Weekly Forex News January 27th 2013

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  • 1. Weekly Forex News January 27th 2013The Euro finally broke out of recent range last week and ended as thestrongest currency on improvement in the banking system as well as overallconfidence. On the other hand, the Canadian dollar was the weakestcurrency following the Bank of Canadas statement that dented any hope fora rate hike and deeper selling was seen after a tame inflation reading. TheAussie and Sterling were both weighed down by disappointing economicdata, and in spite of strong risk appetite as seen in rally in stock markets,Canadian Dollar, Australian Dollar and British Pound were not supported.Some recovery was seen in the Japanese yen after the Bank of Japan meetingas markets were disappointed but selloff quickly resumed and sent USDollar / Japanese Yen and Euro / Yen through the 90 and 120 psychologicallevels respectively. View FCTOFX Live Trading @ http://bit.ly/W9RJWK
  • 2. Weekly Forex News January 27th 2013In the US, The House of Representatives approved the bill to suspend theborrowing limit by a 285 to 144 vote, lifting the governments borrowinglimit of 16.4 Trillion Dollar until May 19th. IMF chief Lagarde warned that U-Sofficials have to "consider the leading role played by the U-S economy in theworld is at stake". And she urged Congress to settle the debt ceiling issueASAP rather than "kick the can down the road a little bit longer for a little bitfarther". Lagarde said that "if they take the time to really sit down: rationallyand sensibly putting a little bit of their respective ideology on the side toreally focus on what is good for the economy and what is going to be goodfor the rest of the world, that’s great." View FCTOFX Live Trading @ http://bit.ly/W9RJWK
  • 3. Weekly Forex News January 27th 2013In the Eurozone, the news that boosted Euro Dollar out from recent rangewas the European Central Bank saying on Friday that 278 banks would repay137.2 billion euros, or 30% of the long-term refinancing operation loan onJanuary 30th. Thats significantly higher than markets expectation of around100 billion euros and was seen as a sign of better than expectedimprovements in the long-troubled Eurozone banking sector. In addition,economic data also supported the Euro. The German IFO business climateindex rose for the third month to 104.2 in January, up from 102.4 inDecember. Also, thats the highest level since last June and beat expectationof 103. The current assessment rose to 108 while the expectation gauge roseto 100.5. Both beat market expectations. German ZEW economic sentimentrose from 6.9 to 31.5 in January versus expectation of 12. Thats also thehighest level since May 2010. The current situation gauge also improvedfrom 5.7 to 7.1 versus consensus of 6.2. View FCTOFX Live Trading @ http://bit.ly/W9RJWK
  • 4. Weekly Forex News January 27th 2013Eurozone ZEW economic sentiment also jumped sharply from 7.6 to 31.2versus consensus of 12.2. Eurozone PMI indices improved more thanexpected in January even though theyre still staying in a contraction region.Manufacturing PMI rose from 46.1 to 47.5 versus consensus of 46.6. ServicesPMI rose from 47.8 to 48.3 versus consensus of 48. German PMImanufacturing rose from 46 to 48.8 versus expectation of 46.8 while servicesPMI jumped sharply from 52 to 55.3 versus expectation of 52. French PMIindices disappointed though and deteriorated. View FCTOFX Live Trading @ http://bit.ly/W9RJWK
  • 5. Weekly Forex News January 27th 2013Sterling was sold off sharply against the Euro as Q4 GDP disappointed. TheUK economy contracted by 0.3% quarter on quarter in Q4, compared toexpectation of 0.1% contraction quarter on quarter and 0.9% growth in Q3.The data showed some evidence of fall back from the boost by the OlympicGames in Q3. And it raised concern that the UK is heading into a triple diprecession. UK treasury said that the figures reflect that "Britain, like manyEuropean countries, faces a very difficult economic situation." Chancellor ofthe Exchequer Osborne said that the problems the UK is facing were "manyyears in the making and there’s no magic solution," and it takes "hard workand perseverance" to bring a lasting recovery. Bank of england minutesunveiled that policymakers voted unanimously to leave the Bank rateunchanged at 0.5% and 8-1 to leave the bond purchase plan unchanged at375 Billion pounds. View FCTOFX Live Trading @ http://bit.ly/W9RJWK
  • 6. Weekly Forex News January 27th 2013David Miles favored expanding the stimulus amid concerns that the rise ofthe pound would be detrimental to economic growth. The majority of theMonetary Policy Committee members believed that economic developmentsin December were modestly positive and it was not necessary to cutinterest rates further or increase the size of bond purchases at that moment.After its rate setting meeting, the bank of Japan doubled its inflation targetto 2% at the January meeting although this decision was apposed to by 2members. Meanwhile, the central bank left the uncollateralized overnightcall rate unchanged at 0 to 0.1%. The Bank of Japan also surprised the marketby introducing an open-ended purchase program. After the current assetpurchase program, the central bank would purchase a certain amount offinancial assets each month without setting a completion date. Yet, themarket appeared dissatisfied that the program would commence only inJanuary 2014. The market had anticipated it would extend the current assetbuying program. View FCTOFX Live Trading @ http://bit.ly/W9RJWK
  • 7. Weekly Forex News January 27th 2013A key fact to consider is that Bank of Japan governor Shirakawa is going toend his term in April. Prime minister Shinzo Abe is expected to choose apolicy dove to succeed Shirakawa and help him implement his Abenomics.Hence, even though the yen attempted to recover, it was only brief and theup trend in US Dollar Japanese Yen and Euro Yen quickly resumed afterDeputy Economy Minister Yasutoshi Nishimura said that Dollar Yens currentlevel at around 90 "can be said to be a correction of the strong yen, but itisnt over yet". Also, Nishimura said that a level of 110 to 120 might be aconcern as that would raise import costs. Markets took that as an indicationthat Dollar Yen at 100 wouldnt be a problem. View FCTOFX Live Trading @ http://bit.ly/W9RJWK
  • 8. Weekly Forex News January 27th 2013The yen was also weighed down by inflation data and December Bank ofJapan meeting minutes. National C-P-I core dipped 0.2% year on year inDecember, down from Novembers 0.1% year on year. The reading stayednegative in seven out of the past eight months with only a 0% reading back inOctober. The details were even more worrying as persistent deflationpressure was seen in almost every category with the dual-core measure,which excludes fresh food and energy, down 0.6% year on year. The dataraised expectation that firstly the bank needs to raise its easing effort and a2014 plan on open-ended asset purchase is simply not strong enough.Secondly, political pressure on aggressive Central Bank easing will certainlybe increased in the months ahead. View FCTOFX Live Trading @ http://bit.ly/W9RJWK
  • 9. Weekly Forex News January 27th 2013Meanwhile, the December Meeting minutes showed that a few boardmembers "noted that it was necessary for the central bank to demonstrateits aim to encourage a further decline in short-term interest rates -- therebynarrowing or reversing interest rate differentials between Japan and othereconomies: with a view to exerting influence on foreign exchange rates".And, the members also expressed that "purchases of treasury bills should beincreased substantially" with one member noting that the bank of Japanshould also considering additional purchases of Japanese Government Bondsduring the further half of 2013. There was even a member who proposedlowering the interest paid on excess reserves from 0.1% to 0% and cuttingthe fixed rate fund rate from 0.1% to 0.0% but that was voted down by othereight members. View FCTOFX Live Trading @ http://bit.ly/W9RJWK
  • 10. Weekly Forex News January 27th 2013The Canadian dollar was sold off sharply after the Bank of Canada left its keyrate unchanged at 1% as expected. Correspondingly, the Bank Rate stayed at1.25% and the deposit rate at 0.75%. More importantly, the central bank alsorevised lower its GDP forecast to 2% in 2013, down from a previous estimateof 2.3%. The economy will reach full capacity in the second half of 2014 withGDP accelerating to 2.7% by then end of that year. Inflation is expected toaverage at 0.9% in the first quarter of 2013 and stay below 2% until the thirdquarter of 2014. The Bank of Canada forecast inflation would be at 2% by thefourth quarter of 2013. The Canadian dollar dived after the report as thecentral bank saw less urgency for an interest rate hike. The Loonie sufferedadditional pressure as CPI unexpectedly dropped 0.6% month on month inDecember and was unchanged at 0.8% year on year. View FCTOFX Live Trading @ http://bit.ly/W9RJWK
  • 11. Weekly Forex News January 27th 2013That compared to expectation of an acceleration to 1.2% year on year. CoreCPI dropped 0.1% month on month and slowed to 1.1% year on year. Thatseven worse compared to expectation of an acceleration from 1.2% to 1.4%year on year. The data affirmed the case that a need for rate hike is "lessimminent" and without existence of inflation pressure, the bank of canadawill very likely stay unchanged for more time.The Aussie was also weighed down as CPI rose 0.2% quarter on quarter and2.2% year on year in Q4 versus expectation of 0.4% quarter on quater and2.4% year on year. Treasurer Wayne Swan said the CPI result was "furtherevidence that there has been no significant broad-based increase inconsumer prices as a result of the carbon price". The data should give thereserve Bank of Australia room for a further rate cut if necessary. So far,interest rate swaps are pricing in less than a 50% chance for the reserve bankto cut another 25 base points to a record low of 2.75% in February. But afterall, another 25 base point cut is still generally expected within the next 12months. View FCTOFX Live Trading @ http://bit.ly/W9RJWK
  • 12. Weekly Forex News January 27th 2013The IMF lowered its global economic forecast: The world lender forecast thatworld GDP would expand 3.5% in 2013 and then 4.1% in 2014. These werebelow Octobers estimates of 3.6% and 4.6% respectively. In the Eurozone,the IMF estimated that the economy would contract 0.2%, down fromprevious estimate of 0.2% growth. For the US, growth would ease to 2% thisyear from the 2.1% estimated previously. Chinese economy would grow 8.2%in both 2013 and 2014. The IMF noted that "the near-term outlook for theeuro area has been revised downward, even though progress in nationaladjustments and a strengthened EU wide policy response to the euro areacrisis reduced tail risks and improved financial conditions for sovereigns inthe periphery". But, "the return to recovery after a protracted contraction isdelayed" and "Risks of prolonged stagnation in the euro area as a whole willrise if the momentum for reform is not maintained." It also warned that"adjustment efforts in the periphery countries need to be sustained andmust be supported by the center". View FCTOFX Live Trading @ http://bit.ly/W9RJWK
  • 13. Weekly Forex News January 27th 2013In the week ahead the Euro and dollar will likely remain strong against othermajor currencies in the near term but its a bit hard to determine which onewill be stronger even though the Euro is slightly preferred. US economic datato be released next week will be key to determine this. This heavy weightdata includes durable goods, consumer confidence, Q4 GDP, non-farmpayrolls and ISM manufacturing data. The Federal Open Market Committeewill also meet this week but this will possibly be a non-event. View FCTOFX Live Trading @ http://bit.ly/W9RJWK