Weekly Forex News February 10th 2013

Weekly Forex News February 10th
2013
FCTOFX: Markets turned into corrective mode last week and pared back
some of the powerful moves made back in January. Comments from central
bankers were the main driver that halted the near term trend and triggered
the pull backs. The Euro was broadly lower after European Central Bank
president Draghi mentioned that a strong euro could slow the region's
economy. The Japanese Yen recovered as finance minister Aso said the
recent decline was too fast. Sterling, rebounded as incoming Bank of England
governor Carney dented speculation of a radical change in monetary policies.
Meanwhile, the Australian Dollar was weighed down by a dovish Reserve
Bank of Australia monetary policy statement. The US Dollar benefited from
the move in the Euro and closed higher against other major currencies except
the yen and sterling. The dollar index has indeed closed above the 80
psychological level again.

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2013
The developments last week showed that markets have turned into a
corrective mode in general but we'd like to emphasize there is no evidence
for a change in trends yet. We're staying medium term bullish in euro and
bearish in yen. The coming weeks would present opportunities and to add to
these euro long and yen short positions. And we'd maintain that EUR/JPY will
continue to outperform other yen crosses ahead. However, for the short
term price actions in euro and yen pairs will likely be choppy with a
downside bias in euro and an upside bias in yen. And thus, we'd tend to
avoid these pairs in quick trades. Instead, USD/CAD strength on Friday raised
the chance of a rally resumption with AUD/USD staying soft. Thus, for this
week's trade, we'd prefer USD/CAD longs and to a slightly lesser extent
AUD/USD shorts.


2013
In the Eurozone, strength of the euro was a major topic among officials as
French President Francois Hollande expressed concerns over the strength of
the single currency and called for a currency policy. His idea gained support
from Slovak Prime Minister Robert Fico who said that government would
support such policy. Greek finance minister Stournaras also said he's
concerned about the high level of the euro". However, German Chancellor
Merkel's spokesman Seibert noted that exchange-rate policy cannot achieve
"sustained competitiveness" and isn't an appropriate instrument. Seibert
noted that the recent gain in euro compensated for a "massive" depreciation
during the debt crisis and "that's not such a bad thing".


2013
The European Central Bank left the main refinancing rate unchanged and
announced no new stimulus program. The overall tone of the statement
remained dovish, noting that weakness in the economy remains. However,
recovery would be seen later in 2013 "with domestic demand being
supported by an accommodative monetary policy stance, the improvement
in financial market confidence and reduced fragmentation, and export
growth benefiting from a strengthening of global demand". The European
Central Bank has clearly noticed the strength of the euro but President
Draghi reiterated the position that it is the effect on growth and inflation
that will make them react.


2013
In the UK, the Bank of England left rates unchanged at 0.5% and kept the
Asset Purchase Program at 375 billion pounds. The Sterling rebounded as
incoming Bank of England Governor Carney talked down chance of radical
changes in the central banks' policy. In his testimony to the UK parliament's
Treasury Select Committee, Carney said that "flexible inflation targeting: as
practiced in both Canada and the UK, has proven itself to be the most
effective monetary-policy framework implemented thus far." But, "the bar
for change to any flexible inflation-targeting framework should be very
high." The comments disappointed some investors that hoped for adoption
of nominal GDP targeting and more aggressive easing. Meanwhile, Carney
also emphasized that a "credible plan is needed in advance" for unwinding of
the assets purchased "in order to maintain confidence".


2013
The Japanese Yen was initially sold off after news that Bank of Japan
governor Shirakawa would step down on March 19th, almost three weeks
earlier than the originally scheduled end date of his term. With the new
schedule, ,the new Bank of Japan governor and two deputies would be able
to be sworn in simultaneously. The move will help Abe accelerate the Bank
of Japan's policy shifts. It's speculated that the short list of candidates to
succeed Shirakawa includes Asian Development Bank President Haruhiko,
former Bank of Japan deputy Kazumasa Iwata and Thoshiro Muto. But no
matter who Abe chooses, it's believed that the new governor would take
strong easing steps soon after coming into power.


2013
Finance minister Aso's comments were contradicting yet market moving. Last
weekend, he said the weaker yen was a result of the "policies aimed at
ending deflation", but "not the goal". He hit back at Europe's claim that the
Bank of Japan's move would contribute to a "currency war" and said that
Japan "endured without complaining" when the yen was strong as a result of
the global financial crisis back in 2008. However, before the week closed, Aso
said that the "yen weakened more than we intended in the move to around
90 from 78". Aso's comment seemed to be inconsistent as he mainly talked
up the yen whilst also talking down the yen on other days. Nonetheless, it
should be noted that his comments were about the pace of the decline in the
yen and not about the value of yen. So it's actually seen as aiming at cooling
down the selling momentum only.


2013
The Reserve Bank of Australia left the cash rate unchanged at 3%. Yet,
policymakers indicated in the accompanying statement that possibility
remained for a further rate cut as inflation was contained by sluggish job
market. The statement was dovish, reiterating the view that the mining
sector has almost peaked. The Reserve Bank of Australia's outlook on growth
showed little change from December statement, noting that 'global growth is
forecast to be a little below average for a time' but risks around this central
scenario 'appear to have abated'. Later in the week, the Reserve Bank of
Australia released its quarterly Monetary Policy Statement reducing its
economic growth and inflation forecasts as "mining investment is expected
to peak, both fiscal consolidation and the persistently high level of the
Australian dollar will weigh on growth, and there is little sign of a near-term
pick-up in non-mining business investment".


2013
The central bank forecast growth this year would be "below trend", at
around 2.5%. CPI and would rise 3% in the year to June 2013. The Reserve
Bank of Australia forecast the employment growth to remain "modest over
the course of this year, before rising gradually over 2014. The unemployment
rate is expected to edge higher". Australian employment data was solid with
a 10,400 expansion in January while the unemployment rate was unchanged
at 5.4%.
The New Zealand dollar weakened earlier in the session on mixed job data.
Employment unexpectedly contracted 1% quarter on quarter in Q4, versus
expectation of 0.4% growth quarter on quarter while the unemployment rate
dropped more than expected to 6.9%. The Canadian dollar dropped sharply
on Friday after poor job market data, which showed a 21,900 contraction in
January versus expectation of a 4,000 growth. The unemployment rate
dropped to 7%.


2013
In China, the People's Bank of China warned in a report that the "economic
recovery and demand expansion may pass into CPI in a relatively fast
manner". The report noted that "with the help of macro-economic policies,
the country is expected to keep stable and relatively fast growth.”
Meanwhile, monetary easing in developed countries "may make global
capital flows more volatile, push up commodity prices and generate a greater
spillover effect on emerging economies". The report signaled that while
further monetary easing is possible, the room might be limited. China's trade
surplus came in wider than expected at 29.15 billion US Dollars in January,
down slightly from December's 31.62 billion. Exports rose 25% year on year,
the strongest rise since April 2001 and well above expectations of 17%.
Meanwhile, imports also surged 28.8% year on year, also beating
expectation. The data showed that not only domestic demand is improving,
global demand is recovering too.


2013
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Weekly Forex News February 10th 2013

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