Daily Forex Analysis by Finexo.com 26/01/2010


  • GE GfK Feb. Consumer Confidence out at 3.2 vs. 3.1 expected and revised 3.4 prior
  • US Dec. Existing Home Sales out at -16.7% m/m vs. -9.8% expected and +7.4% prior
  • US Jan. Dallas Fed Activity out at 8.3% vs. 6.0% expected and 3.8% prior
  • JP Dec. Corp. Service Price out at -1.5% y/y vs. -1.5% expected and revised -2.2% prior
  • NZ Dec. Credit Card Spending out at -1.3% m/m, +1.8% y/y vs. 0.8%/1.5% prior resp.
  • JP Jan. Small Business Confidence out at 41.3 vs. 40.4 prior
  • JP BOJ leaves key rates unchanged, unchanged outlook on economy. No change in QE measures
  • SI Dec. Ind. Production out at +18.1% m/m, 14.4% y/y vs. 5.4%/7.4% expected and revised -4.6%/-9.5% prior

(All times GMT)

  • GE Import Price Index (0700)
  • Swiss UBS Consumption Indicator (0700)
  • Sweden Trade Balance (0830)
  • GE IFO Surveys (0900)
  • EU Euro-zone Current Account (0900)
  • UK GDP (0930)
  • UK BOE’s King et al to testify (0945)
  • US S&P Case-Shiller House Prices (1400)
  • US Consumer Confidence (1500)
  • US House Price Index (1500)
  • US Richmond Fed Manufacturing Index (1500)

Market Comments:

Currency markets were mostly range-bound overnight though with pockets of action throughout the day. The only data release in Europe – German consumer confidence – gave the EUR a temporary lift as it beat forecasts (+3.2 versus 3.1 expected) while talk that the Greek debt auction was experiencing high demand also provided impetus. Results suggest the issue was more than 3x over-subscribed though Greece had to pay a premium over last time while strong demand from official European sources took some of the shine off the mood. GBP caught a stronger bid ahead of today’s GDP release amid expectations the economy returned to positive growth in Q4.

The only data out of the US disappointed, with existing home sales falling 16.7% m/m against -9.8%, though the poor numbers were soon attributed to the possible removal of tax breaks for first-time buyers and Wall St was able to snap a three-day slide. With regard to Bernanke, commentaries and headlines suggest that he was edging closer to his re-appointment and, with the Greek debt auction now out of the way, markets had one less negative factor to think about.

Today’s Asian session started off slowly due to the Australia Day holiday, but risk was generally in vogue. The Bank of Japan unanimously left official rates unchanged and its assessment of the economy differed very little from the last meeting, reinforcing that the economic recovery would remain moderate until Mid-2010/11. The central bank pledged to maintain “very easy” monetary conditions and again recognized the need to pull Japan out of deflation. Markets may have been disappointed that there was no change in its QE or liquidity measures and risk appetite tailed off subsequently.

Just as the market was digesting the BOJ news, it was caught unawares by fresh headlines on the Chinese reserve asset ratio front. The news suggested more Chinese banks had been asked to increase their reserve ratios effective today, and there was some confusion whether this was old news a simply the implementation of the increases announced last week but Reuters reported that both CITIC and ICBC had to increase reserve ratios by an additional 0.5% after excessive lending. The impact was enough to prompt a quick sell-off in risk with AUD suffering the most on thin holiday-liquidity and markets struggled to recover by early afternoon.

As EUR was being pummeled below 1.41, ECB’s Nowotny was quoted on the wires saying he sees concrete risks of asset bubbles in many emerging economies. He also pointed to similar risks in some commodity markets with both China demand and the speculative element risking bubbles. Closer to home, he assured that the ECB is draining liquidity cautiously as it wants to avoid shortages yet, in a similar vein to Trichet in the past, reiterated that the ECB was not necessarily waiting for the Fed to hike and could indeed raise rates earlier than the Fed. No positive reaction in the currency markets on this with EURJPY selling a more pressing desire.

Heading into Europe, risk is definitely on the back-foot and it would appear that it would need some stellar economic data to reverse this near-term trend. UK GDP will be the main focus and, as mentioned above, GBP may find support ahead of an expected positive print, though recall Q3 surprised markets with a negative figure. German IFO surveys and EU current account data accompany the UK numbers while US data centres around consumer confidence, house price index and the Richmond Fed index.

BREAKING NEWS: Just as we are about to publish S&P downgraded Japan’s outlook to negative from stable; Affirmed AA/A-1+ rating. Downgrades outlook on JGBs to negative from stable. JPY weakens across the board.

Written by Finexo.com