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$ 1.3705 level and was supported around the $1.3605 level.  Greek central bank governor Provopoulos warned that Greece will not require any new foreign aid to manage its fiscal problems, citing last week’s new ten-year bond issue that it can tap the financial markets to raise new capital.  German Chancellor Merkel is facing stiff political problems with her ruling coalition and these problems may be preventing the German government from making a firmer commitment as far as Greek assistance is concerned.  French President Sarkozy also faces a difficult challenge politically with many pundits suggesting International Monetary Fund Managing Director Strauss-Kahn may seek to challenge Sarkozy.  Data released in Germany today saw January industrial production climb 0.6% m/m and 2.2% y/y.  Also, the EMU-16 March Sentix investor confidence index improved to -7.5 from -8.2 in February but these data still indicate pessmism among investors.  Greek Prime Minister Papandreou will press President Obama to combat “unprincipled speculators,” noting “If the European crisis metastasizes, it could create a new global financial crisis with implications as grave as the U.S.-originated crisis two years ago.”  Spanish Prime Minister Zapatero said it is “not justified” to compare Spain and Greece.  One latest idea making its rounds through Europe would involve the establishment of a European Monetary Fund.  The European Union does not want the International Monetary Fund – a U.S.-based entity – to get involved in providing financial assistance to Greece.  European Central Bank member Stark said he is happy the ECB “did not embark on additional asset purchases” and said the G20 has a consensus regarding banks that are deemed “too big to fail.”  Stark also said a “key responsibility” involves improving budget deficits.  ECB member Draghi called for greater regulation of credit default swaps.  ECB President Trichet reported global growth is “relatively robust” and said fiscal consolidation is “extremely important.”  In U.S. news, traders await the release of February NFIB small business optimism tomorrow followed by MBA mortgage applications followed by January wholesale inventories on Wednesday.  The Federal Reserve signaled it will begin to normalize policy further today when it expanded the number of counterparties the Fed will use to drain a record amount of cash it injected into the financial system.  Euro bids are cited around the US$ 1.3335 level.

¥/ CNY

The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥90.70 level and was supported around the ¥90.15 level.  There is increasing speculation that Bank of Japan will ease monetary policy further as deflationary pressures worsen.  Some BoJ-watchers believe the central bank may expand a ¥10 trillion credit program for lenders when the Policy Board convenes next week.  Finance minister Kan has reiterated the central bank should target a positive inflation rate of at least one per cent per annum. BoJ Governor Yamaguchi in February warned that prices may not be improving as quickly as the economy.  Current BoJ forecasts predict prices excluding fresh food will decline through March 2012 but some economists believe the “core-core” price index excluding food and energy will decline until 2013.  Traders await the release of revised Q4 gross domestic product data on Thursday.  Three-month yen Libor fell to 0.25% again today, its lowest level since 24 May 2006 – the latest indication that downward pressure will remain on Japanese interest rates.  Data released in Hapan overnight saw the January current account balance print at a stronger-than-expected ¥900 billion.  Other data saw February bank lending decline 1.3% y/y while the February M2+CD money supply rose 2.7% y/y.  The Nikkei 225 stock index climbed 2.09% to close at ¥10,585.92.  U.S. dollar offers are cited around the ¥94.75 level.  The euro moved higher vis-à-vis the yen as the single currency tested offers around the ¥123.90 level and was supported around the ¥122.80 level.  The British pound moved lower vis-à-vis the yen as sterling tested bids around the ¥135.65 level while the Swiss franc moved higher vis-à-vis the yen and tested offers around the ¥84.70 level. In Chinese news, the U.S. dollar depreciated vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8264 in the over-the-counter market, down from CNY 6.8265.  People’s Bank of China Governor Zhou made news over the weekend when he intimated China may loosen the decades-old peg of the yuan to the U.S. dollar.  Deputy PBoC Governor Su said ongoing moves to raise lenders’ reserve requirements “doesn’t mean we are tightening monetary policies.”  Former PBOC Governor Wu said China will permit the yuan to become more market-based after the global economy recovers from the financial crisis.  PBoC also warned that local government guarantees to repay borrowing for certain projects carry significant risks.

Technical Outlook at 1330 GMT (EDT + 0500)

                (Bid Price)        (Today’s Intraday Range)    

EUR/ USD      1.3631                1.3703, 1.3604
USD/ JPY       90.29                  90.68,   90.15
GBP/ USD      1.5066                1.5195, 1.5030
USD/ CHF      1.0731                1.0748, 1.0674
AUD/USD       0.9092                0.9131, 0.9074
USD/CAD       1.0276                1.0293, 1.0249
NZD/USD       0.7006                0.7034, 0.6962
EUR/ JPY       123.09                123.89, 122.80
EUR/ GBP      0.9046                0.9071, 0.8994
GBP/ JPY       136.01                137.35, 135.65
CHF/ JPY       84.11                  84.68   83.95

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