Friday, January 21, 2011

Currency Roundup | FX Market | Fundamental Analysis | 21 January 2011

Currency Roundup | FX Market | Fundamental Analysis | 21 January 2011

USD : The dollar fell against the euro as peripheral debt fears eased following an increased demand at further sovereign debt auctions. Safe haven demand for the dollar also fell after Chinese GDP figures revealed better than expected growth and a positive outlook for the global economy. Latter in the session, a sudden cash shortage in Chinese banks due to the higher reserve requirements imposed on them by recent regulation led to speculation that further tightening is unlikely by Beijing. This was interpreted as a positive global economic indicator and further weighed on dollar safety demand. At midday GMT the dollar had fallen to $1.3514 against the euro and was down to 1.5928 against the pound.

EUR : The euro continued to rise after further successful peripheral bond auctions helped dispel sovereign debt fears. The ratings agency Fitch also upgraded their assessment of the euro-zone saying: “The risk of a euro break-up remains small.” The euro must also have received a boost from economic data released today which was on the whole positive, with German IFO Expectations and Business Climate both beating expectations and French Business Confidence and French Production Outlook higher too. At midday GMT the euro had risen against the dollar to $1.3514 and risen to £0.8484 against the pound.

GBP : The pound traded mixed following lower Retail Sales figures which recorded a -0.3% decrease MoM and a below expectations 1.0% increase YoY with 1.3% expected and 1.6% last month. The slightly poorer than anticipated data led to fall in the recent high level of bullish confidence in the UK economy and more importantly traders betting on an interest rate raise by the BOE. The data today slightly reduced the chance of that happening since the BOE will not wish to risk derailing the fragile recovery with higher interest rates. At midday GMT the pound had climbed to $1.5928 against the dollar and fallen to ¥131.92 against the yen.

JPY : The yen rallied today despite risk appetite remaining buoyant and data showing a larger than anticipated fall in the Japanese All Activity Index to -0.1%. The conundrum of yen strength in a confident market where haven demand was negative remained a mystery, although perhaps it was due to some negative short term factors paring euro and dollar strength this morning, nevertheless at midday GMT the yen had risen to ¥82.83 against the dollar and was up to ¥111.94 against the euro.

by Joaquin Monfort, Analytical expert , Forex4You © 2011

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