DAILY MARKET COMMENTARY
9 September 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
Risk sentiment was stable in Asia with most stock market indices trading broadly flat. EURUSD traded at 1.3883-1.3937 and USDJPY at 77.43-77.59. In China CPI for August was released in line with market expectations. In a speech to Congress President Obama proposed a USD 447bn job package. Although the size of the package was larger than expected some measures will still face resistance from Republicans. There was no proposal to encourage repatriation of US overseas earnings as hoped by some.
At yesterday's press conference ECB President Trichet stressed intensified downside risks to growth. The risk to inflation is no longer regarded to be on the upside. Hence he dropped his tightening bias. A further deterioration in growth momentum may trigger a further change in stance. Fed Chairman Bernanke's speech offered no new insights, and largely repeated the views he expressed at Jackson Hole two weeks ago. Investors' focus will now shift to this weekend's G7 meeting. The main focus will be on global growth conditions and the EU debt crisis. We see little scope for concerted FX intervention as demanded by Japan.
EUR
At yesterday's ECB press conference, President Trichet stressed intensified downside risks to growth while the risk to inflation is no longer regarded to be on the upside. GDP forecasts were revised down significantly. Inflation is projected to fall below 2% in 2012. Hence Trichet dropped his tightening bias. A further deterioration in growth momentum may trigger a further change in stance.
French Finance Minister Baroin announced that no final communiqu? would be issued after Friday's G7 meeting, which is due to continue into the weekend.
Dow Jones Newswires citing an unnamed source, said there is "serious concern" at the IMF about Greece's ability to implement structural reforms.
The Dutch Finance Minister said that if the IMF, ECB, or the EU finds Greece has not complied with the agreed budget reform path, Netherlands will not give further aid.
GBP
The BoE left rates on hold as expected and did not choose to alter their asset purchase program. We will need to wait for the meeting minutes due in two weeks to get a better idea of the MPC members' views and if there has been any change in the voting split. Cable got some relief after the announcement, quickly climbing about 50 pips. This is a price reaction we have not seen in a year or so, and clearly demonstrates that the market is now alert to the risk of another round of QE.
CHF
Trichet said he had been in touch with the SNB and that he respects the SNB's decision to intervene. This is a marked contrast to the frosty reception he gave to Japan's latest round of intervention at the previous policy meeting. He was clear that the situation with the Swiss franc cannot be compared with that of the yen.
Ahead of Friday's G7 meeting, Finance Minister Flaherty said he is "concerned" about the SNB's decision and he is worried that a currency war could have a negative impact on Canada.
JPY
Finance Minister Azumi said the economy is facing downside risks due to JPY strength. He will tell G7 Ministers that Japan is planning to take decisive steps against excessive FX moves and he wants to win the G7 Ministers' understanding on Japan's stance in that respect.
Our analysts do not expect that G7 Finance ministers will decide in favour of concerted FX intervention, especially as the main priority is to discuss global growth conditions and the EU debt crisis.
A. White
Analyst at Fibosignals.com
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