27th of May 2011 - Fundamental Forex Market Overview

DAILY MARKET COMMENTARY
27 May 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
The dollar weakened sharply across the board during the Asia session. There was no clear driver behind the move, but the market does appear to be forming the opinion that Greece will eventually receive its next quarterly instalment of rescue funding from the EU/IMF, even if no decision on this is imminent. EURCHF and USDCHF hit new record lows. EURUSD traded 1.4111-1.4279, USDJPY 80.89-81.42. US Q1 GDP was unchanged despite expectations for an upward revision. The unchanged print, coupled with an unexpected rise in jobless claims, added to the recent soft patch in data and introduced further uncertainty on the timing of Fed policy tightening. US equities closed marginally positive and Treasury yields were lower across the curve. Upcoming data includes personal income and consumption for April and the final University of Michigan reading for May. The G8 concludes its two-day summit but press reports so far have indicated the communiqu? will not offer any new insights on the Eurozone crisis or currencies.

EUR
The euro continues to trade in a wide range as headlines drive price action. Greece announced further measures to privatize certain assets but the focus was on Eurogroup Chairman Juncker's comments on the potential withholding of the next IMF tranche to Greece. The possibility had been raised earlier and Juncker clarified that the tranche could still be delivered if the EU and IMF are satisfied with the new Greek measures.

ECB President Trichet repeated the line that the ECB's primary mandate is price stability. Trichet also again stressed the ECB's view that monetary policy is decoupled from liquidity provision - in other words, that rates can be hiked even if the periphery and its banks remain under pressure.

GBP
In an article in today's Financial Times, Bank of England MPC Member Posen reiterated his now familiar call for further quantitative easing. He also said the majority on the MPC was "right to have held its nerve against calls for rate hikes".

BoE Deputy Governor Tucker said policymakers remain worried on inflation but that global imbalances are more worrying. He said his own policy decisions have been "finely balanced" since 2010. Tucker has voted for an unchanged policy rate at previous meetings..

CHF
In it's latest report on the Swiss economy, the IMF recommended that "monetary accommodation should be withdrawn in the near-term", and that FX intervention should only be conducted to counteract excessive FX volatility. EURCHF and USDCHF made new record lows during the Asia session, at 1.2168 and 0.8534 respectively.


A. White
Analyst at Fibosignals.com


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