Forex Daily Market Commentary

By GCI Forex Research

Fundamental Outlook at 1500 GMT (EDT + 0500)

The euro depreciated vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.3940 level and was capped around the $1.4050 level.  The common currency continues to suffer following a lack of clarity regarding Greece’s fiscal deficit and the manner in which Greece is trying to bridge its deficit.  Both Greece and China have denied the report that the former is asking the latter to purchase as much as €25 billion in Greek debt.  European officials spoke about Greece’s and the eurozone’s other fiscal problems today.  Greek Prime Minister Papandreou said his country will reduce its deficit while Spanish Prime Minister Zapatero pledged extensive reforms including up to €50 billion in spending cuts.  European Central Bank President Trichet said many industrialized countries share similar problems.  The German finance ministry today denied a fresh rumour that the European Union would help Greece avoid a fiscal meltdown.  Data released in the eurozone today saw EMU-16 economic confidence improve for a tenth consecutive month to 95.7.  Also, Germany’s unemployment rate climbed to 3.617 million in January, taking the unadjusted jobless rate higher to 8.6% from 7.8% in December.  In U.S. news, the U.S. dollar sold off on Obama’s State of the Union speech and U.S. equity markets also came off.  The Federal Open Market Committee yesterday kept interest rates unchanged and noted there has been economic improvement.  Also, the Fed noted its program to support mortgage-backed securities will unwind at the end of March as planned.  Kansas City Fed President Hoenig dissented yesterday by voting in favour of removing additional monetary accommodation at this time.  Data released in the U.S. today saw weekly initial jobless claims decrease to 470,000 from a revised 478,000 while continuing jobless claims fell to 4.602 million.  Also, December headline durable goods orders came in lower-than-expected at +0.3%, up from the November revised print of -0.4%, while the ex-transportation component printed at +0.9%, down from a revised +2.1%.  Also, the December Chicago Fed national activity index worsened to -0.61. Euro bids are cited around the US$ 1.3885 level.

¥/ CNY

The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥89.60 level and was capped around the ¥90.55 level.  Data released in Japan overnight saw December overall retail sales off a worse-than-expected 0.3% y/y and overall retail sales in the fourth quarter of 2009 were off 0.8% y/y, contributing to 2009’s overall 2.3% decline.  A media report today indicates that Japanese government bond issuance may rise to around ¥55 trillion in fiscal year 2013, up from the estimated ¥ 44.3 billion of new issuance planned for the next fiscal year.  Bank of Japan Governor Shirakawa was reported as saying the economic recovery “will not be interrupted” while former BoJ official Iwata said the central bank should clarify its position on “price stability.”  Bank of Japan kept its monthly economic assessment unchanged and noted the economy is “picking up,” adding it will continue to improve at a moderate pace.  The central bank also said the decline in consumer prices is moderating and housing investment has “stopped falling.” As expected, Bank of Japan’s Policy Board this kept its overnight call rate unchanged at 0.1% and kept its economic assessment intact.  The central bank upwardly revised its deflation forecast for the fiscal year that begins in April and is now eyeing a decline of 0.5%, better than the 0.8% decline in prices it predicted in October.  The Nikkei 225 stock index climbed 1.58% to close at ¥10,414.29.  U.S. dollar offers are cited around the ¥94.75 level.  The euro moved lower vis-à-vis the yen as the single currency tested bids around the ¥125.10 level and was capped around the ¥127.05 level.  The British pound moved lower vis-à-vis the yen as sterling tested bids around the ¥144.60 level while the Swiss franc moved lower vis-à-vis the yen and tested bids around the ¥85.05 level. In Chinese news, the U.S. dollar depreciated vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8268 in the over-the-counter market, down from CNY 6.8269.  People’s Bank of China Deputy Governor Zhu reported the U.S. carry trade is dangerous to the global economy and added China will continue to pursue a stable yuan.

The British pound moved lower vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.6110 level and was capped around the $1.6275 level.  U.K. Chancellor of the Exchequer Darling said reform that has already been agreed-upon should be implemented.  Darling added the U.K. economic is “moving in the right direction”. Bank of England today announced it is abandoning its temporary swap lines with the Federal Reserve and said it has ended its asset purchase program of gilts.  Sterling picked up ground yesterday on comments from Bank of England Monetary Policy Committee member Sentance who said it will be difficult to keep inflation on target given sterling’s depreciation.  He also said data suggests the U.K. economy expanded more in Q4 than reported at +0.1%.  Cable bids are cited around the US$ 1.6030 level.  The euro moved lower vis-à-vis the British pound as the single currency tested bids around the ₤0.8600 figure and was capped around the ₤0.8675 level.

Forex Daily Market Commentary provided by GCI Financial Ltd.

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