Market Session Recaps
London Session
Fri, Jan 15 2010, 11:40 GMT
by Forex.com Research Desk
The fact that the EUR could be hit so hard in Asian hours by a rumour that recently re-elected German Chancellor Merkel could be about to resign is a reflection of the EUR's vulnerability at present. The German rumours were of course denied (eventually) but the EUR has failed to regain its standing. EUR/USD has printed a low of 1.4270, but EUR/GBP has stolen the limelight. Although the pound has pulled off its best levels vs the EUR, EUR/GBP is holding below the 200 day sma at 0.8850.
ECB President Trichet yesterday dismissed the possibility of Greece being kick-out of the EMU as an ''absurd hypothesis''. Trichet, of course, has little option but to refuse to acknowledge this possibility since any reference that this was on the table would intensify pressure on Greek asset markets. That aside, Trichet's refusal does serve as a reminder of the huge amount of political credibility invested in EMU. An exit from the system by Greece could potentially have a devastating impact on the credibility of EUR and Eurozone officials are unlikely to allow this to happen. On the economic front Trichet's projections of a moderate pace of growth and moderate inflation during 2010 has strengthened the view that the ECB is only likely to hike interest rates after the Fed and the BoE, and this is also undermining the EUR this morning. The release of Eurozone Dec core CPI at 1.1% y/y highlights that inflation is still well below the ECB's targeted level of below, but close to, 2% over the medium-term.
The JPY has also posted significant gains vs the EUR this morning. EUR/JPY has fallen back as far as 130.34, USD/JPY has traded down to 90.62. Renewed buying interest in the yen comes from fears that China may be about to tighten monetary policy further which could reign in prospects for world growth. Fiscal spending last year helped lift Chinese retail sales growth to its fastest pace since 1986 and, according to the PBOC, bank loans totalled a huge CNY379.8 bln. More data released today show a surge in China's fx reserves to USD2.4 trn, though inflationary pressures in China suggest the authorities may be closer to allowing the CNY to revalue vs the USD which would slow the pace of reserve accumulation. A revalued CNY would reduce the pressure on the effective exchange rates of the Eurozone and Japan of last year's downward adjustment in the USD and easing the pain of a relative soft USD.
The move back into the JPY and the USD this morning is reflective of risk being taken off the table. In line with this the AUD has given back some of this week's gains vs the USD and USD/CAD is higher. However, expectations that the RBA may again hike rates in Feb should put a strong floor under the AUD. While risk appetite appeared to be pulled back in the fx markets, stocks markets are mostly higher this morning aided by strong earnings from Intel. JP Morgan, Chase results this afternoon will be a focus.
US CPI, Industrial production, Empire manufacturing and University of Michigan confidence data are due this afternoon.
London Session
Fri, Jan 15 2010, 11:40 GMT
by Forex.com Research Desk
The fact that the EUR could be hit so hard in Asian hours by a rumour that recently re-elected German Chancellor Merkel could be about to resign is a reflection of the EUR's vulnerability at present. The German rumours were of course denied (eventually) but the EUR has failed to regain its standing. EUR/USD has printed a low of 1.4270, but EUR/GBP has stolen the limelight. Although the pound has pulled off its best levels vs the EUR, EUR/GBP is holding below the 200 day sma at 0.8850.
ECB President Trichet yesterday dismissed the possibility of Greece being kick-out of the EMU as an ''absurd hypothesis''. Trichet, of course, has little option but to refuse to acknowledge this possibility since any reference that this was on the table would intensify pressure on Greek asset markets. That aside, Trichet's refusal does serve as a reminder of the huge amount of political credibility invested in EMU. An exit from the system by Greece could potentially have a devastating impact on the credibility of EUR and Eurozone officials are unlikely to allow this to happen. On the economic front Trichet's projections of a moderate pace of growth and moderate inflation during 2010 has strengthened the view that the ECB is only likely to hike interest rates after the Fed and the BoE, and this is also undermining the EUR this morning. The release of Eurozone Dec core CPI at 1.1% y/y highlights that inflation is still well below the ECB's targeted level of below, but close to, 2% over the medium-term.
The JPY has also posted significant gains vs the EUR this morning. EUR/JPY has fallen back as far as 130.34, USD/JPY has traded down to 90.62. Renewed buying interest in the yen comes from fears that China may be about to tighten monetary policy further which could reign in prospects for world growth. Fiscal spending last year helped lift Chinese retail sales growth to its fastest pace since 1986 and, according to the PBOC, bank loans totalled a huge CNY379.8 bln. More data released today show a surge in China's fx reserves to USD2.4 trn, though inflationary pressures in China suggest the authorities may be closer to allowing the CNY to revalue vs the USD which would slow the pace of reserve accumulation. A revalued CNY would reduce the pressure on the effective exchange rates of the Eurozone and Japan of last year's downward adjustment in the USD and easing the pain of a relative soft USD.
The move back into the JPY and the USD this morning is reflective of risk being taken off the table. In line with this the AUD has given back some of this week's gains vs the USD and USD/CAD is higher. However, expectations that the RBA may again hike rates in Feb should put a strong floor under the AUD. While risk appetite appeared to be pulled back in the fx markets, stocks markets are mostly higher this morning aided by strong earnings from Intel. JP Morgan, Chase results this afternoon will be a focus.
US CPI, Industrial production, Empire manufacturing and University of Michigan confidence data are due this afternoon.