -US$ 36.0 billion, datum that reflects the significant pullback in global trade. Notably, the U.S. trade deficit was -US$ 59.16 billion in January 2008. The February import price index fell 0.2% m/m and a record 12.8% y/y. In eurozone news, German Finance Minister Steinbrueck reported the current global fiscal stimuli programs could result in a "very big" inflation problem in the medium term. Data released in the eurozone today saw EMU-15 Q4 2008 labour costs ease to +3.8% y/y from 4.2% in Q3 2008. Also, EMU-16 January retail sales were up 0.1% m/m and off 2.2% y/y. Euro bids are cited around the US$ 1.2385 level. ¥/ CNY The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥98.65 level and was supported around the ¥97.15 level. Traders are talking about Switzerland's interest rate cut yesterday and announcement that it will pursue quantitative easing measures including currency intervention to try and shore up the Swiss economy. Some dealers believe this will pave the way for Japanese monetary authorities to conduct yen-selling intervention while others believe Japan will be less inclined to weaken its currency. Data released in Japan today saw the February consumer sentiment index print at 26.7, up from 26.4 in January. Also, January revised industrial output was off 10.2% m/m. The Nikkei 225 stock index climbed 5.15% to close at ¥7,569.28. U.S. dollar offers are cited around the ¥104.15 level. The euro moved higher vis-à-vis the yen as the single currency tested offers around the ¥127.65 level and was supported around the ¥125.40 level. The British pound moved higher vis-à-vis the yen as sterling tested offers around the ¥138.35 level while the Swiss franc moved lower vis-à-vis the yen and tested offers around the ¥83.15 level. The Chinese yuan appreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 6.8380 in the over-the-counter market, down from CNY 6.8383. Chinese Premier Wen Jiabao reported China will announce a new fiscal stimulus package if and when it is needed. He also indicated China is "worried" about its holdings of U.S. Treasuries given the U.S.'s declining financial position. ₤ The British pound moved higher vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.4070 level and was supported around the $1.3860 level. Representatives from leading finance ministries and central banks are convening near Brighton this weekend to plan for the Group of Twenty meeting on 2 April. One theme that is emerging ahead of the G20 meeting is that there appears to be a lack of consensus about how to tackle the global economic recession. The Obama administration is said to be pressuring the European Union to boost the already-announced €200 billion fiscal stimulus it plans to provide member states. On the domestic front, Bank of England Monetary Policy Committee member Barker reported "While the scale and timing of these various impacts is uncertain, quantitative easing should bring about a pick-up from the present weakness in nominal spending, supporting economic activity...So on balance, the economic outlook has deteriorated further over the past month." Cable bids are cited around the US$ 1.3740 level. The euro moved lower vis-à-vis the British pound as the single currency tested bids around the ₤0.9165 level and was capped around the ₤0.9295 level. CHF The Swiss franc depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.1935 level and was supported around the CHF 1.1835 level. Swiss National Bank yesterday reduced interest rates to historic lows, taking the target rate for three-month Swiss franc Libor to 0.25% from 0.50%. At the same time, SNB announced it will intervene in the exchange rate market to stop the Swiss franc's appreciation. Foreign investors also purchased a Swiss franc bond issue and this led to increased selling pressure on the franc. SNB is clearly trying to contend with the Swiss domestic economic slowdown by making its exports cheaper to the European Union, particularly Germany. Critics suggest this amounts to a "beggar-thy-neighbour" policy that could precipitate inflationary pressures in Switzerland. Data released in Switzerland today saw February producer and import pritces fall 0.6% m/m and 1.8% y/y. U.S. dollar offers are cited around the CHF 1.1585 level. The euro and British pound moved higher vis-à-vis the Swiss franc as the crosses tested offers around the CHF 1.5400 and CHF 1.6735 levels, respectively. GCI Financial http://www.gcitrading.com DISCLAIMER : GCI's Daily Market Commentary is provided for informational purposes only. The information contained in these reports is gathered from reputable news sources and is not intended to be used as investment advice. GCI assumes no responsibility or liability from gains or losses incurred by the information herein contained.