DAILY Fundamental Forex Market Overview
10 November 2010 – 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 dollar strengthened further against the euro during the Asia session amid intensifying concern over ongoing debt problems in Ireland. Gains were also made against the NZD but this was largely due to news that kiwi fruit imports to the US have been halted, rather than indicating a broader risk-off move spreading from the Eurozone. EURUSD traded 1.3837-1.3950, USDJPY 80.74-81.25. Asian and US equities were slightly weaker. The Fed's October Senior Loan Officer Opinion Survey showed that banks continue to ease lending standards in many categories.
Banks also reported falling demand by both large and small businesses for some loan categories. It appears, however, that there was a bit of a turnaround in mortgage standards, with 9% of banks, on net, tightening on prime mortgages, versus 5% easing in the prior quarter. St. Louis Fed President Bullard, a current FOMC voter, said that the benefits of further quantitative easing will outweigh the costs and that the full effect of the further QE will be felt in 6 months. Dallas Fed President Fisher, who is a voter in 2011, noted that QE2 may be the "wrong medicine" and that it was "risky business." Echoing the tone in his WSJ op-ed, Fed Governor Warsh spoke and said that asset purchases may fail to benefit the economy and that expanding the Fed's balance sheet "was not a free option”.
EUR
Rising credit spreads on Irish debt have started to weigh on the euro. The Irish government has presented a plan, which intends to introduce austerity measures totaling EUR6 bn for 2011. EU Commissioner Rehn and Irish Finance Minister Lenihan held a press conference at which Rehn endorsed the austerity measures for 2011. Rehn also said Ireland has not requested financial backstops and that it would benefit Ireland if there was broad cross-party support for the budget measures. Seeking to distance Greece from the situation in Ireland, Greece's Finance Minister Papaconstantinou said that "Greece is not Ireland" given that Greece "doesn't have banking stability problems".
The ECB settled €711 mn worth of Eurozone bond purchases last week, after a three-week absence from the market.
German data was mixed, with slight falls in industrial production accompanying some strong trade data. German exports grew by +3.0% in September versus expectations of +1.5%, suggesting that economic growth and macro fundamentals remain strong in Europe's largest economy. A larger-than-anticipated decline in imports of 1.5% helped widen the trade balance to the largest level in nearly two years, providing further evidence that Germany will remain hostile to US Treasury Secretary Geithner's current account target proposal, heading into the G20 Summit on Wednesday. Industrial production for September surprisingly fell by 0.8% m/m (vs. consensus of +0.4%) and increased 7.9% y/y (vs. consensus of 9.5%).
GBP
The RICS house price balance was much worse than expected, providing further evidence of an acceleration in UK house price declines. The reading was -49% in October (cons. -39%, prev. -36%).
AUD
Treasurer Swan said that the strong AUD does have a "significant impact" on government revenue, which is very much in tune with yesterday's comments by Prime Minister Gillard. However, he declined to offer a view on the future direction of the currency.
A. M. Negrin Bautista, CFA
Chief Analyst at Fibosignals.com
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