18th of February 2011 - Fundamental Forex Market Overview

DAILY MARKET COMMENTARY
18 February 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 stabilized during the Asia session after yesterday's losses. Newswires were largely silent, and the BoJ minutes from the Jan. 24-25 policy meeting were unremarkable. EURUSD traded 1.3589-1.3627, USDJPY 83.24-83.42. Asian equities were mixed, but the S&P 500 continues to advance, finishing +0.31% higher yesterday. The Philadelphia Fed manufacturing survey surged to 35.9 from 19.3 and details were strong. CPI rose slightly more than expected on both headline and core readings and jobless claims also surprised higher at 410k. Our team of analysts notes bad weather has made claims choppy since the start of the year, but we expect a downtrend to resume as the weather improves. Chicago Fed President Evans, a more dovish FOMC member and a 2011 voter, said that the current bond-buying program might be enough and more purchases may not be necessary after the program ends in June. Although he said he was encouraged by stronger data recently, he noted that the pace of improvement remains "disappointing." The G20 meeting of finance ministers and central bankers gets underway in Paris today. A communique is expected on Saturday.

EUR

A key focus this morning will be the daily take-up at the ECB's Marginal Lending Facility. The ECB is due to release the data at 0810 GMT. Yesterday's announcement showed a dramatic increase on the day before. Liquidity demand amounted to EUR15.8 bn, levels not seen since June 2009. If usage does not decline significantly today, concerns about the health of the European banking system could intensify.

We remain negative on the euro given the relative growth outlook, and ongoing concerns about sovereign risk.

GBP

BoE MPC member Sentance offered further hawkish comments, openly criticising Wednesday's quarterly inflation report. Sentance said global inflation is unlikely to quickly subside as implied in the report, and called for immediate rate hikes.

BoE Deputy Governor Tucker is due to speak at 1830 GMT. When he last offered his views on monetary policy in November, he was in the neutral camp. Tonight's speech may reveal if his opinion has shifted in light of recent data and events.

A. M. Negrin Bautista, CFA

Chief Analyst at Fibosignals.com

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