Daily Forex Analysis by Finexo.com 01/03/2010

Past Events:

• USD Prelim GDP q/q out at 5.9%, versus expected 5.6%, prior 5.7%
• USD Existing Home Sales out at 5.05M, versus expected 5.51M, prior 5.44M
• GBP Nationwide HPI m/m out at -1.0%, versus expected 0.4%, prior 1.4%
• GBP Revised GDP q/q out at 0.3%, versus 0.2% expected 0.1%
• EUR CPI y/y out at 1.0% versus expected 1.0%, prior 1.0%

Upcoming Events:

• GBP Halifax HPI m/m (released between March 1st to 5th)
• GBP Manufacturing PMI (930GMT)
• EUR unemployment rate (1000GMT)
• CAD GDP m/m (1330GMT)
• USD ISM Manufacturing PMI (1500GMT)
• AUD Cash Rate (tomorrow 0330GMT)

Market Commentary

Following a six consecutive week run of gaining against the Euro, the U.S. Dollar closed on Friday down against the single European currency, posting a 0.136% loss from last week’s opening price, as worries of Greece’s debt crisis began to ease.

Last week ended with the United States’ Department of Commerce announcing that U.S economy beat expectations for the last three months of 2009, and expanded at a seasonally adjusted rate of 5.9%. This rise in the Prelim GDP for the fourth quarter of last year marks the best performance for the past six years, further reflecting a rise in business investments as well as an increase in contributions from inventories. However, while the U.S economy grew slightly faster than predicted, the revision to the GDP shows that final sales within the U.S were actually weaker than those reported a month ago – as almost two thirds of the GDP’s growth was due to change in inventories, not final sales. Despite this greater than expected growth, the greenback tumbled against the Euro on Friday, as traders sold the USD to cover extreme euro short positions as speculation increased that Europe’s debt problem could soon be resolved.

Later in the day, the National Association of Realtors announced that the resale of homes and condos within the U.S plummeted 7.2%. While analysts had predicted a slight increase, sales of existing homes took a turn for the worse slipping to a new seven month low of 5.50million. After steadily rising throughout the fall of last year, sales of existing homes have fallen for the past two consecutive months. This unanticipated decrease further fueled concerns about the strength of the housing market recovery, as it follows a sharp decline in the sales of New Homes, which reportedly slipped to their lowest level on record for January.

However, The U.S. dollar index edged higher in the Asian trading session today rising to 80.42, supported at the margins by the better an anticipated GDP. Later today, the U.S. is set to publish (1500GMT) the much anticipated ISM Manufacturing PMI. For the past few months, this heavily watched purchasing managers index has been on the rise, last month jumping as high as 58.4 – this month analysts are expected it to slip back down to 57.9.

Across the Atlantic, Britain appears to have emerged from the worst recession since World War II at a much faster pace than previously expected, as the revised GDP rose 0.3% for the Q4 of 2009, compared with a previous calculation of 0.1% growth. Compared to the same period for last year, GDP fell 3.3%, compared to an initial estimate of a 3.2% decline. Third quarter GDP was revised down to show a 0.3% quarterly decline from a previous estimate of a 0.2% fall. According to the Bureau of National Statistics, this unexpected increase in the U.K’s GDP was a direct result of the service output being revised upward to 0.5%, the largest increase since the first quarter of 2008. However, despite this positive economic data, the Pound continued its bearish trend, closing at 1.42344 against the USD – down 1.4% from last week’s opening price.

For the first time in ten months, Housing Prices in the U.K fell in February, as unseasonable winter weather along with higher taxes deterred buyers. Similarly to the U.S home figures, a report from Nationwide Building Society, released last Friday, showed an unexpected drop in home price sales, ending a nine consecutive month run of increases.

After slipping 1.4% over the course of last week, to close on Friday at a low of $1.52344, the Pound continued to depreciate against its major currency counterparts, in early trading sessions this morning. The British currency plunged to a new nine-month low against the greenback, as well as hit a new one-year low against the Japanese Yen, as opinion polls point to more and more political uncertainty within the U.K, as the risk of a hung parliament increases.

Early this morning (930GMT), the U.K will release its Manufacturing PMI – this leading indicator of economic health, unexpectedly rose last month to 56.7 points, the highest level in three years. A similarly high number, 56.5 points, is predicted this time around, potentially fueling the pound to regain some of this morning’s detrimental losses.

Following its longest running bearish trend against the USD, the Euro managed to finally end the week up against its American counterpart- closing the last trading day for February at $1.36309, up 0.68% from the day’s open.

The Euro may continue this upward movement as speculations continues to increase that European Officials, particularly Germany and France, are working on concrete rescue plan to bailout Greece. With a deal expected to be sealed by the week’s end, the chances that the Euro will continue to strengthen, and cross the $1.40 mark, are on the rise.

This morning the EU will start off the new month, by publishing its Unemployment Rate (1000GMT). Since last summer, the joblessness rate within the Euro Zone has soared, even venturing into the double digits for the past two months. While the release of this figure tends to have a muted impact on currency fluctuations, a drop in this figure is essential for the ECB to raise the interest rates. While the Euro Zone hopes to finally see a drop in their unemployment rate, economists predict that this will continue to climb as high as 10.1% for January. Today’s publication of the unemployment level follows last Friday’s release of the entire Euro Zone’s yearly CPI. According to the European Union statistics office, inflation within the EU accelerated in January at its fastest pace in nearly a year, led primarily by a surge in energy costs. Consumer prices in the 16-nation euro region rose 1.0% percent from a year earlier after increasing 0.9% in December, according to the European Union statistics office in Luxembourg.

Near the end of last week, the USD/CAD spiked to a two-week high, as crude oil fell below 80$ a barrel. However, while the Loonie managed to regain its previous day’s losses, closing up 0.813% at 1.05159USD – the Canadian dollar still lost a total of 1.2% against its American counterpart throughout the course of last week. This afternoon, Canada will release its GDP, expected show an increase of 0.4%. Canada’s crawl out of the recession in the third quarter of last year was slower than last anticipated, however, since then, positive economic data has pointed to a faster recovery. This monthly GDP report comes one day ahead of the Bank of Canada’s overnight rate decision- if today’s reading exceeds expectations, the Central could very well be prompted to raise interest rates, providing a substantial boost to the Canadian dollar.

However, the BOC rate decision will be preceded by that of Australia. Last time the Reserve Bank of Australia left the cash rate unchanged at 3.75%, sending the AUD spiraling down – this time, the RBA will almost certainly lift the interest rates by 25bps. Already on speculations of an impending rate hike, the AUD spiked to $0.90068, jumping 0.616% from last week’s close.

The Aussie will experience heavy movement throughout the night, as the highly anticipated cash rate decision will be preceded by the monthly Building Approvals as well as the monthly Retail Sales. While slightly overshadowed by impending rate decision, at half past midnight the Australia Bureau of Statistics will announce the change in retail sales for January. Sales for December fell 0.7%, however, this time analysts are predicting a rise of 1.0%. Simultaneously the bureau will the number of Building Approvals- last month’s rise of 2.2%, is predicted to be followed by another, slightly smaller increase of 0.6%.

Written by Finexo.com