11th of April 2011 - Fundamental Forex Market Overview

11th of April 2011 - Fundamental Forex Market Overview

DAILY MARKET COMMENTARY
11 April 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
The dollar failed to claw back ground lost on Friday, even though US politicians averted a "shutdown" of the Federal government by reaching an eleventh-hour compromise deal on spending plans. EURUSD traded 1.4441-1.4484, USDJPY 84.63-85.16. China trade data released over the weekend showed a sharp rebound in March, a result that is likely to support risk appetite today.

Fed Vice-Chair Yellen stuck to her dovish stance, noting that current "economic conditions do not yet call for the Fed to exit from unconventional policies". She also acknowledged that a "host of challenges" would need to be faced when the time comes to reverse the Fed's loose monetary policy. Dallas Fed President Fisher (2011 voter) continued to sound hawkish, and called on the Fed to stop "spiking the punch bowl" with accommodative policy. He warned that inflationary pressures are rising but "they are not out of hand yet". He entertained the idea of cutting asset purchases short before June, noting "it may well be that we should consider curtailing what remains of QE2". Atlanta Fed President Lockhart (2011 non-voter) said that the ECB's interest rate hike on Thursday has no effect on the Fed's policy posture.

EUR
The IMF confirmed that Portugal has asked for assistance and that the IMF is "prepared to move expeditiously". Germany's Finance Minister Schaeuble implied that Portugal would need to introduce further austerity measures and structural reforms in return for external financial assistance. The UK's Chancellor Osborne said that, unlike what had been offered to Ireland, on this occasion the UK would not extend a bilateral loan to Portugal. Portugal's Finance Minister Teixeira dos Santos said that the country was not applying for a short-term EU bridging loan and was instead focusing on negotiating a "full program" of external assistance.

Reuters, citing a German magazine article, reported that several EU finance ministers are now in favour of a Greek debt restructuring. However, EU Commissioner Rehn again excluded the possibility over the weekend. ECB President Trichet again invited all parties to stick to the terms of the EU/IMF/ECB rescue plan for Greece. Former Greek Central Bank Governor Papademos, and now advisor to the Greek government, said his first preference on the question of debt restructuring is to "do nothing and implement the program".

GBP
Bank of England MPC member Sentance again called for an interest rate hike, and noted that the possibility of early hikes is supporting sterling. Sentance is due to leave the MPC by the end of May.

UK PPI figures were well ahead of consensus expectations: output prices rose +5.4% y/y (cons. +5.1%) and input prices climbed +14.6% y/y (cons. +12.5%). These data provide further evidence of significant pipeline price pressures and bolster the case of MPC hawks. Our UK economist continues to expect an initial BoE hike in May.

CAD
Canadian headline employment levels were largely unchanged in March, disappointing consensus expectations. However, the full-time/part-time mix was far more encouraging. Full-time jobs registered their biggest monthly increase since Sept. 2009.


A. White
Analyst at Fibosignals.com

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