DAILY Fundamental Forex Market Overview
2 December 2010 – 8:00 GMT
Thusday
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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
FX markets were generally quiet during the Asia session as news flow was in short supply. EURUSD traded 1.3088-1.3150, USDJPY 84.05-84.35. Nevertheless, risk seeking sentiment has clearly enjoyed a modest revival over the past 24 hours. Tightening European sovereign bond spreads have helped and, justified or not, expectations are rising that a significant European policy announcement may be in the pipeline.
Asian equities are ahead at the time of writing, and US stocks finished stronger earlier, helped by unconfirmed reports of potential US backing for a larger European rescue effort via IMF funds. ISM Manufacturing edged down as expected but it still continues to signal above-trend growth. The ADP private payroll estimate beat consensus and supports our economists' above-consensus +175k forecast for the upcoming nonfarm private payroll estimate. The Fed's latest Beige Book reflected responses before November 19 but nevertheless sounded more positive than the prior report.
EUR
The ECB is due to announce its latest policy decision today. While market participants may think the ECB will introduce significant policy measures, our fixed income strategists think ECB President Trichet's press conference runs the risk of disappointing those expectations. This would likely put renewed pressure on the euro again.
A Spanish 10-year auction is due and could be significant for the euro, although the nature of the auctions means that the results could be misleading, as primary dealers tend to go short in the run up and, as a consequence, the auctions themselves can be well bid. Yesterday, the Portuguese 12month bill auction passed largely without incident though funding costs obviously remain elevated.
Ireland's manufacturing PMI rose slightly to 51.2 but the export balance retreated a little to 54.7. With the country highly dependent on the fortunes of its export sector going forward, our European economists note that they are unlikely to achieve the Government's GDP growth forecast of 1.75% for next year. On the other hand, German and French manufacturing PMIs were relatively better as they showed evidence of a strong manufacturing recovery. But Spanish PMI was down to 50, with the French reading of 57.9 the highest since September 2000.
GBP
The PMI print for November provided a very strong reading of 58.0, driven by an employment index which is at the highest level since the survey began in 1992. UK Nationwide house price inflation fell by -0.3% y/y, in line with consensus, and continuing the recent downward trend.
AUD
The AUD slipped when October retail sales came in weaker than expected, falling -1.1% m/m (cons. +0.4%, prev. +0.1%). This is the fastest pace of contraction since July 2009.
A. M. Negrin Bautista, CFA
Chief Analyst at Fibosignals.com
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