DAILY MARKET COMMENTARY
21 February 2011 – 8:00 GMT
Monday
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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
Price action lacked conviction during the Asia session, despite the emergence of a partial agreement at the weekend G20 meeting. EURUSD traded 1.3666-1.3716, USDJPY 83.02-83.19. The S&P 500 finished up 0.19% with volumes hitting a three-week high. The G20 agreed on a set of economic indicators that could eventually be used to measure the scale of global imbalances. The list includes public debt and fiscal deficits, private debt and the savings rate, and the trade balance and net investment income flows and transfers. Newswires reported that China blocked the inclusion of FX reserves and the real effective exchange rate as two other indicators. The objective now is to set guideline levels for this list of indicators by the April meeting, but the communique stressed that these would only be indicative and would not represent firm targets. The text also repeated a commitment to enhance "exchange rate flexibility to better reflect underlying economic fundamentals" and to avoid both "persistent misalignment" and "disorderly movements" of exchange rates. Canada's Finance Minister Flaherty said "there was no indication by China that they intended to be more flexible with their currency immediately". US Treasury Secretary Geithner said that China's currency "remains substantially undervalued".
EUR
ECB Executive Board member Bini-Smaghi spoke overnight, but his remarks failed to excite the euro in the way they did on Friday. However, he did express concern that the rise in food prices may be permanent, which clearly qualifies as a hawkish remark.
On Friday Bini-Smaghi said that "as the economy gradually recovers and global inflationary pressures arise, the degree of accommodation of monetary policy has to be monitored and, if needed, corrected". The remarks signaled no ambition to tighten policy in the near term but, coming on the heels of an above-consensus German PPI reading, the market interpreted them as hawkish.
ECB President Trichet said that the rising price of commodities and energy is being watched "very, very closely", and that consequent inflationary pressures "are to be taken seriously".
US Treasury Secretary Geithner said EU leaders made it clear at the G20 meeting that they would do "whatever it takes" to ensure Eurozone nations "and their banks" have access to Financing.
JPY
Finance Minister Noda said that Japan plans to continue buying bonds issued by the European Financial Stability Facility.
GBP
BoE Deputy Governor Tucker spoke on Friday night but confined his remarks to regulatory issues, and did not discuss monetary policy. The latest minutes show that Tucker favoured no policy adjustment in January. The minutes from the Feb. 10 policy meeting, which are due for release on Wednesday, will reveal whether he or other MPC members have since shifted their stance away from neutral.
CAD
BoC Governor Carney said it is possible that Q4 GDP growth could be firmer than the +2.3% y/y projected in the January monetary policy report.
Finance Minister Flaherty said that Canadian business overall "is comfortable" with the current level of the CAD.
The CAD weakened on Friday after headline and core CPI for January came in below consensus expectations.
AUD
AUDUSD briefly fell on Friday after China hiked its reserve ratio requirement by 50bp. As investors have become more accustomed to such hikes over the past year, the AUD has become progressively less troubled by them.
A. M. Negrin Bautista, CFA
Chief Analyst at Fibosignals.com
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