DAILY MARKET COMMENTARY
20 November 2009
Friday
Fundamental Outlook at 1500 GMT (EDT + 0500)
€
The euro moved sharply lower vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.4800 figure and was capped around the $1.4935 level. Many dealers attribute today's sell-off to a year-end unwinding of trades that chased higher-yielding assets at the expense of the U.S. dollar. Additionally, U.S. equity markets lost further ground today, leading to a further paring of long risk trades. U.S. interest rate expectations have also dwindled over the past month. June 2010 fed funds futures are implying about a 28% chance the Federal Open Market Committee will lift interest rates by then, down from 68% one month ago. In other Fed news, Fed Chairman Bernanke's nomination hearing will begin in Congress on 3 December. Congress is currently deliberating some measures that would jeopardize the Fed's political independence. Data to be released in the U.S. on Monday include the Chicago Fed's October national activity index and October home sales data. Philadelphia Fed President Plosser indicated it is "not quite time" to raise intest rates and added he is "less concerned about the possibility of a double-dip" recession. In eurozone news, German Chancellor Merkel called for "coordinated exit strategies" as the global economy emerges from crisis. Data released in the eurozone today saw German October producer prices remain flat m/m and off 7.6% y/y. Speaking in Germany today, European Central Bank President Trichet hawkishly reported "Not all our liquidity measures will be nedded to the same extent as in the past. Any non-standard measure whose continuation would pose a threat to the achievement of price stability must be undone promptly and unequivocally." The ECB is unlikely to renew its offer of twelve-month loans to banks after its third offering in December and the central bank will likely offer fewer three-month and six-month loans in 2010. Euro bids are cited around the US$ 1.4445 level.
¥/ CNY
The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥88.70 level and was capped around the ¥89.15 level. As expected, Bank of Japan's Policy Board kept its overnight call rate target unchanged at 0.1%. BoJ Governor Shirakawa said the government and the central bank share the view that prices will keep declining. Shirakawa also defended his belief that purchasing more corporate bonds will not help the economy, saying "When there is a shortage of demand in the economy, providing liquidity alone won't help to push prices higher." Most BoJ-watchers believe the central bank will keep interest rates unchanged through at least most of 2010. The government today reported that the economy "is in a mild deflationary phase" and finance minister Fujii reported there is a "sense of crisis" about the declining prices. This was the first time the government reported the economy is in a deflationary phase since 2006. Referring to the economy, the central bank reported "Japan's economy is picking up mildly due to various policy measures taken at home and abroad, although the momentum of a self-sustaining recovery in domestic private demand remains weak." Even though both the BoJ and the government acknowledge deflationary pressures, the two cannot agree on policy responses. BoJ's Policy Board recently predicted core consumer prices will decline 1.5% in the year ending March 2010, decline 0.8% in the fiscal year ending March 2011, and decline 0.4% in the fiscal year ending March 2012. The central bank recently reported it will stop its purchase of corporate debt and commercial paper at the end of 2009. The Nikkei 225 stock index lost 0.54% to close at ¥9,497.68. 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 ¥131.80 level and was capped around the ¥132.95 level. The British pound moved lower vis-à-vis the yen as sterling tested bids around the ¥146.45 level while the Swiss franc moved lower vis-à-vis the yen and tested bids around the ¥87.10 level. In Chinese news, the U.S. dollar came off vis-à-vis the Chinese yuan as the greenback closed at CNY 6.8289 in the over-the-counter market, down from CNY 6.8295. People's Bank of China Governor Zhou reported China is "passive" on the U.S. dollar and that its value does not impact the Chinese economy. Zhou also said the central bank "will continue to maintain the moderately loose monetary policy and expansionary fiscal policy for a while." U.S. Treasury Secretary Geithner this week reported he is "quite confident" China will relax controls on its currency.
₤
The British pound came off sharply vis-à-vis the U.S. dollar today as cable tested bids around the US$ 1.6460 level and was capped around the $1.6675 level. Bank of England's next Monetary Policy Committee interest rate decision will be released on 3 December and rate-setters are expected to keep interest rates unchanged with the main Bank Rate at 0.50%. Bank of England Monetary Policy Committee member Fisher yesterday warned the central bank "may well not" be able to reduce its bloated balance sheet to pre-crisis levels. Fisher also said "all options will be open" when the central bank next considers its asset purchase program in February. The central bank today warned consumer credit will remain weak over the coming months. Cable bids are cited around the US$ 1.6430 level. The euro moved higher vis-à-vis the British pound as the single currency tested offers around the ₤0.9010 level and was supported around the ₤0.8945 level.
Technical Outlook at 1330 GMT (EDT + 0500)
(Bid Price) (Today's Intraday Range)
EUR/ USD 1.4854 1.4934, 1.4800
USD/ JPY 88.92 89.13, 88.68
GBP/ USD 1.6491 1.6675, 1.6459
USD/ CHF 1.0181 1.0222, 1.0121
AUD/USD 0.9145 0.9214, 0.9060
USD/CAD 1.0705 1.0730, 1.0613
NZD/USD 0.7236 0.7325, 0.7200
EUR/ JPY 132.11 132.94, 131.79
EUR/ GBP 0.9005 0.9012, 0.8946
GBP/ JPY 146.68 148.38, 146.43
CHF/ JPY 87.34 87.92, 87.08
Support Resistance Support Resistance
EUR/ USD USD/ JPY
L1. 1.4470 1.4915 88.60 93.30
L2. 1.4355 1.5140 87.10 95.50
L3. 1.4175 1.5360 86.10 98.85
GBP/ USD USD/ CHF
L1. 1.6115 1.6685 1.0275 1.0580
L2. 1.5720 1.6830 1.0040 1.0695
L3. 1.5405 1.7040 0.9750 1.0885
AUD/ USD USD/ CAD
L1. 0.8450 0.8830 1.0535 1.0945
L2. 0.8300 0.9050 1.0365 1.1125
L3. 0.8070 0.9120 1.0155 1.1355
NZD/ USD EUR/ JPY
L1. 0.6880 0.7125 131.45 135.75
L2. 0.6750 0.7260 129.75 136.90
L3. 0.6535 0.7395 127.00 138.75
EUR/ GBP EUR/ CHF
L1. 0.8795 0.8995 1.5110 1.5380
L2. 0.8675 0.9105 1.4905 1.5580
L3. 0.8320 0.9225 1.4670 1.5880
GBP/ JPY CHF/ JPY
L1. 146.10 152.50 86.30 88.65
L2. 142.05 157.75 85.40 90.10
L3. 135.70 161.70 81.55 91.60
SCHEDULE
Friday, 20 November 2009
all times GMT
(last release in parentheses)
N/A Japan October Tokyo-area department store sales (-10.5% y/y)
N/A Japan October department store sales (-7.8% y/y)
N/A Japan Bank of Japan Policy Board interest rate decision
0200 NZ October credit card spending
0700 Japan October convenience store sales (-5.6% y/y)
0700 Germany October producer prices (-0.5% m/m)
0700 Germany October producer prices (-7.6% y/y)
0900 Italy September industrial sales
0900 Italy September industrial orders
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