Forex Fundamental Analysis

Yesterday saw Sterling hit a ten month low against the Dollar; today it was the Euro’s turn. Forex traders continue to be nervous about the possible impact that the Greek debt problem will have on the stability of the Euro; or at least that is the reason put forward for the depreciation of the currency.

Figures released by the Japanese Finance Ministry show that factory output has continued to rise for the 11th straight month. Data for January indicates that manufacturing output rose by 2.5% on an annualised basis, pointing at a real, albeit, slow recovery in the world’s second largest economy. The improved output has come in response to higher demand from Japan’s major trading partner, China. Vehicle and construction material exports are particularly buoyant currently.

Friday was the last trading session in February. All of the major stock markets closed down at the end of last week’s trading session, except for the Nikkei which was flat. In Europe over the course of last week, the FTSE shed 0.1%, closing at 5354.5 but it made 5.8% over the month; the CAC lost almost 1.6% closing at 3708.8, however it rose by 4.1% in February; the Dax fell 2.2%, but still put on 3% over the month; it ended the week at 5598.5.

The current relative strength of the Dollar against Sterling and the Euro has as much to do with concerns over the European currencies rather than confidence in the Greenback; US economic performance data has hardly been stunning of late. The Euro is under pressure because of worries over the Greek debt position and to a lesser extent over the debt levels in Spain and Portugal.

Speaking before the US Congress, Federal Reserve Chairman, Ben Bernanke, warned that the US may have to pay more money to service its budget deficit. According to predictions made by President Obama, the US budget deficit is set to rise to $1.56tn in 2010.

Earlier today, the 2-year note yields traded around 0.85% and German 2s are down to record lows of 0.89%, below the ECB’s 1% overnight rate, possibly signaling that Europe may be in for a double dip recession.

Anybody who grew up in the developed world learned from an early age that inflation was a bad thing; an evil beast to be kept at bay with swingeing cuts in public expenditure and hikes in the cost of borrowing.

With some 70% of American GDP tied to domestic demand for goods and services, the news that consumer confidence has fallen to a 10 month low has come as a major blow as he world’s largest economy tries to put clear water between it and the global financial crisis. The news was credited with wiping 1% off the Dow Jones at yesterday’s close as the market digested a confidence index fall from 55.6 in January to 46 for February.

All of the major stock markets closed higher for a second week at the end of last week’s trading session. In Europe over the course of last week, the FTSE put on 4.2%, closing at 5358.2; the CAC was up by almost 4.7% closing at 3769.5; the Dax made 4.0%, ending the week at 5722.1.

2010 will see a general election in the UK and from the current opinion poll predictions there may well be a change of government as a result. For that reason, one must take Alistair Darling’s (Chancellor of the Exchequer) prediction that he will cut the UK public debt in half over the next four year from its current level of about 9% of GDP. It is easy to sound confident about measures that one may never need to bring to fruition.

The US Federal Reserve has cautioned that unemployment levels will only ease slightly from their December figure of 10% this year. The Reserve is predicting that the situation will improve marginally over the course of the year dipping to 9.7 or perhaps 9.5%.

Meanwhile, on the other side of the Atlantic, a little joy was to be found in the official unemployment statistics which revealed that the jobless total had dropped by a further 3000 people to 2.46 million or 7.8% of the workforce. UK unemployment statistics can provide a complex and confusing picture as they are collated in various different ways to show the data.

US Treasury bonds are a mechanism for the country to raise financing from foreign and domestic sources. The bonds promise that the holder can redeem the bonds at maturity for a given level of interest.

The price of oil is quoted in US Dollars which means that a component of its price is due to fluctuations in the US currency.

In view of the cataclysmic nature of the global recession that we have just experienced, growth predictions for the 16 member Eurozone group of 1.1% for 2010 should be greeted with pleasure; but it is hardly a stellar performance.