21st of January 2011 - Fundamental Forex Market Overview

DAILY MARKET COMMENTARY
21 January 2011 – 8:00 GMT
Friday

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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

The dollar held onto most of yesterday's gains after a stronger batch of data pointed to an accelerating recovery in the US. EURUSD traded 1.3442-1.3514, USDJPY 82.87-83.13. Asian equities, with the exception of Shanghai, struggled throughout the session, after the S&P 500 finished just inside negative territory. US Treasury yields remain elevated. Initial jobless claims fell more than expected to 404k and the four-week average in claims implies that the downward trend seen in Q4 has been sustained into 2011. Existing home sales surprisingly jumped 12.3% in December to a 5.28 million unit annual rate, the highest monthly pace since last May. The current activity index in the Philadelphia Fed manufacturing survey edged down to a still-solid level of 19.3 in January. The index of leading economic indicators rose +1.0% m/m in December, and the strengthening is consistent with our analysts' forecasts for real GDP picking up to a 3.5% annual rate in Q4. All told, the data firmly bolsters the case for a relatively better US recovery which we believe will support the dollar's transition to growth currency status.

EUR

European officials continued to voice opinions over potential next steps to shore up sovereign debt problems but no clear solution has yet been presented. Newswires quoted an unnamed European source saying there were discussions about expanding the EFSF to purchase sovereign bonds.

Eurogroup President Juncker said euro volatility is extreme without commenting on current levels and said we could see a comprehensive response to the debt crisis in a few weeks. European Council President Van Rompuy sees only a small chance of Eurozone leaders having a separate crisis meeting during the larger EU leaders summit on February 4.

Ifo President Sinn said Greece would not be able to service its debt and suggested Greece should deal with creditor banks about debt restructuring rather than a Eurozone restructuring of Greek debt. German Ifo data is due.

Deputy Chairman Ulyukaev of the Russian central bank said Russia cannot buy EFSF bonds currently because of regulations but they may look to buy them should regulations change. Ulyukaev had also said Russia would look to diversify reserves and potentially buy Chinese yuan when capital controls are lifted.

Recent ECB speakers, including Liikanen and Tumpel-Gugerell, along with the monthly ECB bulletin have reiterated that there are no "imminent price pressures" in the Eurozone and inflation expectations are firmly anchored. The monthly ECB bulletin highlighted that price pressures stem largely from external sources, such as energy prices

CHF

SNB's Hildebrand and Danthine sounded caution again on Swiss franc strength on the growth backdrop. Hildebrand also said FX intervention decisions are based on the deflation risk assessment but that the deflation threat has largely disappeared.

A. M. Negrin Bautista, CFA

Chief Analyst at Fibosignals.com

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