Daily Forex Analysis by Finexo.com 19/03/2010

Past Events

• USD Core CPI, out at 0.1% as expected, prior -0.1%
• USD Unemployment Claims, out at 457K versus expected 456K, prior 462K
• USD Philadelphia Fed Manufacturing Index, out at 18.9 versus expected17.6, prior 17.6
• CAD Foreign Securities Purchases, out at 11.83bn versus expected 7.75bn, prior 11.11bn
• GBP Public Sector Net Borrowing, out at 12.4bn versus expected 14.6bn, prior 43 million (revised)
• EUR Current Account Balance, out at -8.1bn versus expected 2.9bn, prior 2.3bn (revised)

Upcoming Events

• EUR President of ECB Trichet addressing Internal Market and Services Directorate of the European Commission, in Brussels (0745 GMT)
• EUR German PPI m/m (0700 GMT)
• CAD Core CPI m/m (1100GMT)
• CAD CPI m/m (1100 GMT)
• CAD Core Retail Sales m/m (1230 GMT)
• CAD Retail Sales m/m (1230 GMT)


• USD Fed Chairman Bernanke Speaks (1300 GMT)

Market Commentary

The cost of living in the US was unchanged in February, underlining the Federal Reserve’s prediction that inflation will remain low as the economy continues to recover. It is the first time the consumer price index did not rise since it decreased in March 2009 and followed a 0.2% gain in January according to figures released by the Labor Department in Washington yesterday. Excluding food and energy costs the core index rose by 0.1% in line with forecasts, capping the smallest year on year gain since 2004. Markets have remained very competitive with big retailers such as Wal-Mart keeping prices low as unemployment nears 10% and foreclosures mount. The lack of inflation is one of the reasons why the Federal Reserve maintained the benchmark interest close to zero earlier this week.

Another Labor Department report yesterday showed fewer Americans filed first time claims for jobless benefits last week, for the third consecutive time, a sign that the labor market is improving. The number of first time jobless applications dropped by 5,000 to 457,000 in line with expectations.

Growth in the manufacturing sector is continuing, manufacturing in the Philadelphia region expanded in March at the fastest pace so far this year. The Federal Reserve Bank of Philadelphia’s general economic index rose to 18.9%, in line with expectations. Earlier this week figures from the New York Fed showed business activity in that region expanded for an eight straight month in March. Another central bank report showed industrial production increased in February for an eighth month and capacity utilization rose to the highest level in more than a year. Fed policy makers this week said the economic recovery is still constrained by unemployment and persistent weakness in real estate and pledged to keep the benchmark interest rate near zero for an “extended period.”

The USD gained 0.9% on the Euro yesterday fuelled by renewed uncertainty surrounding the proposed bailout for Greece. It closed trading at EUR 1.3607. Tomorrow US Fed Chair Ben Bernanke is due to deliver a speech to the Independent Community Bankers of America National Convention. It is expected that he will continue to defend the position of the Federal Reserve in relation to the bank’s supervisory role.

In the UK, government borrowing could be less than forecast this financial year after better than expected figures for February. The UK government borrowed £12.4bn in February, less than economists had expected, according to figures released by the National Statistics Office yesterday. The figure for January was also revised sharply downwards, to £43m from £4.3bn. Borrowing in the current financial year has now reached £131.9bn, but analysts say the full-year total may be less than the government’s £178bn forecast. Until recently, most analysts thought the government’s borrowing forecast was too optimistic.

The borrowing figure for February was not as bad as some had feared, partly because of the rise in VAT at the beginning of this year and new taxes on bankers’ bonuses. The government is also paying out slightly less in benefits because unemployment is falling. The figures will give a boost to Gordon Browns Labor government ahead of next Wednesday’s budget.

Sterling gained 1.1% on the US Dollar yesterday ending the session at USD 1.5245. It rose 0.31% against the Euro closing trading at EUR 0.8931.

In Canada foreign investment rose more than expected in January to CAD 11.83bn (USD 11.71bn) from CAD 11.4bn in December. But the Canadian Dollar depreciated against its American counterpart for the first time in thirteen days as crude oil prices, the nation’s biggest export fell. On Wednesday and early yesterday the Loonie traded within one cent parity with the US Dollar before dropping 0.23% from its opening to close the day at USD 1.0131.

However yesterday’s setback looks set to be temporary as the Canadian Dollar has gained 6% against the US Dollar over the past three months, in part because of the oil-rich nation’s plans to erase its budget deficit by 2015 and the prospects of a quick recovery that may prompt the Bank of Canada to raise interest rates. Later today Canadian monthly retail sales figures as well as the consumer price index numbers are due to be released.

Finally in Europe Greek Prime Minister George Papendreou has given EU leaders a one week deadline to come up with a concrete rescue plan for Greece and he has challenged Germany to abandon its doubts about any such rescue package. Papandreou said he may turn to the International Monetary Fund to overcome Greece’s debt crisis unless leaders agree to set up a lending facility at a summit due to be held on March 25th and 26th. The IMF option has already been dismissed by European Central Bank President Jean-Claude Trichet and French President Nicolas Sarkozy, who say it would only demonstrate that the EU can’t solve its own crises. Signs that the uncertainty in the Euro Zone is far from over caused the Euro to tumble 0.85% against the US Dollar yesterday; it closed trading at $1.3617. It slid against 15 of its 16 major peers this week and looks set to have made its biggest weekly loss since the start of February by close of trade today.

Later this morning the German Purchase Price index is due to be released. After an unexpectedly strong rise of 0.8% last month, double the expectations, it is expected to gain 0.1% this month. Also this morning, President of the European Central Bank, Jean-Claude Trichet is addressing the European Commission in Brussels. His comments will be closely watched for any indications that European leaders are getting closer to a unified resolution on an assistance package for Greece.

Written by Finexo.com