7th of March 2011 - Fundamental Forex Market Overview

DAILY MARKET COMMENTARY
7 March 2011 – 8:00 GMT
Monday

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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 market activity was relatively subdued during the Asia session as investors sought a new post-payrolls theme. Despite the thin trade, the dollar managed to claw back some ground lost on Friday. EURUSD traded 1.3962-1.3999, USDJPY 82.15-82.39. The Nikkei-255 fell -1.76% and the S&P 500 closed down -0.74% on Friday. WTI and Brent crude both continue to push higher, as tensions in the Middle East and North Africa remain elevated. Headline payrolls increased +192k in February, while January payrolls were revised up to +63k from +36k and December's to +152k from +121k. Private payrolls in January showed even greater strength, accelerating to +222k from +68k. The unemployment rate edged down to 8.9% despite a +60k rise in the labor force. Our US economists believe the upturn in employment and the downturn in the unemployment rate are genuine signs of an accelerating US recovery.

EUR

China's foreign minister said China's purchases of European debt should not be a cause for suspicion.

At a summit of EU Leaders in Finland on Friday, Finland's Finance Minister Katainen said that the effective capacity of the Eurozone's EFSF should be increased to €440 bn. However, he said he was opposed to using the EFSF, or its proposed successor (the ESM), as a vehicle for purchasing bonds.

Katainen added that "right now, today, it doesn't look that obvious" that more countries will need to avail of EFSF funding. EFSF CEO Regling seemed to agree, saying he did not think it necessary for other Eurozone countries to use EFSF funding "at the moment".

Fitch affirmed its sovereign rating on Spain, but lowered the outlook to negative from stable. Fitch cited, among other factors, the potential for market volatility if no "credible and comprehensive" solution emerges from this month's European summits. Greece's Prime Minister Papandreou said the EU summits in March could turn the page on the debt crisis, but that "Europe does not have the luxury of taking the wrong decisions".

ECB Governing Council member Noyer said that inflation expectations have "so far" remained fairly well anchored, but he pointed to the risks associated "with having a number of months with an excessive inflation rate due to the cost of commodities and energy". ECB Governing Council member Gonzalez-Paramo repeated the language used at Thursday's ECB press conference, noting that a policy rate hike in April "is possible".

ECB President Trichet reiterated his view that "a solid and credible dollar ... is in the interest of the United States and in the interest of the international community".

JPY

BoJ Deputy Governor Yamaguchi said that core CPI has returned to zero, and forecast that it would likely improve further. He said the BoJ would take appropriate action if either the economy or price conditions worsen.

CHF

SNB Vice Chairman Jordan said deflation risks in Switzerland have largely disappeared and interest rates will need to rise in the medium term. Although his remarks supported the CHF, we do not interpret these comments as a toughening of the SNB's policy stance. After all, Jordan also stressed that the question of raising rates is not one for 'today or tomorrow'.

A. M. Negrin Bautista, CFA

Chief Analyst at Fibosignals.com

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