28th of January 2011 - Fundamental Forex Market Overview

DAILY MARKET COMMENTARY
28 January 2011 – 8:00 GMT
Friday

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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

Activity in FX markets was fairly subdued given the lack of news flow. The yen used the opportunity to claw back some of yesterday's downgrade-driven losses against the dollar. EURUSD traded 1.3696-1.3744, USDJPY 82.58-82.98. The Nikkei 225 is -1.1% lower at the time of writing. Earlier the S&P 500 breached the 1300 level for the first time since Sept. 2008, but closed just below. Headline durable goods unexpectedly dropped but the ex-transportation figure increased, albeit by less than anticipated. Jobless claims jumped due to inclement weather and the Martin Luther King Day holiday, which indicates the jump does not reflect a material weakening in the labor market. Q4 GDP and the University of Michigan confidence index are due. Treasury Secretary Geithner speaks on the economy at Davos.

EUR

The euro benefited from hawkish remarks by ECB Executive Board member Bini-Smaghi. He highlighted his concerns over the effects of imported inflation in the Eurozone, noting that second-round effects can only be avoided if domestic inflation is "significantly lower than 2%".

Greek Prime Minister Papandreou said Greece would not need to restructure its debt, but acknowledged that extending the maturity of EU/IMF loans would be beneficial and would help to calm financial markets. ECB President Trichet said a strong economic union is needed to strengthen EU ties and to keep those nations that exceed deficit and debt limits accountable.

We maintain our EURUSD forecasts as our analysts do not envisage an ECB rate hike until Q4. We also believe that over-optimism on a solution to Eurozone sovereign worries could ultimately lead to disappointment when any changes to the EFSF are finally announced.

A. M. Negrin Bautista, CFA

Chief Analyst at Fibosignals.com

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