18th of November 2010 - Fundamental Forex Market Overview

DAILY Fundamental Forex Market Overview
18 November 2010 – 8:00 GMT
Thursday

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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 weakened broadly during the Asia session, as the market looked back on yesterday's weak US CPI report, and ahead to the arrival of a delegation of EU, IMF and ECB officials in Dublin today. The market is coming around to the view that an Irish bailout could eventually be on the cards, but the Irish government still insists that this is not inevitable. EURUSD traded 1.3511-1.3608 and USDJPY 83.11-83.40. Asian equities were also stronger after the S&P 500 finished flat. US core CPI in October was flat m/m for the third consecutive month (cons: +0.1%), but the annualized figure was more striking, showing a feeble rise of just +0.6% y/y. This was the slowest pace of growth in the history of the survey, which dates from 1957, and goes some way to justifying the latest FOMC decision to launch a new round of quantitative easing. In addition, October housing starts were also much weaker than expected, falling to an annual rate of only 519k (cons: 598k).

EUR

While Ireland has not asked for a bailout, consultations with the IMF, the ECB, and the European Commission are due to begin in Dublin today. EU Commissioner Rehn has said that these talks can be regarded as preparation for a potential aid program for Ireland, should it be necessary.

A major London-based clearing house increased the margin it requires for holding Irish government bonds to 30%, adding further pressures to Ireland.

GBP

As expected, the BoE minutes from the Nov. 4 policy meeting showed an 8-1 vote split on both QE and interest rates. MPC member Posen voted again for £50 bn in fresh QE, while MPC member Sentance wanted a +25bp rate hike.

AUD

RBA Deputy Governor Battellino said that, although the strong AUD is helpful for the economy overall, it is hurting the tourism industry. He noted the strength of the AUD is a natural result of the boom in commodity resources, implying that he felt it is justified by economic fundamentals.

Average weekly wages in Australia grew at a slower than expected pace in August, rising only +4.5% y/y (cons. 5.4%, prev. 5.3%).

A. M. Negrin Bautista, CFA

Chief Analyst at Fibosignals.com

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