DAILY MARKET COMMENTARY
12 April 2011 – 8:00 GMT
Tuesday
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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
Risk appetite was scaled back during the Asia session after another Japanese earthquake and news that Japanese officials had upgraded the severity of the nuclear disaster to a "7" - this is the highest possible level on the scale and puts the tragedy in Fukushima on a par with Chernobyl. The yen and the Swiss franc were bought on safe-haven demand, and AUDJPY in particular fell sharply. EURUSD traded 1.4377-1.4446, USDJPY 83.47-84.79. Crude also dropped amid hopes of a ceasefire in Libya, which helped to support the dollar. More dovish FOMC members stuck to their well-known views overnight. New York Fed President Dudley said the economy is in better shape than it was last summer, partly due to QE2, but cautioned that higher oil prices are curtailing some of the momentum. He also said it is important not to overreact to rising inflation, especially as inflation expectations remain anchored. Vice Chair Yellen said rising commodity prices do not warrant a policy shift, though she agreed officials cannot be complacent on inflation expectations, and said current accommodative policy is appropriate. Neither set of comments surprised, though their focus on inflation puts more emphasis on Friday's CPI release.
EUR
With rate expectations remaining a driver of the euro, market participants are likely to keep a closer eye on growth figures and leading indicators for any potential changes in the economic backdrop. German and Eurozone ZEW figures are due.
Irish Central Bank Governor Honohan declined to offer a forecast timeline for Ireland's return to the bond markets.
GBP
Our analysts expect March CPI to dip to 4.2% y/y (cons. 4.4%). Market participants have recently pared back expectations for BoE tightening, and a weaker CPI print today could further undermine sterling.
For the BoC, we expect no change in policy, in line with the other 27 institutions surveyed by Bloomberg as there seems to be little urgency to tighten especially as core inflation (0.9% y/y) is well below the mid-point of the bank's 1%-3% inflation target range. Officials will probably cite ongoing uncertainty regarding the global recovery.
NZD
RBNZ Governor Bollard said New Zealand's agricultural export prices are likely to remain strong for some time, which is likely to keep the NZD supported. Bollard warned that monetary policy would need to counteract any rise in inflation expectations if households and firms "use the income boost from higher commodity prices and exchange rates to bring forward consumption and investment".
A. White
Analyst at Fibosignals.com
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