26th of January 2011 - Fundamental Forex Market Overview

DAILY MARKET COMMENTARY
26 January 2011 – 8:00 GMT
Wednesday

____________________________________________________________________
Market Analysis Desk
Foreign Exchange Research: www.fibosignals.com/5585/resources.html
_____________________________________________________________________


FUNDAMENTAL ANALYSIS at 0800 GMT

USD

President Obama's State of the Union address was a focal point during the Asia session. Expectations had been building in the market, that Obama might incentivise US multinationals to repatriate their overseas earnings. The dollar was bought ahead of the speech on this, but sold off again when it became clear that no such proposal was in the pipeline. EURUSD traded 1.3633-1.3704, USDJPY 81.98-82.39. The USD also enjoyed a temporary bounce earlier after a much stronger than expected January consumer confidence reading. The Conference Board consumer confidence index rose 7.3 points to 60.6 in January (cons 54.0). US equities finished essentially flat on the day. The focus will now shift to the upcoming FOMC statement. Our analysts do not think that the FOMC statement will suggest a near-term change in monetary policy. However, investors will be focused on the inflation outlook language and whether any of the new voters on the committee dissent in a hawkish direction.

EUR

The first issuance of an EFSF bond saw strong demand. Orders of EUR44.5 bn were received for only EUR5 bn in issuance. EFSF CEO Regling expressed the hope that the bond issue could well be a turning point in the sovereign debt crisis. By contrast, our European rates strategists continue to expect to see an escalation of the crisis.

ECB Governing Council member Honohan said he would not expect an "abrupt response" in terms of the ECB's monetary policy given that inflation expectations remain well-anchored. ECB Governing Council member Nowotny said he does not expect a change in the policy rate in the first half of the year.

GBP

The GDP print for Q4 was poor, declining by 0.5% versus consensus at +0.5%. The ONS has said that the reading is due largely to the adverse weather conditions impacting the services sector, and without this effect, the print would have been largely flat. However, even with this temporary weather effect, the number was disappointing and casts doubt about the sustainability of the recovery in the UK.

BoE Governor King downplayed the significance of the weak GDP number and stressed the MPC's commitment to low and stable inflation. He did not seem in any hurry whatsoever to hike the policy rate. Our UK economist does not expect the first hike come until Q3.

Today's BoE minutes will likely sound more hawkish, simply because the MPC will have had the high inflation print at that meeting, but they will not have had today's GDP data.

CAD

Canada inflation readings came in a bit under expectations for the headline and core inflation readings, weakening the Canadian dollar for the session. Headline CPI rose 2.5% y/y vs. expectations of 2.5% y/y and core inflation rose 1.5% y/y vs. expectations of 1.6% y/y. While headline inflation is now above the mid-point of the Bank of Canada's 1% - 3% inflation target range, core inflation remains safely below, where it has resided for most of the past 3 years.

A. M. Negrin Bautista, CFA

Chief Analyst at Fibosignals.com

DISCLAIMER: Fibosignals.com’s Daily Market Commentary is provided for informational purposes only. The information contained in these reports is gathered from reputable news sources and is not intended to be used as investment advice. Fibosignals.com assumes no responsibility or liability from gains or losses incurred by the information herein contained. Opinions, conclusions and other information expressed in this message are not given or endorsed by Fibosignals.com unless otherwise indicated by an authorized representative.