Monday, January 24, 2011

Currency Roundup | FX Market Fundamental Analysis | 24 January 2011

FX Market Fundamental Analysis | 24 January 2011

Currency Roundup

after ECB President Trichet played down recent rises in inflation in an interview at the weekend. There was no scheduled event risk today but Consumer Confidence tomorrow will begin a much heavier economic docket carrying through into the rest of the week, with FOMC on Wednesday and GDP on Friday. The dollar could be ripe for a bounce going forward as the pound and euro look likely to stumble. At midday GMT the dollar rose to $1.3552 against the euro and $1.5941 to the pound.

EUR : Despite positive economic data including an increase in the euro-zone Composite PMI the euro’s robust rally showed signs of weakness and exhaustion today. Some analysts attributed the lack of strength to an article published in the Wall Street Journal over the weekend in which ECB President Jean-Claude Trichet seemingly backtracked on the hawkish rhetoric of the past policy meeting which led investors to speculate on an ECB rate hike. Instead, Trichet put the above target inflation down to the effects of rising commodity prices with no ‘secondary-effects’ such as increases in wages noticeable yet. Meanwhile, the euro-zone composite PMI rose to 56.3 in January compared to 55.5 in the month before and well above estimates of 55.6. Services PMI faired better than Manufacturing with Services increasing 1 point from 54.2 to 55.2 whilst Manufacturing fell slightly from 57.1 to 56.9. Euro-zone Industrial New Orders also increased, rising by 19.9% in January compared to an increase of 14.8% in December. The euro may backtrack as the veil of fantasy is raised and 'ugly fundamentals' reassert themselves. At midday GMT the euro fell to $1.3552 against the dollar and £0.8501 to the pound.

GBP : The pound’s rally stalled and stuttered as question-marks arose over the state of the economy in the run-up to the release of the 4th Quarter GDP figures tomorrow which are expected to show a fall in the pace of growth. This already comes as more and more economists are questioning whether the fragile recovery can survive the dramatic cost cutting currently being instituted by the government. There was no scheduled event risk today but tomorrow begins an important period of economic releases including GDP, Public Sector Borrowing and BOE minutes on Wednesday. The outlook for the pound is turning sour as pundits predict GDP figures will spoil. At midday GMT the pound fell to $1.5941 to the dollar and ¥132.08 to the yen.

JPY : The yen traded mixed after risk appetite trends faltered increasing yen haven demand but fears about the size of the government’s budget deficit increased after the government released figures on Friday showing a 23.3tr yen shortfall was required to plug the deficit gap and bring the nation’s finances back into the black. On the data front Supermarket Sales fell by -1.4% in December, and more deeply than the -0.5% drop in the month before. At midday GMT the yen fell to ¥82.86 to the dollar and rose to ¥112.31 to the euro.

by Joaquin Monfort, Analytical expert , Forex4You © 2011

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