Currency Roundup | FX Market | Fundamental Analysis | 25 January 2011

Currency Roundup | FX Market | Fundamental Analysis | 25 January 2011

USD : The dollar traded higher as risk trends turned averse following reignition of European sovereign fears, disappointing UK GDP and after US Consumer Confidence data showed a much higher than expected rise. Conference Board Consumer Confidence for January rose to 60.6 versus the 54.3 expected and last month’s 52.5. This no doubt improved the outlook for the US economy going forward. Meanwhile US House Price Index for November remained unchanged as expected. At midday GMT the dollar traded higher at 1.3634 against the euro and also higher at 1.5787 to the pound.

EUR : The euro slipped from its highs during the day, paring yesterday’s advance as sovereign debt fears intensified and risk appetite abruptly changed to aversion. Elena Salgado, Spain’s Finance Minister, attempted to appease the markets with commentary playing down Spain’s fiscal problems saying that Spanish banks only required 20bn to recapitalize but the euro continued to fall anyway. The scheduled event risk for this afternoon comprised of German Consumer Confidence which increased from 5.5 to 5.7 with a fall expected and French Consumer Spending which slowed its increase from a gain of 2.7% in November to an increase of 0.6% in December MoM and 1.5% to 0.4% YoY. However, the UK’s poor GDP reading may well have weighed due to its proximity and membership of the EU. At midday GMT the euro traded lower at 1.3634 to the dollar and higher at 0.8635 against the pound.

GBP : The pound fell sharply after the release of GDP figures which showed an unexpected fall in the size of the economy. GDP fell by -0.5% in the last quarter compared to a previous quarterly gain of 0.7% and falling well below estimates of a gain of 0.5%. YoY the fall was from 2.7% to 1.7% with a modest drop to 2.6% expected. Further data showed that the PSNCR increased - that is the Public Sector Net Cash Requirement, or the money the government has to borrow to balance the books increased from 17.4bn to 25.5bn whilst the forecast had been for a fall of about 1bn. Both Public Sector Net Borrowing and Public Sector Net Borrowing Excluding Interventions decreased however, showing that new borrowing by the government had fallen. Tomorrow the minutes of the BOE meeting will be released and they will surely be read by many for signs of the outlook for future policy particularly after the disappointing figures today. At midday GMT the pound fell to 1.5787 to the dollar and 130.00 to the yen.

JPY : The yen rose after risk trends changed and yen haven demand increased. The BOJ rate decision left rates unchanged at a range of between 0.0% and 0.1%, whilst BOJ Governor Shirakawa said that the recovery had reached a ‘pause’. Some analysts believe that the yen will slowly devalue as economic growth falters below BOJ forecasts and further easing is required to try to stimulate it, but today at midday GMT the yen rose to 82.36 against the dollar and 112.29 against the euro.

by Joaquin Monfort, Analytical expert , Forex4You © 2011

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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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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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Currency Roundup | FX Market Fundamental Analysis | 19 January 2011

Currency Roundup | FX Market Fundamental Analysis | 19 January 2011

USD : The dollar fell initially as risk appetite trends gained a boost from a successful Portuguese debt auction where the 12-month note sold for lower costs then those in December, showing increasing confidence in the euro-zone periphery and pushing up the value of the euro and the pound. Later in the day the dollar did post a recovery of sorts, however, following the release of data showing possible green shoots in the property market with Building Permits increasing 16.7% which was a spike well above the 1.8% expected and the -1.4% posted last month. Although excessive optimism was tempered by another housing market metric which showed contraction, which was Housing Starts, which fell to 529k whilst they had been 553k last month and expected to fall to 550k this month. The outlook for the dollar remains unclear with contradictory data and uncertainty. At midday GMT the dollar traded at $1.3457 to the euro and $1.5992 to the pound.

EUR : The euro continued to rally after a successful Portuguese bond auction unexpectedly saw yields fall compared to last month, showing some confidence had been restored in the nation which came closest to needing a bailout recently. A total of €750bn in 12-month bills were auctioned, yielding 4.029%, which compares with the 5.281% offered back in December. The drop in borrowing costs helped reduce Europe’s risk profile and contagion fears although earlier this morning the Portuguese 10-year note had exceeded 6.95% highs after the news from the euro-zone finance minister’s conference in Brussels that the European Finance Stabilization Fund (EFSF) would not be increased. It is feared the fund is too meagre to cope with a bailout of both Portugal and Spain but Germany and France, two of the largest members in the bloc vetoed an enlargement. There is not the political will in these countries to risk more security to bailout indebted fellow member states. Despite the temporary effect on the bond market the news, however, failed to curb the euro’s rise as it was more-or-less what had been expected prior to the conference when Germany had already made it clear it would fight an increase in the EFSF. On the economic docket, the data came out worse than expected with a widening EU Current Account deficit and a further drop in Construction Output. At midday GMT the euro traded at $1.3457 to the dollar and £0.8415 to the pound.

GBP : The pound faltered, falling in some pairs whilst against the dollar it maintained its rise. Employment figures out today painted a less than perfect picture of economic wellbeing in the UK but neither were they bad enough to undermine the steadily increasing belief that the BOE will increase rates to combat inflation sooner rather than later. Jobless Claims actually fell by 4.1k compared to 3.2k last month and better than the 0.0k consensus change. The Claimant Count Rate, however, stayed the same at 4.5% whilst the ILO unemployment rate held at 7.9%. Average Weekly Earnings also stayed the same at 2.1% when a 2.2% rise had been expected. The figures may suggest that the inflationary CPI reading yesterday was less as a result of economic overheating as this would have shown in increased earnings and employment, but more due to the recent volatile rise in commodity prices being passed on to the consumer. This may have actually had the effect of reducing the probabilities of the BOE introducing a rate hike in the short term a little, although judging from sterling’s continued strength the overriding belief is still that the increase will come. Look out for a short term reversal on the pound. At midday GMT the pound traded at $1.5992 to the dollar and ¥131.49 to the yen.

JPY : The yen traded mixed overall as haven demand diminished but economic data showed signs of growth. Tokyo Condominium Sales YoY December rose by a massive 40.3% (compared to 0.8% last month) whilst earlier the Tertiary Industry Index data also showed an above expectation rise to 0.6% when 0.5% had been forecasted. A better than expected performance by the Portuguese 12-month note at auction, however, reduced Europe’s risk profile and led to an increase in general risk appetite, but the yen faired better than the dollar which took most of the punishment, falling heavily in most of its pairs. At midday GMT the yen traded at ¥82.23 to the dollar and ¥110.66 to the euro.

by Joaquin Monfort, Analytical expert , Forex4You © 2011

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