2nd of March 2011 - Fundamental Forex Market Overview

DAILY MARKET COMMENTARY
2 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

The dollar continued to recover lost ground on the back of weaker risk appetite. Ratings agency comments about Greece and Portugal did not help. Nor did calls for a cut to the OCR by New Zealand Prime Minister Key. Weaker-than-expected Australian Q4 GDP also contributed to the sombre mood. EURUSD traded 1.3744-1.3811, USDJPY 81.82-81.98. Gold and oil remain elevated and the Nikkei-225 is down 2.4% at the time of writing. US data releases were largely in line and Fed Chairman Bernanke offered little new in his semi-annual testimony on monetary policy to Congress. Bernanke said the Fed is not debasing the dollar and pointed to the need for sustained stronger job creation. He also believes that the recent jump in commodity prices will not have a permanent effect on broader inflation. The ISM Manufacturing slightly exceeded estimates. ADP employment data is due.

EUR

S&P said its ratings on Greece and Portugal remain on credit-watch negative. In Greece's case, the agency said the rating will depend on the features of the proposed new European rescue mechanism due to come into being in 2013. Greece's compliance with the terms of the existing EU/IMF rescue plan is also a consideration. S&P added that Portugal may have to resort to EFSF and IMF funding, in which case the rating would depend on the terms of any consequent loan agreements.

Eurozone PMI releases were generally strong, beating consensus in Germany, Italy, and France. The German unemployment rate also fell marginally to 7.3%. The Eurozone CPI estimate came in line with expectations at 2.4%, still significantly above the ECB's target level.

GBP

A number of BoE policymakers testified before a parliamentary committee, but no new views were expressed. Governor King once again said that raising interest rates to make a gesture is "self-defeating". Deputy Governor Bean echoed King's previous comments that inflation in the region of 4-5% is likely, but will then come down.

AUD

The AUD weakened slightly when Q4 GDP came in fractionally softer than expected at +0.7%q/q (cons. +0.7%) and +2.7% y/y (cons. 2.8%).

NZD

The NZD fell sharply after Prime Minister Key said he would welcome a cut in the OCR, and that he cannot rule out a recession in the first half of this year

CAD

The BoC left policy unchanged as expected, and did not signal any near-term shift. Officials noted improving performance in the US and in Canada, but they also cited challenges from persistent CAD strength and an uncertain global outlook. Elevated oil prices are supportive for Canada and we continue to expect the BoC to resume tightening ahead of the rest of the G10 dollar-bloc central banks.

A. M. Negrin Bautista, CFA

Chief Analyst at Fibosignals.com

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