Forex Market Review: Daily Forex Analysis

Key happenings in Forex market trading

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Past events:
• USD ISM Manufacturing PMI out at 58.4 versus expected 55.5, and prior 54.9- Economic activity in the US manufacturing sector grew for its 6th consecutive month, hitting its highest level in 5 years. ( A reading above 50 signal expansion).
• UK Manufacturing PMI out at 56.7 versus expected 54.1 and prior 54.6- The CIPS/Markit purchasing managers index for Britain's manufacturing sector rose in January hitting a 15 year high. (A reading of more than 50 means majority of managers saw a rise in activity, while a figure of less than 50 indicates a decline)
• GBP Construction PMI out at 48.6 versus expected 47.7 and prior 47.1 – the UK construction industry saw its 23rd consecutive monthly contraction in January. Although, the CIPS construction index is still below the 50 level mark, the boundary between contraction and expansion, today’s  higher than expected release of 48.6 is the highest it has been in almost two years.
• AUD Cash rate (interest rate) out at 3.75% versus expected 4.00%, and prior 3.75%

Upcoming events:
Today
• USD Pending Home sales (1500GMT)
Important reports to watch for this week:
• USD Non-Farm Payroll Change ( Friday 1330GMT)
• USD  Unemployment rate (Friday 1330GMT)
• EUR minimum Bid rate ( Thursday 1245GMT)
• GBP Official Bank rate (Thursday 1200 GMT)

Market comments:

The Australian’s central bank unexpected decision to overnight cash rate at 3.75, sent to AUD tumbling to a six week low against its major counterpart. Following a string of increases for the past three months, analysts had predicted a rate increase of 25 basis points, bringing the overnight interest rate to 4.0%. Following the announcement, the AUD fell to 87.98 cents USD, from its pre-announcement level of 89.24 cents USD (a decrease of 1.4% versus the USD).

Unlike the U.S, the UK and the European Union, who have chosen to keep their benchmark rates at historically lows, the Australian Central Bank, up to today, has continuously been increasing their overnight interest rate. This rate gap, contributed to helping the Aussie become a top performer against the USD.

Although, Australia’s Q4 of 2009 HPI, the average asking price for a home,  rose by 5.2% (versus an expected 3.7%, and prior 4.4%), announced yesterday, borrowing for home buying fell to a  five- year low last month, as signs indicated that rate increases through of October, November and December of   last year are restraining the mortgage market. 

Tomorrow (Wednesday 22:30GMT), Australia will release their Trade Balance. Since May of 2009, Australia has witnessed a deficit in their balance of imported and exported goods- last month, the deficit reached 1.7Billion; however, this month, the Trade Balance is anticipated to fair much worse,  expected to expand to 2.36Billion.

In other news, The Euro managed to regain some of last week losses against the USD, as stronger than expected PMI report pushed the Euro higher. None the less, the single European currency is hovering around its 6 month low (versus the Dollar), as continual concerns over the debt of certain EU countries, particularly Greece and Portugal, remains. 

Last week, the EUR suffered terribly, with the currency reaching a 6 month low against the dollar-the final blow being the unexpected announcement that the US GDP rose 5.7% for Q4 of 2009, the fastest increase in 6 year. Such positive data raises expectations that the U.S FED would potentially increase interest rate before the European Central Bank, thus encouraging investors to move into dollar based assets.  This prediction could possibly come true later this week, as European Central Bank is expected to announce their rate decisions.

Yesterday, the US released higher than expected number for its ISM Manufacturing PMI. The report indicated that the manufacturing in the US has expanded at its fastest pace since August 2004- signifying that the production gains that are leading the U.S recovery may soon encourage companies to hire.  Later this week, the US will be releasing two pivotal reports- the Non-Farm payroll followed by the Unemployment rate (both on Friday). While the Unemployment rate is predicted to remain at its current dismal level of 10%, for the first time, in a long time, the change in the Non-Farm Payrolls, is expected to be positive – with an expected increase of 13K employees last month.

Later today (1500GMT), the US will release its monthly Pending Home sales (for last December). Last month, the pending home sales was catastrophic – falling 16%. This month, the index is expected to fare much better with an expected rise of 0.4%. A drop in this index, (i.e a further drop in the number of pending home sales), could easily wipe out some of the USD last week’s gains.