Direct FX Weekly Market Overview 27/2/12

Direct FX Weekly Market Overview : By Sam Coxhead of www.directfx.conz

Last week the foreign exchange markets took their lead from Europe, and the unfolding events in Greece. The progression from Greek Parliamentary voting of austerity measures, was followed by the commitment of a further 130 billion EURO worth of bailout funds from the Euro-group. The final leg in the process will be attaining 75% participation of private sector involvement (PSI) in the proposed debt swap. Greece has opened the process and it is widely expected to succeed in getting at least 75% participation. The progress of the PSI process, and the European Central Bank’s (ECB) Long Term Refinancing Operation (LTRO), will again provide the lead this week. The previous LTRO from the ECB is widely accepted as stablising financial markets in December. Much is expected from this round, with around 500 billion EURO expected to be lent to banks and institutions for the three year period. The YEN also continued to weaken last week, as the follow through from the Bank of Japan (BOJ) quantitative easing (QE), was boosted by the positive sentiment driven from Europe. Stock markets are at or close to post 2008 highs, albeit their momentum waning somewhat. Oil continues to post strong gains as continued political tensions provide the driving force.

In Europe the mood continues to lighten, as the feeling of pending doom continues to dilute. However the pressure will remain for months, if not years, until sovereign balance sheets are bolstered for the most part. Economic growth will become more closely followed from now. German business sentiment was better than expected last week, and inflation and employment numbers on Wednesday and Thursday this week will gain attention. The expected completion of the Greek debt swap will take time, so potential speed bumps remain a risk to the EURO’s resurgent form from its recent lows in January.

Last week was a quiet one for New Zealand economic data. The Reserve Bank of New Zealand (RBNZ) two year Inflation Expectations Survey revealed a tame inflation outlook. The New Zealand dollar looks like it has lost its upward momentum for the most part, with the exception of the happily downtrodden Japanese YEN. This week just sees the release of the NBNZ Business Confidence Index on Wednesday.

In Australia the ugly battle for the Labor Party leadership has not been too derailing for the markets. Today saw the confirmation that PM Julia Gillard retains the leadership following the challenge from previous PM Kevin Rudd. Like the NZD, the Australian dollar looks somewhat labored at current levels on multiple pairings. The Reserve Bank of Australia (RBA) monetary policy meeting minutes confirmed the RBA are on economic data watch for further moves in the cash rate. Any softer than expected top tier data will see the market increase the likelihood of a cash rate reduction. This week sees the release of the latest retail sales numbers on Wednesday, and building and private capital expenditure on Thursday.

In the US the economic calendar was also light last week. The housing market remains the primary concern to the improving economy. Of note were consumer sentiment numbers which beat expectations. This week sees an array of economic data due for release. Key will be the preliminary GDP numbers on Wednesday, and manufacturing numbers on Friday. FED chairman Ben Bernanke also makes his semi-annual monetary policy testimony to the House Financial Services Committee on Wednesday. It will be a relief to US manufacturers to see the EURO recovery in the recent weeks, a further extension higher from the EURO would provide further relief to those US exporters.

The UK economy remains under pressure. Last week was a relatively quiet one for economic data. The Bank of England (BOE) monetary policy meeting minutes were interesting, with two of the seven members voting for 75 billion more QE, than the 50 billion that was decided on. This sentiment should cap any potential for real GBP strength in the short term at least. Revised GDP numbers were as expected at negative growth of .2% in the final quarter of 2011. This week is quiet again, with just manufacturing numbers Thursday and construction numbers on Friday due for release.

There was no economic data in Japan last week, but exporters finally got plenty to cheer about. The YEN continued its move lower across the board following the QE initiative from the bank BOJ. The reduced level of risk aversion saw further supply of YEN come to the market, to accentuate the moves. This week sees Japanese retail sales numbers on Monday and inflation data on Thursday. Expect these to be of limited influence, as an apparent fundamental shift continues to weaken the YEN.

Retail sales number in Canada were slightly worse than expected when released last week. They came out flat against an expectation of a .1% rise. The increasing level of the oil price should benefit the CAD at some stage soon, if political tensions surrounding Iran and Syria remain high. The week coming is a relatively quiet one for the Canadian market, with the focus coming from the monthly GDP numbers on Friday.

ENDS

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