Daily Forex Analysis by Finexo.com 08/04/2010

Past Events

• USD Fed Chairman Ben Bernanke spoke in Dallas
• EUR Final GDP, out at 0.0% versus expected 0.1%, prior 0.1%
• EUR German Factory Orders, out at 0.0% versus expected -0.8%, prior 5.1% (revised)
• GBP Services PMI, out at 56.5 versus expected 58.1, prior 58.4
• CAD Building Permits, out at -0.5% versus expected 2.1%, prior -4.7%

Upcoming Events

• GBP Manufacturing Production m/m (0830 GMT)
• GBP Asset Purchase Facility (1100 GMT)
• GBP Monetary Policy Committee Rate Statement (Tentative)
• GBP Official Bank Rate (1100 GMT)
• EUR Minimum Bid Rate (1145 GMT)
• EUR ECB Press Conference (1230 GMT)
• USD Unemployment Claims (1230 GMT)

Market Commentary

In the US yesterday Federal Reserve Chairman Ben Bernanke said joblessness, home foreclosures and weak lending to small businesses pose challenges to the economy as it recovers from the worst recession since the 1930s.

“We are far from being out of the woods,” Bernanke said yesterday in a speech in Dallas. While the financial crisis has abated and economic growth will probably reduce unemployment over the next year, the U.S. faces hurdles including the lack of a sustained rebound in housing, a “troubled” commercial real estate market and “very weak” hiring, he said.

The remarks reflect concerns by Fed officials at their meeting last month that the job market and tight credit would restrain consumer spending. At the meeting, Bernanke and his colleague’s reiterated interest rates will stay very low for an “extended period.” While he didn’t repeat that in yesterday’s speech he did say the Fed’s “stimulative” rates will aid growth.

The US Dollar climbed against both the Euro and Sterling on the market yesterday. Against the Euro it posted its third day of gains, climbing 0.41% to close at USD 1.3344. It climbed for the second day against the Pound, gaining 0.20% overall to close at USD 1.5239.

In Europe revised figures have shown that the economy failed to grow at all in the final quarter of 2009 as companies cut spending more than previously expected. The European Union’s statistics office said that the quarter-on-quarter growth in the three months to December had proved to be zero. This was revised down from a previously reported 0.1%, according to Eurostat.

GDP in the 16-nation Euro Zone remained unchanged compared with the third quarter when it rose 0.4%. Year on year the economy of the 16 countries using the Euro contracted by 2.2%, more than the previously expected 2.1%.

The European economy is now showing signs of rebounding from its end-of-year relapse as the global recovery prompts companies to step up investment levels. While unemployment is at an 11-year high, economic confidence improved in March and the region’s services and manufacturing growth accelerated to the fastest pace since August 2007.

A separate report yesterday showed that German factory orders held steady in February after a surge in January as an increase in foreign demand for basic goods and machinery countered a drop in domestic orders. Orders, adjusted for seasonal swings and inflation, were unchanged from January, when they jumped 5.1%, according to the Economy Ministry in Berlin. Economists had forecast a 0.5% decline for February.

Orders from outside the 16-nation Euro area increased 2.9% in February from the previous month, driven by a 5% surge in basic goods orders and a 2.4% gain in demand for investment goods, yesterdays report showed. Domestic orders fell 1.9% from January. January’s overall orders increase was revised up from an initially reported 4.3% gain. The data, combined with solid sentiment indicators, suggest the recovery in the manufacturing industry will continue.

In other news in the Euro Zone a team from the International Monetary Fund arrived in Athens yesterday for discussions with government officials. The news comes as Greek government bond yields hit new highs and Greek banks have asked for more government support.

Leading Greek banks asked for more than 15bn Euros ($20bn; £13bn) of government support under a 28bn Euro support scheme launched under the previous administration in 2008. The IMF said it was in Athens to give advice on improving the management of the government’s finances.
The Euro fell against Sterling for the third day yesterday, dropping 0.20% to close at GBP 0.8754.

In the UK the service sector expanded less than expected in March, with growth slowing from February’s three-year high, despite the first rise in employment for almost two years according to services PMI data released yesterday.

March’s main services PMI number fell to 56.5 from 58.4 in February, according to a monthly survey of purchasing managers by Markit and the Chartered Institute of Purchasing and Supply, which does not include the public sector or retailers.

Economists had only expected the index to fall to 58.0 last month, but the numbers are unlikely to shift their broader view that overall GDP growth in the first quarter was similar to the previous quarter’s 0.4%.

The fourth-quarter return to growth after 18 months of deep recession has given the ruling Labour Party a modest boost in opinion polls, but it still trails the opposition Conservatives by a small margin ahead of the general election due to be held on May 6th.

Services activity eased in March after new business came in at a slower rate. Activity grew at its fastest pace for three years in February, when firms were catching up after a January slowdown caused by harsh weather and a rise in value-added tax. The survey showed that big firms reported the greatest rise in activity, with smaller companies registering only marginal growth.

Yesterday’s data follows on from the release of March’s PMI data for the manufacturing sector which pointed to the fastest growth in 15 years, while the lagging construction sector also expanded for the first time in two years.

In Canada building permits unexpectedly fell in February from January on a sharp decline in apartment building construction plans, while single-family housing approvals soared to an all-time high. Statistics Canada said yesterday that building permits slid 0.5% in the month to C$5.7 billion ($5.7 billion) versus market expectations of a 2% gain.

Permits were up 56.7% from a year earlier when their value had hit a record low and hovered near the 2007 peak. Permits for single-family dwellings rose 3%, the second straight monthly gain to reach a historic high, Statscan said.

The Canadian Dollar fell back slightly against its American counterpart yesterday, after posting two days of gains previously. It fell 0.33% to close at USD 1.0044.

Canadian Prime Minister Stephen Harper said yesterday that the government is not necessarily concerned about the strong appreciation of the Canadian currency unless it harms the ability of business to compete. He said the Bank of Canada, not the government, is responsible for monitoring the foreign exchange rate.

Written by Finexo.com