8th of February 2011 - Fundamental Forex Market Overview

DAILY MARKET COMMENTARY
8 February 2011 – 8:00 GMT
Tuesday

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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 during the Asia session, clocking up losses against the euro, the AUD, and the NZD. USDJPY remained tightly range-bound all night and traded 82.21-82.45. EURUSD traded 1.3544-1.3636. The S&P 500 continued its advance and finished 0.6% higher, despite thin news flow. The attention now shifts to Federal Reserve speakers, with Regional Fed Presidents Lacker (Richmond), Lockhart (Atlanta) and Fisher (Dallas) scheduled to speak. Fisher and Lacker are more hawkish and Lockhart and Lacker are non-voters this year, but their interpretation of the latest Bureau of Labor Statistics data could be an important near-term driver of the dollar. Non-voting members still participate in FOMC discussions and Lacker and Lockhart will rotate into voting positions in 2012. Fisher has already said he would be unlikely to support more easing beyond QE2 and given the current biases of these three, we could see the greatest USD reaction, if any, from Lockhart should he move away from his more neutral, cautious stance. Our economists believe payrolls should bounce back to their firm underlying trend, with some additional "payback" potentially ahead.

EUR

ECB Governing Council member Mersch said inflationary pressures have undoubtedly risen and the ECB would have to intervene if there were secondary effects from higher commodity prices. Mersch also said the ECB could hike interest rates without first exiting liquidity support measures. Mersch added that the EFSF should be able to buy bonds directly.

Irish Finance Minister Lenihan said he is negotiating with his European counterparts on the question of whether haircuts can be imposed on Irish senior bank debt which is not government guaranteed. He said the "debate is underway".

GBP

Sterling received a brief boost on the news that the RICS house price balance strengthened to -31% in January from -39% in December. It remains in negative territory however, indicating that UK house prices are still tending to fall.

AUD

Business conditions in January showed a steep drop across employment intentions, forward orders, and capacity utilization. Our analysts note that this is not entirely surprising given the impact of the Queensland floods. The AUD soon recovered from the news.

A. M. Negrin Bautista, CFA

Chief Analyst at Fibosignals.com

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