25th of November 2010 - Fundamental Forex Market Overview

DAILY Fundamental Forex Market Overview
25 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 firmed during the Asia session as speculation about further China tightening continued, and the recent confrontation on the Korean peninsula produced more headlines. Still, the greenback couldn't rally against the CAD, which held onto all of yesterday's gains after the price of crude jumped almost $3/bbl. EURUSD traded 1.3307-1.3371, USDJPY 82.94-83.62. However, Asian stocks managed to make some modest gains, after the S&P 500 finished 1.5% higher. US data showed a sharp drop in jobless claims, improving consumer confidence, strong household income, and accelerating real spending. Weakness in durable orders at the start of Q4 was attributed to possible distortions due to seasonal adjustment. Treasury yields rose across the curve, keeping USDJPY supported. Housing data were mixed, with mortgage applications rising but new home sales and home prices falling. Given the holiday today, the next US economic release of note will be Chicago PMI on Nov 30, followed by the US employment report and ISM data later in the week. Until then, Eurozone concerns will likely remain in focus and should keep EURUSD under pressure while any further risk-seeking should see the higher-beta G10 currencies gain versus the dollar.

EUR

ECB Governing Council member Weber conceded that the foundations of EMU have been strongly shaken, but that he sees no reason to doubt the euro's future.

The Irish 4-year austerity plan was released and contained few surprises. Irish Prime Minister Cowen said that a bailout of EUR85 bn has been discussed with EU and IMF officials, though not yet agreed. Irish Finance Minister Lenihan reiterated that any financial assistance would be less than EUR100 mn. While a successful conclusion of negotiations on an aid package could help stem some of the recent euro downslide, it is difficult to see a more substantial euro recovery ahead of the budget vote, scheduled for Dec. 7.

The German Ifo numbers for November, while skewed to the upside, were broadly mixed. Our European economists note that although the core figures beat consensus and showed improvements versus the last readings, the widening gap between the current assessment and future expectations suggests that the slowdown in the German recovery may come later than expected. For the moment however, these readings are not driving the market and will continue to remain that way until an element of stability is restored to the peripheral bond markets. In other data, Eurozone industrial new orders were below consensus.

JPY

BoJ policy board member Nakamura said that the BoJ needs to continue watching FX moves and their impact. He offered a mixed outlook, saying that downside risks to Japan are somewhat stronger than upside risks, but that he expects the Fed's latest easing to have a positive impact on the global economy.

GBP

MPC members King, Tucker, Dale, Posen and Sentance are due to appear before a parliamentary committee today. The simultaneous presence of the hawkish Sentance and the dovish Posen could make for some volatile price action in sterling around 1000 GMT.

The second estimate of Q3 GDP was in line with expectations of 2.8% y/y. The UK's export sector showed strong performance of 2.2% q/q, which provides some evidence that a weaker sterling is benefiting the economy. Our economists see a slowdown in growth in the UK through Q4 and into Q1 of next year due to the fiscal consolidation measures feeding their way through to the system and the added effect of the upcoming VAT rate hike.

A. M. Negrin Bautista, CFA

Chief Analyst at Fibosignals.com

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