Forex Fundamental Analysis

Friday capped a terrible week for the equity markets as it sent almost all markets negative for the year. President Obama's plan, to limit the risk that banks can assume sent the Dow Jones Industrial Average plummeting. This announcement combined with China's new hard line stance on quantitative easing helped to send all equity markets lower on Friday. In the U.S, the DJIA closed down 216.90 points to 10,172.98

With concern over the potential overheating of the Chinese economy and Barack Obama’s plans to reform the banking sector, last week saw all of the major stock markets closing lower. In Europe, the FTSE fell by 2.8%, closing at 5303; the CAC dropped by almost 3.4% closing at 3820.8; the Dax shed 3.1%, ending the week at 5695.3.

The Euro has been trading at its lowest levels against both the US and UK currencies in five months. Analysts are concerned about possible knock-on effects that the dire straits of the Greek economy may have on the rest of the Eurogroup block (see Wednesday’s article).

The U.S Dollar came out swinging yesterday, surging .838 points on the DXY to close at 78.338. The Kiwi took it on the chin, giving up 1.86% as commodities sold off. The EUR was offered across the board for a 3rd day in a row as stops were blown out just below the 200 day MA. The EUR started the day just above 1.43 and finished down 2 big figures to 1.41.

The Eurogroup is the name given to the sixteen European Union Member States which decided to adopt the Euro as their currency. To a greater or lesser extent, their fates have become interlinked such that they have agreed to meet certain economic targets to avoid any loss of confidence in the currency which would have catastrophic consequences for the whole group.

Equity Markets in Asia finished lower yesterday on concerns that poorer than expected earnings in the U.S would spill over into next day trading. That did not occur as the both European and U.S session enjoyed substantial gains. The DJIA finished at 10,725.43, wiping out the prior day's losses as it picked up 115.78 points.

In the last quarter of 2009, Wall Street bank JP Morgan Chase made a profit of $3.3bn, turning in an annual profit of $11.7bn – almost $250m per week. The bank did get financial help from the US Treasury to the tune of $25bn under the Troubled Assets Relief Program (TARP), but this was repaid in June 2009.

Most analysts believe that the global recovery will be a fragile beast, so it is unsurprising that the European Central Bank has decided to maintain interest rates at 1%. The move was widely expected; indeed most people expect the policy to be maintained well into the year.

Stocks finished last week on a sour note as both the European and U.S sessions ended Friday considerably lower. On Wall Street, the DJIA tumbled just over 100 pts to 10,609.65 on worse than expected earnings from JP Morgan and Alcoa.

With the exception of the Nikkei, all of the major stock markets retreated somewhat over the course of last week. In Europe, the FTSE fell by 1.4%, closing at 5455.3; the CAC dropped by almost 2.25% closing at 3959.4; the Dax shed 2.7%, ending the week at 5876.0.

According to the National Institute of Economic and Social Research (NIESR), the UK economy will return to growth in Q4 of 2009 when figures are finally released. The official figures are due to be released on the 26th of January, but NIESR, a think tank, has predicted that the UK will post growth of 0.3%.

In the overnight Session, the NIKKEI advanced 172.65 points or 1.61%, pairing losses from the day before which came on the back of the PBOC monetary tightening policies. On Wall Street the DJIA was up smartly to 10,680.77, picking up 53.5 points and making a new high for year. The European session saw modest gains across the board as well.

The US trade deficit has long been a source of worry to legislators in the world’s largest economy. Data just released for November will have given them further reason for angst. The fledgling US recovery has stimulated demand for exported goods within the American economy at a time when US exports are still weak. The imbalance has led to a significant widening of the trade gap, by almost 10% in November, to over $36bn.

Many people think that China will soon overtake Japan as the world’s second largest economy – particularly in view of the plight that Japan finds itself in currently with deflationary pressure; record unemployment; poor consumer confidence and an unrealistically strong currency.

Analysts had expected to see a continuing improvement in the US job market after revised data for November turned an 11000 job loss into a 4000 job gain, but the most recent figures showed that the US had shed another 85000 jobs in December with the national rate of unemployment staying obstinately around the 10% level. The vast majority of these losses were drawn from the beleaguered construction (53000) and manufacturing sectors (27000) sectors.