12th of November 2010 - Fundamental Forex Market Overview

DAILY Fundamental Forex Market Overview
12 November 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 made broad substantial gains during the Asia session on signs that lawmakers and policymakers are becoming increasingly concerned about the intensifying Eurozone debt crisis. EURUSD traded 1.3592-1.3670, and USDJPY 82.24-82.61. The S&P 500 finished down -0.42%, but Asian equities are even deeper in the red at the time of writing. No official communiqué from the G20 Summit has yet been released, but comments already on the newswires suggest that the chance of a substantive agreement on imbalances is remote. Naturally, bilateral meetings held on the fringes of the summit were also in focus.

Reports suggested that the key meeting between US President Obama and China President Hu focused on exchange rate policy. Newswires also reported that, during another bilateral meeting, German Chancellor Merkel expressed concern to Obama about US monetary policy. Today, the University of Michigan confidence survey is due, and our US economists and the consensus expect a modest increase in the headline index to 69.0 from 67.7 previously. The New York Fed is also due to begin Treasury purchases under the Fed's latest round of quantitative easing, concentrating on the 4-6 year segment of the curve.

EUR

Sovereign bond yields of peripheral Eurozone nations continued to blow out yesterday. Ireland's Prime Minister Cowen said that the latest widening of Irish yields was caused by uncertainty over German proposals to create a permanent sovereign rescue mechanism. The proposals include the suggestion that bondholders could be forced to take haircuts, and Cowen said the Irish government is making diplomatic efforts to clarify the details of the plan.

German Chancellor Merkel said that the EU is prepared to deal with all possible scenarios concerning Ireland, but that it is up to individual countries to ask for help if it is needed. Merkel said that markets have misunderstood discussions surrounding the future of Eurozone bailouts. Finance Minister Schaeuble agreed, saying the situation is "a total misunderstanding". Moody's said it will conclude its review of Ireland's credit rating in December, adding that the four-year fiscal consolidation plan, which is due to be published in November, will be key to the ratings decision.

European Commission President Barroso said the EU would be ready to come to Ireland's aid if needed. Ireland's Finance Minister Lenihan said Barroso's comments were helpful and demonstrate the solidarity that exists within the Eurozone. ECB Executive Board Member Stark said the ECB is in the process of withdrawing unconventional measures, but that these will be kept in place as long as necessary. He added that the ECB's current interest rate settings are appropriate. Stark said it would be an illusion to think that the crisis is over, and insisted that ECB activity in Eurozone bond markets is motivated by monetary policy, and not politics.

On Greece, Stark said that consolidation efforts are on track, and that "it is possible" for Greece to overcome its economic difficulties.

CHF

The SNB reported a loss on of CHF 8.5bn for the first three quarters of this year, and said that loss was mainly attributable to exchange rate losses on foreign currency positions.

A. M. Negrin Bautista, CFA

Chief Analyst at Fibosignals.com

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