15th of November 2010 - Fundamental Forex Market Overview

DAILY Fundamental Forex Market Overview
15 November 2010 – 8:00 GMT
Monday

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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

FX markets trod water during the Asia session as investors looked to the opening of the Eurozone sovereign debt markets to provide some direction. EURUSD traded 1.3654-1.3751, and USDJPY 82.40-82.78. Speculation continues in the press that a bailout of Ireland could come as soon as this week, although Irish government officials have strenuously denied this, and IMF Managing Director Strauss-Kahn also dismissed the suggestions. The S&P500 finished down -1.2% on Friday, after global equities succumbed to the general risk-off mood. The University of Michigan consumer sentiment index rose to 69.3 in early November (cons. 69.0) from 67.7 in October. Our US economists note that the rise reflected improvement in both current conditions and expectations. Long-term inflation expectations in the survey were unchanged at 2.8% - right in the middle of their longer-term range. The New York Fed began its first purchases of US Treasury securities under the Fed's latest round of quantitative easing. Purchases worth $7.2 bn were concentrated in the 4-6 year segment of the curve, but yields still managed to rise on the day. Richmond Fed President Lacker said it is "unfair" to claim that the Fed's decision to return to quantitative easing was designed to weaken the dollar. Today, retail sales and manufacturing data are due.

EUR

Although the spread of Irish and Portuguese sovereign bonds over bunds tightened significantly on Friday, concern over Eurozone sovereign risk continues to be a focal point for financial markets. Several Irish lawmakers, including Prime Minister Cowen and Finance Minister Lenihan, dismissed speculation that a bailout package for Ireland was being prepared. Justice Minister Ahern described the bailout talk as "fiction". IMF Managing Director Strauss-Kahn said "so far I have not had a request, and I think Ireland can manage well".

EU, IMF and ECB officials are scheduled to begin a visit to Greece today to assess progress on fiscal matters. If satisfactory, Greece could receive a further €9 bn in cash as part of the bailout plan agreed in May. Greece's Prime Minister Papandreou said the term over which Greece repays the bailout loan may be extended.

Press speculation suggests that Eurostat could today revise up Greece's 2009 budget deficit to 15.3%. On Friday, German GDP growth slowed to +0.7% q/q for Q3, broadly in line with consensus, thanks in part to the uncertain global outlook and the stronger euro. However, the recovery remains on a stable footing and the outlook for Europe's largest economy is far superior to that of its peers. The Eurozone growth reading was also down slightly, falling to +0.4% q/q compared to +1% q/q for the previous quarter.

JPY

GDP for Q3 came in much stronger than expected at +0.9% (cons. 0.6%), and +3.9% y/y (cons. 2.5%). Despite the positive surprise, Economy Minister Kaieda offered a sombre assessment, saying the Q3 GDP expansion was due to a temporary rise in consumption, and that the Japanese economy is still at a standstill. He added that the yen's rise may weigh on the economy further.

CHF

Our team of analysts is expecting an escalation of sovereign risk concerns within the Eurozone.

A. M. Negrin Bautista, CFA

Chief Analyst at Fibosignals.com

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