22nd of November 2010 - Fundamental Forex Market Overview

DAILY Fundamental Forex Market Overview
22 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

Irish Prime Minister Cowen announced on Sunday that Ireland has formally requested financial assistance from the EU/IMF. The euro clearly benefited from the news during the Asia session, and the dollar in particular weakened steadily against both the euro and the AUD. EURUSD traded 1.3695-1.3768 and USDJPY 83.14-83.65. On Friday, the S&P 500 finished +0.7% higher, despite another 50bp hike to China's reserve requirement ratio. ECB President Trichet said that a strong dollar relative to the other floating currencies is very important. New York Fed Executive Vice President Checki said that recent dollar weakness is a side-effect, rather than a goal of the Fed's policy. He forecast that as US growth strengthens, the dollar should strengthen accordingly. US Treasury Secretary Geithner implied he would not support any attempt to change the Fed's dual mandate so that it focuses exclusively on inflation. He said the existing dual mandate has "served the country well over time". Minneapolis Fed President Kocherlakota, who is due to become an FOMC voter in January, is scheduled to speak later today. Last week, for the first time, Kocherlakota publicly expressed his support for the Fed's latest round of quantitative easing.

EUR

The euro was boosted by Irish Prime Minister Cowen's decision to formally request financial assistance from the EU/IMF. Cowen expects negotiations on the terms of the rescue to be concluded over the coming weeks. Finance Minister Lenihan said the whole package would be worth less than EUR100 bn. In a statement, Eurozone finance ministers welcomed the decision, adding that both the UK and Sweden would also consider participating by means of bilateral loans.

German Finance Minister Schaeuble said that he could not give a concrete figure for the cost of a possible Ireland rescue. He sounded optimistic that there would be no contagion from Ireland, but said that a better solution to debt crises must be set up from 2013.

CAD

BoC Governor Carney said the BoC would be prepared to "adjust policy" if the level of the CAD was such that it threatened the bank's ability to achieve its inflation target. He said the bank has the tools to intervene in the FX market, but would use these only in extreme circumstances.

A. M. Negrin Bautista, CFA

Chief Analyst at Fibosignals.com

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