USD
Risk appetite was back in the market on Wednesday, so the dollar had been selling off versus its major currency competitors at first, on stronger than expected manufacturing activity in China, than on the news from Europe, where negotiations on Greek debt relief deal seemed to bring particular results. Besides Portugal successfully placed its bonds at the auction, adding positive sentiment towards risky assets. US economic data, released yesterday, had been mostly positive - ADP private sector jobs added 170 K in January, although December figures had been revised down from 325K to 292 K. US manufacturing activity continued to improve in January – ISM reported manufacturing PMI climbed to 54.1 versus 53.1, registered in December, while forecasts predicted 54.5. December construction spending keeps on its positive trend, rising by 1.5% to 816.38 bn dollars a year, for the fifth consequent month. Market analysts expected a smaller growth, by only +0.5%. Today’s economic calendar looks to be poor in significant events. Traders will be only looking at initial jobless claims, which are likely to have shrank by 7K to 370 K last week, which is a good sign, suggesting to expect strong labor report, coming out on Friday. In the spotlight today will be Bernanke’s speech – investors hope to hear some more comments on recent Fed’s interest rate decision.
ЕUR
The euro appreciated versus the dollar on Wednesday following messages that the implementation of Greek debt-restructuring deal with creditors is on the way. IMF reported that talks with Trojka concerning a new bailout for Greece will be completed as soon as this week, bolstering the euro. Also, good news for the 17-nation single currency came from the bond auction, where Portugal sold all of its planned issuance of 1.5 billion euros of treasury bills at lower yields. EU economic data doesn’t contain a lot of significant indices, which could be driving the market today – December PPI is the only index to be released, most likely with a decline on a monthly basis, -0.1% m/m and a slowdown year on year, 4.3% y/y. November figures at 0.2% m/m, 5.3% y/y. This dynamics together with Consumer Price index decline on a monthly gives reasons to expect further interest rate cuts from the European Central Bank, which, in its turn, may upset market positive sentiment towards the euro.
GBP
The pound slipped versus the dollar at the beginning of the session, most likely on disturbing messages from the UK housing market. Nationwide reported house prices plunged by 0.2% m/m in January and climbed 0.6% y/y on a monthly basis. Forecasts anticipated a smaller decline, by -0.1% m/m, +1.4% y/y. However, sentiment towards the pound turned abruptly positive on the European session and the sterling won against the USD at the end of the day. The reason for such positive mood change should have been optimistic PMI manufacturing data – the index increased from 49.7 to 52.1 in January. Turning to today, we expect another part of January business activity data to be released – PMI construction index is likely to register a slowdown to 52.8 in January after 53.2 earlier. If this forecast confirms and nothing surprising happens news-wise, these data won’t produce any effect to the market and the indicator will stay within the growth zone.
JPY
Japanese yen slightly strengthened against the dollar on the overnight session. BoJ intervention fears holds back the yen’s active purchases. Besides, yesterday’s yen’s strengthening can be also explained by higher US yields. Today’s data front contains Japan’s monetary base in January, which should register +15.0% y/y in January after +13.5% y/y in December, which is definitely a positive factor for the yen. As for the closer outlook, weak trading is expected, as the market is getting ready for the employment data from the US, due to be released tomorrow.
Analysis prepared by:
Arkady Nagiev
Forex4you analyst
