2nd of August 2011 - Fundamental Forex Market Overview

DAILY MARKET COMMENTARY
2 August 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
The US House of Representatives approved the bipartisan bill to raise the debt ceiling by a comfortable majority of 269-161. The currency reaction was extremely muted. EURUSD traded 1.4230-1.4283 and USDJPY 76.88-77.82. The Senate is due to vote on the same Bill at approximately 1600 GMT on Tuesday. Before the House vote, Moody's had already said that they were likely to affirm the US AAA debt rating if the debt ceiling is increased. However, the positive implications of the latest progress on the political front were offset by weaker macroeconomic data. At 50.9 (cons. 54.9, prev. 55.3) the ISM manufacturing PMI for July was considerably below market expectations. The new order component dropped to 49.2, into contraction territory. As a consequence of falling growth expectations, most global equity markets indices closed in the red. The S&P 500 ended 0.4% lower overnight and the Nikkei 225 is down 1.18% at the time of writing.

EUR
The manufacturing PMIs were released across parts of Europe and painted a mixed picture. While French and Italian numbers were stronger than the flash estimates, the Spanish PMI components were all down, with both domestic and export orders below 50. Our European economist notes that this points towards a further slowdown in Spanish industrial production.

JPY
Without citing sources, the Nikkei newspaper reported that the BoJ may take steps to ease monetary policy further at this week's meeting. It also claimed that the government is preparing for currency intervention.

Finance Minister Noda said he is watching FX markets especially closely today, and added he is communicating closely with the BoJ and with other countries on the yen's rise. He repeated that the yen is too strong and that moves have been one-sided.

AUD
The RBA kept the policy rate on hold and re-instated an implied near-term tightening bias, expressing 'concern' at the medium-term outlook for inflation. Nevertheless AUDUSD fell about 60 pips on the announcement. Our Australia economists stick to their view that the RBA is likely to hike rates again in October.

GBP
The UK manufacturing PMI was softer than consensus with the composite indicator at 49.1 and the new orders balance at 47.6. Cable fell on the release but soon reversed its losses.


A. White
Analyst at Fibosignals.com


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