Daily Forex Analysis by Finexo.com 22/03/2010

Past Events

• German PPI m/m, out at 0.8% versus expected 0.1%, prior 0.8%
• CAD Core CPI m/m, out at 0.7% versus expected 0.3%, prior 0.1%
• CAD CPI m/m, out at 0.4% as expected, prior 0.3%
• CAD Core Retail Sales m/m, out at 1.8% versus expected 0.5%, prior 0.7% (revised)
• CAD Retail Sales m/m, out at 0.7% versus expected 0.6%, prior 0.5% (revised)

Upcoming Events

• GBP Bank of England Governor King to Speak (1530 GMT)
• EUR ECB President Trichet to Speak (1530 GMT)


• USD Existing Home Sales (1400 GMT)
• GBP CPI y/y (0930 GMT)
• GBP Realized Sales (1100 GMT)

Market Commentary
Last week the Euro fell against 15 of its 16 major peers as EU leaders appeared unable to agree a cohesive plan to bailout Greece. On Friday it tumbled 0.60% against the US Dollar closing trading at $1.3528. The previous day it had fallen as much as 0.93% against the USD.

Late last week Greek Prime Minister George Papandreou issued EU leaders with a one week deadline to come up with a concrete rescue plan for Greece and challenged Germany to abandon its doubts about rescue plans. Papandreou said he may turn to the IMF to overcome Greece’s debt crisis unless leaders agree to set up a lending facility before an EU summit due to be held in Brussels on March 25th and 26th. The EU commission President Jose Manuel Barrosa has urged immediate action on the matter and said the EU should spell out its rescue plan at the summit later this week.

Friday saw the release of Germany’s producer price index which remained unchanged in February after increasing by 0.8% in January. Market expectations had been for a 0.1% increase. Year-on-year Germany’s PPI fell 2.9% in February, versus a 3.4% decline in January.

Canada’s core inflation rate unexpectedly rose last month on higher costs for automobile insurance and accommodation during the Vancouver Winter Olympics. The increase will pressure the central bank to raise interest rates and drive the value of the Loonie higher. The Canadian economy is accelerating out of last year’s recession with retail sales also rising more than expected. Recent manufacturing reports also indicated rapid economic growth.

The speed of the rebound may change how fast Governor Mark Carney decides to raise the benchmark interest rate from its current record low level of 0.25%. He had pledged to keep the interest rate in place through June unless the inflationary outlook changed. The banks next interest rate decision is scheduled for April 20th.

On a monthly basis, core consumer prices rose 0.7%, the fastest since November 2008 and overall inflation was up 0.4%. Economists had predicted the monthly rates would be 0.3% for both total and core inflation. Retail sales rose 0.7% in January, as consumers stocked up on home improvement supplies before a federal tax credit expired. Wholesale sales rose at the fastest pace in three years in January and factory sales gained four times what economists had predicted.

During the middle of last week the Loonie traded within one cent parity with its American counterpart before dropping back 0.23% on Thursday as crude oil prices, the country’s largest export fell. On Friday the Loonie opened at USD $1.0137 and fell back a further 0.31% to close trading at USD $1.0169.

Over the weekend in the US Federal Reserve Chairman Ben Bernanke said government bailouts of large financial firms are ‘unconscionable’ and must be ended as part of a regulatory overhaul following the worst global financial crisis in decades. He also defended the central banks structure as a useful network to monitor the financial system and economy but he did not comment directly on the economy or outlook for monetary policy in his remarks. Last week the Fed pledged to keep the benchmark interest rate at near zero for “an extended period” to stimulate economic recovery.

The US report on existing home sales is due for release tomorrow. The housing sector played a major part in the global economic downturn and last week data showed that construction in the US is dropping as foreclosures continue to mount. The question for tomorrow will be whether the expanded and extended homebuyer tax credit program will help boost sales figures as the end of April deadline for contract signing gets closer.

In Britain the consumer price index is due to be released tomorrow ahead of the annual budget announcement on Wednesday. The government plans to halve the budget deficit, one of the highest in Europe, which is expected to hit 12.6% of GDP this financial year. Figures released on Thursday showed that government borrowing for the year to the end of March is running at 132bn pounds, suggesting that full-year borrowing forecasts could come in well below the government’s forecast of 178bn pounds. Also last week figures showed that 2.45 million people in the UK are unemployed, 33,000 fewer than Februarys figure. But despite the recent signs that the economy was improving the budget is expected to focus on securing economic growth.

On Friday the Pound fell sharply against the US Dollar and the Euro after a Bank of England policymaker said the UK could still fall back into a recession. The Pound fell 2.4 cents or 1.5% against the US Dollar to $1.5013. Against the Euro it fell 1 cent, or 0.9%, to EUR 0.90094. The Pound has been on a bearish trend in the run up to the general election. Uncertainty about who will win the election and whether there might be hung parliament has increased concerns about plans to cut debt levels. This uncertainty has weighed heavily on the Pound.

Written by Finexo.com