24th of November 2010 - Fundamental Forex Market Overview

DAILY Fundamental Forex Market Overview
24 November 2010 – 8:00 GMT
Wednesday

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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 managed to hold onto yesterday's gains against the euro during the Asian session, but lost some ground to the Australian and New Zealand dollars. S&P cut Ireland's long-term sovereign credit rating by two notches to A from AA-. The rating remains on negative watch. EURUSD traded in a 1.3360-1.3419 range, briefly slipping 20 pips on the Ireland downgrade, before recovering. USDJPY traded 82.83-83.36. Risk appetite in general remained muted. Asian equities were mixed, after the S&P 500 closed down -1.4%. US data was mixed too, with the second estimate of Q3 GDP slightly better than expected and the Richmond Fed manufacturing index above consensus, but existing home sales disappointed. The latest FOMC minutes were largely as expected as most officials saw the benefits of QE2 outweighing the costs but there were disagreements as some thought that more easing would put unwanted pressure on the dollar. The lack of cohesiveness could cast doubt that QE2 lasts beyond the current prescribed June end-date. The FOMC cut the central tendency growth projections in line with expectations and the QE2 decision. 2011 growth was cut to 3.0-3.6% from 3.5-4.2%. 2012 growth was little changed at 3.6-4.5%. On inflation, core PCE prices for 2010 and 2011 were increased slightly, as were projections for total PCE inflation, and unemployment rate projections were raised across the board. Ahead we have initial jobless claims, durable goods, new home sales and University of Michigan confidence data in the US.

EUR

German Chancellor Merkel said the euro is in an "exceptionally serious" situation following Ireland's request for aid. She said that while the situation in Ireland is different to that of Greece, it is just as worrying. ECB Governing Council member Nowotny, however, said it is individual states, not the euro, which are in danger. He said he does not see any country leaving the euro in 10 years. ECB Governing Council member Mersch said that contagion is not afflicting the Eurozone.

Reuters reported the EU/IMF will offer EUR85 bn to recapitalize the Irish banks and fund public finances. The main opposition party, Fine Gael, later said it will act constructively in the interest of Ireland. The government is due to present its austerity plan Wednesday. A Moody's official commented that while Spain is fundamentally strong, they do have concerns on Portugal because of the banking system's reliance on ECB Financing.

PMIs in the Eurozone all rose more than consensus, following similar results for France and Germany. Manufacturing at 55.5 and services at 55.2 both beat market expectations, pointing towards a solid reading in Q4 GDP. The German Ifo readings are up next.

JPY

Finance Minister Noda said Japan must make efforts to ensure that there is no economic impact from yesterday's clash on the Korean peninsula. Economy Minister Kaieda conceded that the economy could be adversely affected.

NZD

RBNZ Governor Bollard said an improvement in the domestic savings rate would take upward pressure off both interest rates and the NZD. He added it would also reduce New Zealand's exposure to external shocks.

CAD

Canadian CPI was above consensus at +2.4% y/y, suggesting there is scope for a rate hike in the near future. The core figure also surprised to the upside at +1.8% y/y. Retail sales were slightly below consensus and USDCAD remained largely driven by risk aversion flows, which benefited the US dollar.

A. M. Negrin Bautista, CFA

Chief Analyst at Fibosignals.com

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