Daily Market Commentary

Fundamental Outlook at 1500 GMT (EDT + 0500)

€

The euro appreciated vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.3620 level and was supported around the $1.3440 level.  Traders continue to express optimism that meetings between Greek officials and German officials this week will be productive and result in some sort of financial asssitance package for Greece.  Ahead of this week’s meeting, Greece announced today that it is pursuing another €6.5 billion in deficit cuts.  Greece is expected to float up to €5 billion in new 10-year bonds over the next week or two to help finance its massive budget deficit that topped out above 12% of gross domestic product in 2009.  One possible financial rescue scenario has some eurozone member countries purchasing Greek bonds to support the beleaguered country.  In addition to Greece, other eurozone countries continue to face difficult fiscal challenges including Spain, Portugal, and Ireland.  Data released in the eurozone today saw EMU-16 February producer prices climb 0.7% m/m and fall 1.0% y/y while February consumer prices were off 0.9% y/y.  Interest rates were back in focus today as Bank of Canada kept its main overnight rate unchanged at 0.25% and Reserve Bank of Australia lifted its main rate by 0.25%.  The European Central Bank is expected to keep its main refinancing rate unchanged at 1.00% for the foreseeable future.  The ECB will discuss on Thursday the idea of lending covered bonds to banks for a fee.  In U.S. news, Kansas City Fed President Hoenig made news today when he vociferously defended the need to maintain the Fed’s policymaking and supervisory independence.  Hoenig also said the Fed should begin to raise interest rates even with high unemployment.  Minneapolis Fed President Kocherlakota said there is a risk that smaller U.S. banks could precipitate the next financial crisis, adding their exposure to commercial real estate “may be exerting a significant drag on the overall economic recovery.”  Euro bids are cited around the US$ 1.3335 level.

¥/ CNY

The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥88.90 level and was capped around the ¥89.35 level. The verbal skirmish between Bank of Japan and the government continued with the latter saying it will not seek a change in law to permit the former to purchase new Japanese government bonds.  Yesterday, financial services minister Kamei called on the BoJ to directly purchase JGBs to financial stimulus spending.  Finance minister Kan today tempered Kamei’s remarks saying “We have to rebuild the economy, which requires spending, but we don’t have the financial reserves and if we issue bonds, that will push yields up. We have to tread a very narrow path.”  BoJ Governor Shirakawa has recently increased his anti-deflation rhetoric but has also suggested deflation is not purely a monetary phenomenon, adding a lack of final private demand is contributing to lower prices.  The central bank purchases ¥1.8 trillion if Japanese government securities every month and Kan continues to call on the central bank to take “appropriate action.”  Additionally, Kan yesterday indicated he hopes deflation will end by the end of the year whereas current BoJ forecasts have deflation continuing through at least the second half of 2011.  Data released in Japan today saw the January unemployment rate decline to 4.9%.  The Nikkei 225 stock index climbed 0.49% to close at ¥10,221.84.  U.S. dollar offers are cited around the ¥94.75 level.  The euro moved lower vis-à-vis the yen as the single currency tested bids around the ¥119.75 level and was capped around the ¥121.30 level.  The British pound moved lower vis-à-vis the yen as sterling tested bids around the ¥132.50 level while the Swiss franc moved lower vis-à-vis the yen and tested bids around the ¥81.85 level. In Chinese news, the U.S. dollar appreciated vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8266 in the over-the-counter market, up from CNY 6.8263.  China is expected to continue raising its reserve ration as shorter-term bills expire.  One recent study published in the U.S. suggests China will face a significant debt crisis in 2012 on account of regional and local borrowing activities.  Data released in China yesterday saw February manufacturing PMI decline go 52.0 from 55.8, considerably weaker-than-expected.  Revised U.S. TICS data released on Friday confirmed China is the largest holder of U.S. Treasuries. Foreign holdings of U.S. debt now total US$ 2.7 trillion in aggregate.

₤

The British pound weakened vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.4855 level and was capped around the $1.4995 level.  Cable again moved lower as traders reacted to strong-than-expected U.K. GDP data that were released on Friday.  One theory suggests Prime Minister Brown may take advantage of the stronger-than-expected GDP data by calling a general election earlier than previously expected.  Sterling is lower on the premise that the U.K. could have its first minority government in decades. The opposition Tory party is largely expected to assume more after more than one decade of Labour rule.  Data released in the U.K. today saw February PMI construction decrease slightly to 48.5 from 48.6 in January.  Cable bids are cited around the US$ 1.4455 level.  The euro moved higher vis-à-vis the British pound as the single currency tested offers around the ₤0.9090 level and was supported around the ₤0.9015 level.


Technical Outlook at 1330 GMT (EDT + 0500)


                 (Bid Price)        (Today’s Intraday Range)    

EUR/ USD      1.3560                1.3597, 1.3440
USD/ JPY       88.98                  89.36,   88.88
GBP/ USD      1.4922                1.4997, 1.4853
USD/ CHF      1.0785                1.0885, 1.0756
AUD/USD       0.9028                0.9057, 0.8956
USD/CAD       1.0331                1.0441, 1.0307
NZD/USD       0.6953                0.7004, 0.6922
EUR/ JPY       120.55                121.32, 119.75
EUR/ GBP      0.9070                0.9091, 0.9016
GBP/ JPY       132.88                133.73, 132.49
CHF/ JPY       82.40                  82.92,  81.86

Support                      Resistance                         Support                     Resistance

  

L1.       1.3480                         1.3965                            86.95                          93.20

L2.       1.3245                         1.4200                            84.85                          95.50
L3.       1.3085                         1.4495                            82.30                          98.85

 

   GBP/ USD                                                        USD/ CHF

 

L1.       1.5345                         1.5880                         1.0540                         1.0830

L2.       1.5160                         1.6215                         1.0350                         1.1045

L3.       1.4950                         1.6530                         1.0040                         1.1315

 

 AUD/ USD                                                       USD/ CAD

 

L1.       0.8555                         0.8860                         1.0560                         1.0960

L2.       0.8225                         0.9005                         1.0400                         1.1140

L3.       0.8105                         0.9325                         1.0150                         1.1360

 

 

 NZD/ USD                                                       EUR/ JPY

 

L1.       0.6535                         0.6985                         118.50                         124.85

L2.       0.6265                         0.7295                         115.65                         128.90

L3.       0.6160                         0.7430                         112.05                         132.85

 

 

  EUR/ GBP                                                       EUR/ CHF

 

L1.       0.8500                         0.9175                         1.4575                         1.4875

L2.       0.8320                         0.9290                         1.4305                         1.5010

L3.       0.8190                         0.9430                         1.4110                         1.5450

 

  GBP/ JPY                                                        CHF/ JPY

 

L1.       135.85                         141.75                           81.40                          85.25

L2.       131.10                         146.35                           78.95                          87.65

L3.       129.35                         152.90                           75.05                          91.60