20th of January 2011 - Fundamental Forex Market Overview

DAILY MARKET COMMENTARY
20 January 2011 – 8:00 GMT
Thursday

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Market Analysis Desk
Foreign Exchange Research: www.fibosignals.com/5585/resources.html
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FUNDAMENTAL ANALYSIS at 0800 GMT

USD

Dollar performance was mixed during the Asia session with gains made against the AUD and the NZD, while there was little net change against the euro. The impact of growth-friendly Chinese data was curbed after its apparent leaking ahead of schedule yesterday. EURUSD traded 1.3427-1.34. USDJPY 81.84-82.30. Uninspiring US earnings data contributed to a 1% decline in the S&P 500, and Asian equities also sold off throughout the session. Inclement weather likely caused the 4.3% m/m decline in US housing starts in December. However, building permits, which are less sensitive to weather, jumped 16.7% m/m. Initial jobless claims are due today along with the Philly Fed index and existing home sales.

EUR

Various European officials spoke over the past 24 hours, but there has been no fresh news on a solution to the Eurozone's sovereign difficulties.

EFSF CEO Regling said there is no current need to expand the size of the EFSF rescue fund, adding that Spain and Portugal are able to finance themselves on the market. However, he implied that new mechanisms could be found to bridge the gap between the EFSF's effective lending capacity, and the headline figure of €440 bn. By contrast, EU Commissioner Rehn said that the it would be important to boost the EFSF so that markets would not doubt the ability of it to act if needed.

A story in German newspaper Die Zeit, suggested that the EFSF might eventually be used to finance Greek debt buy-backs. However, the German Finance Ministry were quick to deny the story.

ECB's Stark said that Eurobonds were not compatible with the Euro Treaty and that they would be a subsidy for several countries.

GBP

MPC member Adam Posen maintained his dovish stance last night. He said that a central bank's job is not to lower inflation but to provide price stability and that low inflation was not the same as price stability.

The December jobless report showed a fall in jobless claims of 4.10k, compared to consensus expectations of no change.

CAD

The BoC's Monetary Policy Report update expanded on the forecast changes it revealed in its policy announcement. The 2011 GDP growth upgrade is due to a stronger outlook for the US economy. However, the upgrade for Canada's growth outlook was slight for the year as the BoC cites the strong CAD and sluggish productivity in Canada as concerns.

A. M. Negrin Bautista, CFA

Chief Analyst at Fibosignals.com

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