Daily Forex Analysis by Finexo.com 05/03/2010

Past Events:

• EUR Minimum Bid Rate out at 1.0% versus expected 1.0%, prior 1.0%
• GBP Official Bank Rate out at 0.5% versus expected 0.5%, prior 0.5%
• GBP Asset Purchase Facility out at 200B versus expected 200B, prior 200B
• GBP Halifax HPI m/m out at -1.5%, versus expected 0.3%, prior 0.4%(revised)
• USD Unemployment Claims out at 469 versus expected 472K, prior 496K
• USD Pending Home Sales m/m out at -7.6% versus expected 1.4%, prior 1.0%
• CAD Building Permits m/m out at -4.9% versus expected 1.0%, prior 2.4%
• CAD Ivey PMI out at 51.9 versus expected 56.0, prior 50.8

Upcoming Events:

• GBP PPI Input m/m (930GMT)
• Germany Factory Orders m/m (1100GMT)
• USD Non-Farm Employment Change (1330GMT)
• USD Unemployment Change (1330GMT0

Market Commentary:

The Euro fell from a two week high against the U.S Dollar following the release of Jean-Claude Trichet’s, president of the European Central Bank, decision to keep its key interest rate unchanged and extend certain economic stimulus measures deemed “necessary” to cement the recovery. In the press conference following the rate decision, Trichet announced that the ECB will continue offering banks fixed-rate unlimited funds for seven days and one month until the fall of this year.

Following the ECB’s decision to hold the benchmark rate at its current record low level of 1.0%, the EUR slipped to $1.3647 (as of 9:16 a.m. in New York), from $1.3697 yesterday, when it climbed to $1.3736, its strongest price since Feb. 17.

During the Press Conference, Trichet also spoke about the current Greek Crisis, where he states that “The decisions taken by Greece at this stage are convincing”. Trichet went on to say that “Greece is in a much better state today” and that it is not “appropriate” to have the International Monetary Fund as a supplier of help. Tomorrow, German Chancellor Angela Merkel will meet with the Greek Prime Minister George Papandreou- despite Greece’s hope that this meeting will “seal” a bailout plan, the German Chancellor reportedly said that this meeting will not be “about aid commitments”.

Merkel is currently facing domestic opposition to extending any financial lifeline to Greece after a statement at a Feb. 11 EU summit promised “determined and coordinated action” to support Greece.

Early this morning (1000GMT), Germany will release its monthly Factory orders for January. The German economy is stagnant, and the industry is squeezing as well. The market witnessed a substantial drop of 2.3% for December; a correction is predicted this time, with a rise of 1.6%. This comes just before the American Non-Farm Payrolls, and could shape the Euro’s reaction to the highly anticipated NFP.

Similarly to the ECB, the Bank of England also opted to maintain the Official Bank Rate at its historically low level of 0.5%. The Monetary Policy Committee, led by Governor Mervyn King, announced that it would be keeping its bond- purchase program on hold for a second month as policy makers assessed whether the 200 billion pounds ($302 billion) spent so far is enough to prevent a relapse in the economy. Despite this decision, the BoE policy makers emphasized that they could potentially increase the central bank’s bond-buying program, if the U.K economic recovery begins to falter.

Last week King stated that the British economy faces a “gradual recovery” from the recession, and he pledged to aid the pickup by buying more bonds if needed. The election due within weeks overshadowed the central bank’s decision as concern over whether the next government can control a budget deficit equal to that of Greece, pushed the pound to its worst losing streak since October 2008, earlier in the week.

Following the release of these predicted decisions, the Pound traded 0.1% against the greenback at $1.5094, form $1.5100; but appreciated 0.4% against the Euro.

Also out yesterday, housing prices in the United Kingdom slid more than expected in February, according to the Halifax house price index which contracted 1.5% in February versus 0.6% growth in January (the market had forecast modest growth in the 0.3% range). The Halifax House Price Index released by the HBOS is the UK’s longest running monthly house price series presents house prices and property price movements on a like-for-like basis. The housing prices are considered as a key indicator for inflationary pressures. A high reading is seen as positive (or bullish) for the GBP, while a low reading is seen as negative (or bearish).

Early this morning Britain’s Bureau of National Statistics will release its Producer Price Index for February. After rising 2.0% in January, Britain’s producer prices are expected to calm down this time- economists predict a rise of 0.1%.

One day ahead of the highly awaited Non-Farm Payrolls, the U.S released its unemployment claims for the last week of February. U.S jobless benefits dropped last week from a three month high, signaling an improvement in the labor market. Initial Jobless applications fell by 29,000 to 469,000, coming out slightly below market expectation. The number of people receiving unemployment insurance decreased to the lowest level in a year, while those receiving extending benefits climbed. The U.S. dollar halted its decline against the euro in the wake of the report, as EUR/USD retreated from 1.3674 to consolidate around 1.3641, still gaining 0.19%.Fueled by this rather positive labor data.

At 1530GMT, the Bureau of Labor Statistics will release the Change in Non-Farm Employment expected to show a drop of 56K for February, versus last month’s fall of 20K. According to White House economic adviser Larry Summers, winter blizzards were likely to distort U.S February jobless figures. This Change in NFP will be followed by the publication of the U.S Unemployment Rate expected to increase slightly from its current level of 9.7% to 9.8%.

Out yesterday, the National Association of Realtors in the U.S reported that Pending Home sales unexpectedly plunged 7.6% in January. The index, which is based on the number of contracts sign throughout the month, dropped to its lowest seasonally adjusted level since last April, but remained 8.8% higher than in January 2009.

North of the 49th parallel, Canada’s real estate sector also sustained losses. Canadian building permits unexpectedly fell in January the third straight decline, as government figures showed a drop in non-residential projects. While economists had predicted a rise of 1.0%, the total value of permits issued by municipalities slipped 4.9 percent to $5.52 billion.

Written by Finexo.com