16th of March 2011 - Fundamental Forex Market Overview

DAILY MARKET COMMENTARY
16 March 2011 – 8:00 GMT
Wednesday

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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 remained nervous during the Asia session although sentiment got a small boost after Japanese stocks rebounded. An FOMC statement which sounded a little more optimistic on the US economy also helped. USDJPY and USDCHF remain heavy however. EURUSD traded 1.3954-1.4013, USDJPY 80.69-81.17. The Nikkei rose +5.68%, erasing slightly more than half of yesterday's losses. A slightly more constructive FOMC statement noted the economic recovery is on a "firmer footing" and also acknowledged improvements in labor market conditions. The Fed seemed to view the rise in energy prices in the context of what it might mean for inflation rather than growth, a sign that they are beginning to worry more about the outlook for inflation. The FOMC did not acknowledge any risk to growth posed by recent events, even though it seems likely these events have created some additional uncertainty. And the FOMC left little doubt that they would complete the $600 bn program of Treasury purchases by June. Our analysts continue to expect the Fed will allow passive balance sheet contraction to occur in H2 2011

EUR
The euro fell 20 pips after Moody's downgraded Portugal by two-notches to A3, outlook negative. This brings the rating into line with S&P, but Fitch still rates Portugal two notches higher.

Even though the EU surprised with its decisions over the weekend, the press reported that smaller EU states want to change how the size of contributions to the bailout fund is calculated, which points to persistent uncertainty on the fate of the so-called comprehensive solution.

We expect Eurozone CPI for February will match the consensus estimate of +2.4% y/y.

The ZEW surveys in the Eurozone were slightly disappointing as a result of wider risk aversion in the markets. The current situation index in Germany came in below expectations at 85.40 and the economic sentiment index at 14.10.

JPY
Headlines throughout the session indicated ongoing uncertainty regarding the damaged nuclear reactors in Japan. USDJPY was range-bound but heavy, although yen crosses were a little firmer on the back of much stronger Japanese equities. Finance Minister Noda again reminded investors that he is watching markets closely.


A. M. Negrin Bautista, CFA
Chief Analyst at Fibosignals.com

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