22nd of October 2010 - Fundamental Forex Market Overview

DAILY Fundamental Forex Market Overview
22 October 2010 – 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 dollar clawed back some lost ground during the early part of the Asia session, but risk currencies found a bid on remarks from US Treasury Secretary Geithner. He said that G20 countries should cap their external imbalances at a particular, though unspecified, share of GDP. It appears that the aim of any such measure would be to force export-dependent economies to focus instead on stimulating domestic demand, and this should in theory reduce local objections to currency appreciation. Geithner conceded that countries with large raw material exports could be made exempt from such a rule. This proposed exemption would appear to favour Australia, and should be AUD supportive. EURUSD traded in a range of 1.3889-1.3966, and USDJPY stayed in a range of 81.14-81.37.

Asian equities are slightly firmer at the time of writing and US equities earlier closed fractionally ahead. FOMC voter and St. Louis Fed President Bullard said that "we are not here to ratify what the markets think" suggesting there was no pre-commitment on the November 3 FOMC decision. However, Bullard said that if the Fed did go ahead with further quantitative easing, he would favor asset purchases in increments of $100bn. On the data front, initial jobless claims fell from 475k to 452k for the most current reading. The Philadelphia Fed Index rose to 1.0 from -0.7 previously. The growth-related details of the survey were slightly more positive, with improvement in employment and shipments indices. New orders remained soft, albeit less weak than in September. Philadelphia Fed President Plosser is due to speak at a seminar on regulatory reform. The G20 finance ministers and central bank governors are due to convene in Korea.

EUR

Germany's PMI manufacturing was far stronger than expected in October, coming in at 56.1 vs. 54.6. Services PMI was also strong at 56.6 vs. 54.9 expected. This has managed to lift the corresponding Eurozone figures too, and has provided an extra layer of support for the EUR.

Ahead, the German IFO is due to be released. Our European economists expect the business climate index to weaken slightly to 105.1 (prev. 106.8).

GBP

UK retail sales fell by 0.2% in Sept after a downwardly revised -0.7% decline (-0.5% previously), lower than market expectations of a 0.4% increase. This is the 2nd month retail sales have dropped. The official data stands in contrast to some of the major surveys such as the CBI, BRC and the BoE, which continue to point to retail sales volume growth. We expect retail sales volume growth to strengthen in Q4, ahead of the January VAT hike.

JPY

Finance Minister Noda described as "unrealistic" US Treasury Secretary Geithner's proposals to limit the size of a country's current account balance. He added that the G20 meeting is unlikely to discuss the currency policies of any individual country. BoJ Governor Shirakawa said he would not comment on the capital control measures of any individual country. He added that China's recent rate hike will promote sustainable growth.

CHF

Swiss trade data were much firmer than expected, coming in at CHF1.69bn in surplus vs. CHF1.20bln expected. However, this was largely due to a sharp drop in imports as exports also dipped by 3.8% on the month.

The SNB also announced mass diversification of their assets in Q2, buying over $10bln, ¥1tln, CAD5bln and CHF6bln in other currencies.

CAD

Ahead, Canada CPI readings for September will be released as will retail sales for August.

A. M. Negrin Bautista, CFA

Chief Analyst at Fibosignals.com

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