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Fundamental Afternoon Wrap: Dutch concerns ´clogg´ up European sentiment

A relatively quiet afternoon has been reflected in this afternoons institutional research, with Europe coming back onto the near term horizon following some tricky Dutch development which have added to the negative sentiment coming out of Italy. However, with Bernanke´s "soothing" performance yesterday, the feeling seems that the sequester, is not so much of a big deal as it probably should be. Looking east, Abe has announced the BoJ leadership nominations and Australian data looks supportive enough for analysts to negate any further rate cuts on the horizon.


Brown Brothers Harriman analysts note that Italy, the current bellwether, is seeing some stability, even though there appears to be little progress is solving the political stalemate. Further, they add that the Netherlands joins France as core European countries that are getting caught on the sticky flypaper that has snagged the periphery. Bank of Tokyo Mitsubishi UFJ analysts are bearish on the pair citing the obvious Italian instability as the leading catalyst.

Jane Foley of Rabobank however notes that ECB’s President Draghi yesterday reassured markets that the ECB is ‘far’ from considering an exit from monetary policy and clearly Draghi is attempting to counter concerns that the repayment of LTRO funds is tantamount to a significant tightening of liquidity. Nick Bennenbroek of Wells Fargo comments that the Euro is lower in part because of Dutch government budget forecasts which showed a larger than expected deficit.


Brown Brothers Harriman analysts note that in Japan, PM Abe´s government just officially nominated the BoJ ´s new leadership team which is committed to pursuing a more aggressive monetary policy, a point supported by Yujiro Goto of Nomura. Bank of Tokyo Mitsubishi UFJ analysts are bullish on USD/JPY following the announcements and Nick Bennenbroek of Wells Fargo too feels that the appointments could well lead to further easing..


Brown Brothers Harriman analysts note that the Australian Dollar has built on today´s recovery and the risk of a rate cut looks to have declined further, with the RBA commenting that the currency has been bought by at least 34 central banks for reserve purposes. TD Securities analysts add to the sentiment commenting that following recent data, “we conclude that this report is no trigger for a March rate cut.”


ING analysts note that Q4 US GDP has been revised marginally but still fell short of expectations, just before the US sequester starts tomorrow. Jane Foley of Rabobank feels that Fed President Bernanke arguably went even further than Draghi earlier this week in reassuring investors that the doves still rule the roost of the Federal Reserve. She writes, “We estimate that open-ended QE will remain in place in the US until the turn of this year.”

Forex: USD/CHF rises to 0.9330/40 resistance

The USD/CHF has been sistematically finding resistance at 0.9330/40 since January 21, and seems to be at a new attempt of breaking above. The pair regained the 0.9300 ground once the US GDP and jobless claims figure were released, keeping the upside steady. Good news coming from the US Chicago PMI allowed a move to 0.9329 high, for now.
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