29th of July 2011 - Fundamental Forex Market Overview

DAILY MARKET COMMENTARY
29 July 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 House postponed its vote on the Boehner plan, first until Thursday night, and then indefinitely. USDJPY fell quite significantly on the headline. During the Asia session, EURUSD traded 1.4281-1.4364 and USDJPY traded 77.46-77.87. House Republicans are now due to meet at 1500GMT on Friday to discuss a way forward, which suggests that no House vote is likely before then. The vote itself is likely to be symbolic as Democrats in the Senate have vowed to kill the measure. House Majority Leader Cantor has already said that the Senate plans on being in session during the weekend.

On the data front, US jobless claims were better than expected at 398k, while Pending Home Sales came in better at 2.4%m/m (cons. -2.0%). Although the economic outlook for the US remains troubling, there is no concise evidence that a major downturn is afoot, though many policymakers have warned that failure to raise the debt ceiling and potential disruptions could further undermine the economy. Ahead on Friday investors will continue to follow the US debt ceiling debate, but the data focus will be on US GDP (UBSe. 2.0%q/q) and the Chicago PMI.

EUR
Moody's put Spain's Aa2 on review for a possible downgrade, noting that any actual downgrade would likely be one notch only. S&P currently rates Spain at the same level (AA), while Fitch's rating on Spain is one notch higher (AA+). Moody's cited the increased vulnerability of government finances, and the risk that the recent increases in funding costs will be sustained.

German and French Finance Ministers published a joint article in the Financial Times, stressing the importance of the EFSF's new capabilities, but more importantly displaying a united front and sending a message to investors that the Eurozone's core members remain ready to defend the currency union at all costs.

German unemployment in July fell 11k, slightly lesser than expectations for a fall of 15k. However, the unemployment rate was unchanged at 7.0%.

ECB's Mersch says ECB must prevent second-round effects, and suggested that commodity-price inflation may be more persistent. This falls in line with recent hawkish rhetoric from other ECB members.

JPY
The rhetoric of Finance Minister Noda escalated a notch overnight, but USDJPY still took no notice. He said the yen is strengthening too much, and that has deviated from Japan's economic fundamentals. He added that he hopes to take appropriate action in cooperation with the BoJ on the yen's rise. Implying that his patience was wearing thin he said he will carefully examine how long Japan can leave the latest FX moves unattended.


A. White
Analyst at Fibosignals.com


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