Daily Forex Analysis by Finexo.com 11/02/2010

Past events

• USD Trade Balance out at -40.2B versus expected -35.8B, prior -36.4B
• CAD Trade Balance out at -0.2B versus expected -0.1B, versus prior 0.2B
• AUD Employment Change out at 52.7K, versus expected 15.1K and prior 37.5K
• AUD Unemployment Rate out at 5.3% versus expected 5.6,%, prior 5.5%

Upcoming sessions

• EUR EU Summit (all day)
• EUR ECB Monthly bulletin (0900GMT)
• USD Unemployment claims (1330GMT)

Market Comments:

Early yesterday afternoon, the US and Canada simultaneously released their Trade Balance. The U.S December Trade Balance came out wider than expected – the deficit rose to -40.2B as imports surged more than exports. Analysts had predicted that the deficit would contract to 35.8B from its previous reported level of 36.4B, instead the US trade gap unexpectedly widened to its biggest level this year. Even though exports climbed to their highest level since October ’08, this eighth consecutive rise in exports was trumped by an 8.4% increase in Imports (particularly petroleum).

The result of faster economic growth in emerging countries combined with a drop in the dollar’s value is allowing American goods are becoming more competitive and may in fact propel gains in sales overseas that will spur further gains in U.S. manufacturing.

On the other side of the 49th parallel, Canada also saw their Trade Deficit widen more than expected. As imports slightly outpaced exports, Canada’s trade deficit remained at 0.2B, versus the expected forecast that the trade deficit would shrink to 0.1B. The 1.7% increase in exports was slightly outpaced by a 1.8% rise in imports resulting in Canada’s trade deficit with the world widening to $246 million in December from $201 million in November. According to the Bank of Canada, the combination of low U.S demand and strong Canadian dollar are a “significant drag” on the economy. Governor Mark Carney has pledged to keep his benchmark lending rate at a record 0.25 percent through June to stimulate demand unless the inflation outlook shifts.

Following the release of both countries trade balances, the Canadian currency tumbled against the USD- the pair increased from the day’s open of 1.06651 USD/CAD to 1.0686; however, by yesterday’s close, the Loonie managed to regain some of its lost ground against its US counterpart- closing at 1.06265.

Across the Atlantic, the Euro continues to move away from its 8 month low against the USD, as speculations increase that today’s EU summit will shed light on a possible rescue package for Greece. With the EU holding their 1 day summit today, the EUR increased from yesterday’s close of 1.37336USD to a high of 1.37995 in Asian markets early this morning.

While the Euro continues to rise versus its American counterpart, the British Pound continues to plummet against the USD. Yesterday, the Sterling was hit hard as the BoE Inflation report forecasted low inflation for a long period, suggesting more quantitative easing ahead; the Pound plunged 0.88% from its opening price of 1.57088 to 1.55701, finishing off the day at 1.55974.

Yesterday, the Bank of England lowered U.K.’s economic outlook and forecast inflation to undershoot its 2% target. The central bank Governor Mervyn King also kept the door open for further quantitative easing. Britain’s February Inflation Report depicts economic growth to reach around 3.2% in the second quarter of next year- smaller than the previous estimate of 4%. According the BoE, the strength of the recovery is highly uncertain and output is unlikely to return to a level consistent with its pre-crisis trend for a considerable period. King forecasted inflation to exceed 3% in January, but estimates the figure to fall below the target quickly. Annual inflation had exceeded the central bank’s 2% target in December for the first time since May 2009 and stood at a nine-month high of 2.9%. “It is more likely than not that inflation will be below the target for much of the forecast period, but the risks are broadly balanced by the end,” the bank said.

Shortly midnight, Australia released its employment change for January as well as its current unemployment rate. With both numbers coming out better than expected – employment change increased to 52.7K versus expected 15.1K causing the unemployment rate to tumble to 5.3% versus expected 5.6% and prior 5.5% – the Aussie rose more than 1% against the dollar and the Yen. The AUD/USD opened in Asian Markets this morning at 0.87506- after the release of the better than expected employment data, the pair increased 1.75% to a week high of 0.89040.

Written by Finexo.com