Daily Forex Analysis by Finexo.com 28/01/2010

Risk makes a comeback after the State of the Union address


  • US Dec. New Home Sales out at -7.6% m/m vs. +3.0% expected and -9.3% prior
  • GE Jan. CPI out at -0.6% m/m, +0.8% y/y vs. -0.3%/+1.0% expected and 0.8%/0.9% prior
  • US Fed leaves rates unchanged, slightly more upbeat on US economic outlook
  • NZ RBNZ leaves rates unchanged – no change in tone of statement
  • JP Dec. Retail Trade out at -1.2% m/m, -0.3% y/y vs. -0.2%/+0.3% expected and flat/-1.1% prior
  • NZ Dec. M3 Money Supply out at -1.1% y/y vs. revised -1.8% prior

(All times GMT)

  • Sweden Consumer/Manufacturing Confidence (0815)
  • Denmark Unemployment (0830)
  • Sweden Unemployment (0830)
  • Sweden Retail Sales (0830)
  • GE Unemployment (0855)
  • EU ECB’s Tumpel-Gugerell to speak (0900)
  • Norway Unemployment (0900)
  • EU Euro-zone Confidence Indicators (1000)
  • US Chicago Fed Activity Index (1330)
  • US Durable Goods Orders (1330)
  • US Initial Jobless Claims (1330)
  • EU ECB’s Mersch to speak (1730)

Market Comments:

The US session saw the USD generally firmer with the USD index closing above its 200-day MA for the first time since May last year. Weak US data helped to temper gains however, as US new home sales came in at a disappointing -7.6% m/m which held Wall St in negative territory for the most part. GBP rode a mild up-wave after BOE’s Sentance sounded more hawkish in his comments while corporate demand linked to UK dividend payments also kept cable pinned close to 1.62. ECB’s Weber was also more positive on exiting stimulus measures, saying the bank could take further steps before H2. EURUSD nevertheless had a quick peep below 1.40 early in the Asian session, taking out some stops below, with concerns that Portugal and Spain may be the “next Greece” to hit the headlines.

Central bank rate meetings in New Zealand and the US did not produce any rate changes or significant developments. The RBNZ kept an unchanged stance from the December meeting, and reiterated that it may be ready to start raising rates from the middle of 2010. With some market participants expecting of a more dovish commentary, it was seen as slightly NZD positive.

The key outcome of the today’s FOMC meeting was the dissenting voice – Hoenig – who voted against the Fed repeating its “extended period” language for describing how long the Fed plans to keep interest rates this low. On the Fed’s plans to withdraw liquidity, very little was changed, with the Fed merely specifying that March 8 will be the final auction for the Term Auction Facility. The outlook for the US economy seemed to have improved since the last meeting and this was reflected in the tone of the statement. Post-FOMC risk appetite seemed to make a comeback with Wall St rallying into positive territory into the close.

Asia started off in a similar vein though was soon caught up in geo-political developments as Yonhap news reported that North Korea had again fired artillery towards South Korea into the disputed maritime border between the two countries. Currency markets reacted with further USD buying and stops through 1.3970 in EURUSD were again triggered with a quick run down to 1.3935 amid a flurry of selling reported in EURJPY and EURGBP.
President Obama’s state of the Union speech proved more positive for the USD and for risk appetite overall. He assured that there was no intention to “punish” banks but his major interest is the US economy with the biggest focus employment, and wants to create 1.5 million jobs via economic stimulus this year. To this end, Obama threw his weight behind extending middle class tax cuts, laid out a series of tax incentives for businesses and urged Congress to finish work on a jobs bill “without delay. Otherwise he proposed taking $30bln of TARP bailout money to help community banks give credit to small business and set the goal of doubling US exports over the next 5yrs, with a push for stronger trade ties with Asia.

Asian bourses responded positively and we saw the corresponding strength in Asian currencies. Majors were also on the rebound with the likes of EUR, GBP and AUD all recouping earlier losses. Having reached there, we held in limbo awaiting the entrance of Europe for the next directional clues.
European data releases are relatively minor with unemployment data from Sweden, Denmark, Norway and Germany on tap while Sweden retail sales and Euro-zone consumer confidence are also due. The US session features Chicago Fed Activity, durable goods and the weekly initial jobless claims.

Written by Finexo.com