DAILY Fundamental Forex Market Overview
9 December 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 weakened against the euro and the AUD after a very strong Australian employment report boosted risk appetite. EURUSD traded 1.3225-1.3323, USDJPY 83.66-84.28. US Treasury yields also stabilized, and even retreated a little, after the 10y auction passed largely without incident. The dollar held its ground against the NZD however, after the RBNZ sounded dovish and revised down its guidance for future rate hikes. Although the S&P500 finished only +0.37% ahead, S&P financials gained almost 2%, and gold is trading at $1387.40 at the time of writing. Upcoming releases for the US include initial jobless claims, and the dollar is likely to gain if new claims are fewer than expected. The recent tax proposal will likely remain in the spotlight and while the near-term impact on growth should be positive, which would offer support for dollar, US officials will need to keep an eye on the longer-term implications for the US fiscal position.
EUR
A EUR5bn German Schatz auction was poorly received, with a bid-to-cover ratio of 0.9. This is the third German bond auction in a row that has not been covered.
The October German industrial production print was a strong reading, increasing by 2.9% m/m and 11.7% y/y, greatly above consensus. Our economists note that a strong performance for Q4 is now likely, with the trend following good prints in PMI and IFO numbers.
We retain our negative bias on the euro given the lack of a broader solution for contagion worries/peripheral fears.
JPY
BoJ policy board member Morimoto said that one-sided dollar weakness seems to have subsided, although he warned that sharp FX volatility can have a large effect on the economy and so he is always watching FX moves carefully. Referring to the recent jump in JGB yields, he said this is simply a reflection of similar moves in US Treasury yields, and that he does not expect any substantial damage to Japan's economy to flow from this. He added that increasing the size of the BoJ's asset purchase facility is a strong policy option, and Bloomberg reported him saying that he hopes BoJ easing will have some effect on FX.
GBP
UK Chancellor George Osborne spoke at the Treasury Committee and revealed that the 'interest rate on the loan package to Ireland is still under negotiation'. He also noted that there was a discussion of haircuts to senior bank debt during the Irish rescue plan but policy makers decided against these because of considerable contagion risks.
AUD
The employment report for November was very strong, showing that +54.6k (cons. 20k) new jobs were created, all of which were full-time posts. The unemployment rate fell to 5.2% as expected (prev. 5.4%). Our Australian economists think the pace of job creation has probably peaked and re-iterate their view that, with GDP growth a bit below trend and borrowing rates slightly above average, the RBA has more time on its hands to assess inflationary pressures. They expect the next +25bp RBA hike in Q3.
A. M. Negrin Bautista, CFA
Chief Analyst at Fibosignals.com
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