DAILY Fundamental Forex Market Overview
23 November 2010 – 8:00 GMT
Tuesday
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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
News of an exchange of fire on the Korean peninsula led to a sudden increase in risk aversion towards the end of the Asia session. The dollar strengthened sharply, in particular against the yen given Japan's geographical proximity. EURUSD traded 1.3542-1.3634, USDJPY 83.23-83.74. We expect further dollar strength into year-end as dollar bears look to unwind positions. The US data calendar was quiet at the start of the holiday-shortened week, which only heightened market participant scrutiny of Eurozone developments. Minnesota Fed President Kocherlakota, a 2011 FOMC voter, said that he expected QE to have only a "modest" impact. But he nevertheless supported it as growth is "alarmingly" slow and uncertainty in the economy is too high. Upcoming releases include the second estimate of Q3 GDP and the latest FOMC minutes. The minutes will include updated central tendency forecasts. We expect these will show a lower real GDP growth projection than the 3.5%-4.2% central tendency reported at the June meeting.
EUR
Increased political uncertainty in Ireland, coupled with a ratings agency warning of a potential "multi-notch" downgrade continues to weigh on the euro. Irish Prime Minister Cowen said he would not dissolve parliament immediately or step down. But he said it is important for the government to work on passing the budget and finish aid talks. Cowen said should the budget pass on Dec 7, he would dissolve parliament and call for elections in early 2011.
ECB Governing Council Member Liikanan said the euro will survive this crisis and that it is 'impossible' for the Eurozone to split. ECB President Trichet said the euro has delivered exactly what was expected and the euro was not at stake. He shares the view that a dollar that is credible among the major currencies of the advanced economies is in the interests of the US. Trichet also said non-standard ECB measures are temporary in nature and that Europe is in a better fiscal position than Japan or the US.
UK Chancellor Osborne reiterated the UK will not be part of a permanent mechanism but would offer bilateral loans to Ireland.
A. M. Negrin Bautista, CFA
Chief Analyst at Fibosignals.com
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