DAILY MARKET COMMENTARY
6 April 2011 – 8:00 GMT
Wednesday
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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 FOMC minutes from the March 15 meeting confirmed what recent Fed speeches have suggested - a mild divergence of opinion is starting to emerge on the FOMC. Australian economic data continues to turn over, and home loan lending declined again in February. EURUSD traded 1.4208-1.4267, USDJPY 84.58-85.53. The FOMC minutes revealed that some members felt the risks to inflation had shifted to the upside, although "almost all" Fed officials saw no need to taper asset purchases as QE2 nears an end. The minutes repeated that the recovery is gaining traction and overall reflected the recent shift in views from several Fed officials. No members dissented. In US data, the non-manufacturing ISM index fell more than expected to 57.3 in March. Before the latest drop the index had increased in each of the prior six reports. Some of the softening in March appears to have reflected anxiety about the natural disaster in Japan than a meaningful change in activity. With attention focused on relative central bank policies for now, upcoming releases ahead may not be enough to spark a meaningful move in the near term.
EUR
Portugal's sovereign debt was cut to Baa1 from A3 by Moody's. Fitch and S&P rate the sovereign two notches lower. Moody's kept Portugal on review for further downgrades, citing upward revisions of Portugal's deficit and concerns over fiscal consolidation and structural reform. The euro retreated on the announcement, but remains largely driven by ECB rate hike anticipations for the moment.
EU service PMI was revised up to 57.2 from 56.9, pointing towards an acceleration of growth in Q1.
GBP
Services PMI in the UK was strongly above consensus at 57.1. While the firm print is unlikely to alter the decision of the MPC members at this week's meeting, the data support the view of our UK economist who is calling for a May hike.
CHF
SNB Governing Board member Danthine again referred to the SNB's current policy dilemma. He repeated that, if the SNB only had to consider the real estate market and the domestic economy, then it would certainly hike interest rates. But given that different conditions are being experienced by Switzerland's exporters, there is limited scope for monetary policy adjustment. Taking the whole economy (domestic and export) into account, Danthine said the current setting of monetary policy is appropriate.
We expect Swiss CPI to show a further fading of deflationary risks, and expect the annualized reading to rise to +0.6% y/y (cons. +0.5%, prev. +0.5%).
CAD
Canada's Department of Finance revealed that the size of Canada's contribution to the coordinated yen intervention announced on March 18 was US$0.124 bn.
A. White
Analyst at Fibosignals.com
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