Daily Forex Analysis by Finexo.com 26/02/2010

Past events:

• GBP CBI Realized out at 23, versus expected -1, prior -8
• USD Core Durable Goods Orders m/m out at -0.6%, versus expected 1.1%, prior 2.0%
• USD Unemployment Claims out at 496K, versus expected 461K, prior 474K
• JPY Core CPI y/y out at -1.8 versus expected -1.9%, prior -2.0%
• JPY Prelim Industrial Core CPI y/y our at 2.5% versus expected 1.1% versus 1.9%
• JPY Retails Sales y/y out at 2.6%, versus expected -0.1% prior -0.2%

Upcoming events:

• GBP Nationwide HPI m/m (0700GMT)
• GBP Revised GDP q/q (0930GMT)
• EUR German Prelim CPI (all day)
• EUR CPI y/y and Core CPI y/y (1000GMT)
• CHF KOF Economic Barometer (1030GMT)
• USD Prelim GDP q/q (1330GMT)
• USD Existing Home Sales (1500GMT)

Market Comments:

Yesterday Federal Reserve Chairman Bernanke testified in front of the Senate Banking Committee, repeating his previous day’s statement that interest rates will remain low for the foreseeable future. The U.S. central bank chief’s prepared remarks were virtually identical to those he delivered on Wednesday to the U.S. House of Representatives Financial Services Committee, but data released on yesterday underlined his point about soft job markets.

The U.S dollar took a sharp downwards turn against major currency counterparts, namely the Yen, after the U.S Labor Department reported an unexpected increase in unemployment claims. The number of Americans filing first-time claims for unemployment insurance rose by 22,000 to 496,000 for the week ending February 20th, a clear indication that that the economic recovery will be uneven as the labor market struggles to rebound. The total number of people receiving unemployment insurance gained while those receiving extended benefits decreased.

It appears that companies are continuing to wait to see whether or not the increase in sales will continue before hiring more employees. The unemployment rate forecasting to average 9.8% this year may restrain the housing market and gains in consumer spending, which accounts for about 70% of the U.S. economy. Following the release of the dramatic rise in unemployment rate, the greenback took a turn for the worse against the Japanese Yen, declining from 89.45 to 89.05.

Yesterday’s Monthly Core Durable Goods Orders also came out worse than expected, showing an unanticipated fall of 0.6%- the biggest drop since last August. After boosting production throughout the second half of 2009, factories may be taking a pause in order to better to judge actual demand after. While the Total Durable Goods order increased by 3%, the largest gain since last July.

Today the US will release its Prelim Quarterly GDP predicted to show an increase of 5.6%, versus last quarter’s prelim of 5.7%.

The British Pound plunged to a fresh new 9-month low against the U.S. dollar yesterday, as Bank ofEngland Governor Mervyn King addressed the Future of Banking Commission in London.

The Sterling extended its declines across the board, as the GBP/USD pair plummeted to 1.5272 during the European morning trade, the pair’s lowest rate since May 18. The British tumbled to a new 11month low against the Yen, with the pair shedding 1.76% to hit 136.46. Moreover, the Pound traded at a new month low against its neighboring currency, the Euro, as the EUR/GBP broke above 0.8830/35 and jumped to 0.8868, reaching the highest price since January 15.

In an unexpected turnaround for the floundering British economy, U.K retailers saw sales rebound in February. According to the Confederation of British Industry, a survey conducted between January 27 and February 10 revealed that 46% of retailers reported their sales increased in early February compared to a year ago and 23% said sales decreased. The resulting balance was +23%, clearly up from -8% in January. It also marked the strongest year-on-year increase in sales since May 2007.

After plunging to $1.5187, a new nine month low for the British currency, the Pound was able to rise back above $1.5200-the pair closes at $1.5250 in the North American trading session yesterday.

Today the UK will release to highly important reports, starting with the Monthly Nationwide HPI, released early this morning (0700GMT). According to the Nationwide Building Society, British house prices have been on the rise of the past 9 months – probably contributing to increase in inflation. This is the earliest housing sector report and it usually has a strong impact on the Pound. Last month saw a surprising rise of 1.2% in prices – this time around analysts are predicting a slightly smaller increase of 0.4%. This indicator will be followed by the week’s key event, the U.K Revised Quarterly GDP. According to the preliminary release for last year’s fourth quarter, the British economy only barely managed to exit the recession. The growth rate of 0.1% was also reported in the revised NIESR GDP estimate, and is expected to be confirmed at the revised version as well. This time, economists are expecting a slightly better increase of 0.2%.

Across the Channel, the Germany’s Unemployment level increased less than economists forecast in February as government subsidies helped limit firings even as the economy’s recovery stalled. While economists had predicted a rise of 18K, the number of people “actually” out of work rose a seasonally adjusted 7,000 to 3.34 million. As a results the unemployment rate, for the Euro’s leading economic force, climbed to 8.2%, from a prior level of 8.1%. The euro, which declined yesterday on concerns that Greece’s credit rating will be cut again, remained lower against the U.S dollar after the jobless report –the Euro traded at $1.3483 from $1.3538 yesterday.

Also out yesterday, the ECB reported that Euro Zone M3 money supply increased by 0.1% on a monthly basis in January, reversing a previous slide of 0.3% in December. The three-month average of the annual rates of change of M3 over the period November to January 2010 dropped 0.1%. The decline matched economists’ expectations.

On an interesting note, the Canadian Dollar fell sharply across the board yesterday on the back of a rapid decline in crude oil prices. The neighboring USD/CAD pair jumped to 1.0680, hitting it highest price in the past two weeks. The Loonie even tumbled against the Yen, as the CAD/JPY is fell for the fourth consecutive day, experienced losses against the flailing Pound throughout yesterday’s trading secessions- the GBP/CAD found support at 1.6115 and jumped to 1.6320. Out later today is Canada’s current account (1330GMT). While Canada’s trade balance is almost fully balanced, the current account has been negative in the past year. The deficit expanded to 13 billion in Q3 of 2009, and is expected to squeeze under 10 billion this time.

Written by Finexo.com