Weekly Forex News March 3rd 2013

Weekly Forex News March 3rd 2013FCTO: The Dollar continued to be the strongest major currency last week while the Euro was the center of attention. Inconclusive elections in Italy left the country with a hung parliament and possibly with much political uncertainties for months that would hamper reforms. Solid bond auctions in Italy gave the common currency some interim support but it finally gave up again with EUR/USD briefly breaching the key psychological level of 1.3. The situation in the Euro reminded us how vulnerable the confidence towards the Eurozone is despite all the efforts by the European Central Bank and political leaders. We could look at EUR/CHF: which was back below 1.21 at the start of 2013 then shot up to as high as 1.2568 and was hammered back to as low as 1.2118 within just two months. While the US was troubled by the so called sequestration the dollar was not that affected based on its save haven status. The Dollar index surged through 82 to close at 82.28 while US stocks managed to reverse earlier loss and close on a strong note.

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Weekly Forex News March 3rd 2013In the Eurozone focus was on the inconclusive election in Italy. Bersani's party won majority in the lower house but failed to do so in the upper house. Italian yields were sent to a three month high on political uncertainties. Bersani said he would not form a coalition with Berlusconi but instead he's prepared to compromise with Grillo's party. Berlusconi called for new elections instead. So far markets are still unclear on what will happen next in Italy and it will remain the focus. European Central Bank president Draghi said that the Eurozone economy is still weak but he's optimistic that the accommodative monetary policy would help drive a "gradual recovery" in 2013. He also expects that the central bank would not remove policy stimulus any time soon as inflation would "significantly" undershoot its 2% target in 2014.


Weekly Forex News March 3rd 2013Meanwhile he said that the "benefits of the painful actions" of austerity have "not yet materialized and the "economic adjustment is coming at a heavy social cost". But he emphasized that austerity is for "their own benefits" and urged that reforms must continue. This was somewhat an indirect response to the inconclusive elections in Italy.In Japan prime minister Abe formally nominated Asian Development Bank president Kuroda as the next Bank of Japan governor to succeed Shirakawa. Iwata, a professor, and Nakaso, a Bank of Japan executive director, were nominated as deputy governors. The Japanese Yen weakened mildly towers the end of the week on expectation that the team of Kuroda will pursue aggressive easing when they come on board. And there would be eye-catching measures like buying risk assets or bonds on a large scale. But it should be noted that the yen could have exhausted selling in near term and we expect more consolidation ahead in March and probably before Kuroda's first Bank of Japan meeting in April.


Weekly Forex News March 3rd 2013The Sterling extended it's recent decline on Moody's downgrade as well as weak economic data. Manufacturing Purchasing Managers' Index dropped sharply to 47.9 in February, down from 50.8. The contractionary reading was a shock to economists as it was generally expected there would be a mild expansionary reading of 51. And it raised the concern that UK cannot avoid the so-called triple dip recession.

In China, the official manufacturing PMI dropped to 50.1 in February versus expectation of a rise to 50.5. The HSBC manufacturing PMI also finalized to be 50.4, much lower than the prior month's 52.3.

Rate decisions in Australia, Canada, Japan, the UK and the euro-zone as well as a buildup of top-tier US figures leading up to the all-important Non-Farm payrolls are the highlights of a very busy upcoming week.


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Weekly Forex News March 3rd 2013