Major Pairs Analysis: February 7, 2012

EUR/USD

European stocks dropped, with the Stoxx Europe 600 Index trimming a six-month high, as Greece struggled to reach a deal with its international creditors. Vedanta Resources Plc slipped 3.1 percent as the shares of metal producers declined. Glencore International Plc slid 4.5 percent after a report that the commodities trader may offer 2.8 shares for each Xstrata Plc share. Societe Generale SA, France’s second-biggest lender, and Credit Agricole SA decreased more than 2.5 percent. The benchmark Stoxx 600 declined 0.1 percent to 264.27 at the close, paring an earlier drop of as much as 0.8 percent. More than three stocks retreated for every two that advanced. The gauge rallied 3.6 percent last week as a U.S. payrolls report showed that the world’s biggest economy added 243,000 jobs in January, beating the median economist estimate in a Bloomberg News survey.“This week is crunch time for Greece,” said Witold Bahrke, a senior strategist at PFA Pension A/S in Copenhagen, which manages $45 billion. “We can no longer completely exclude extreme scenarios such as a disorderly default or -- a bit further down the line -- an exit from the euro area. Investors have become fairly resilient toward news from Greece, but we are seeing small signs negative sentiment is taking over after the positive mood dominating markets recently.”National benchmark indexes declined in 15 of the 18 western-European markets today. The U.K.’s FTSE 100 Index slipped 0.2 percent. France’s CAC 40 Index declined 0.7 percent, while Germany’s DAX Index fell less than 0.1 percent.

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GBP/USD

The spending cuts that helped the U.K. preserve its AAA credit rating last year and bolstered the pound are now weighing on the currency as investors lose confidence that Prime Minister David Cameron will revive economic growth. Sterling had its worst January since 2008 against a basket of nine developed-market peers, falling 0.6 percent, after a 3.1 percent advance in the second half of 2011, according to data compiled by Bloomberg.  Gilts are lagging behind lower-rated Treasuries, after world-beating gains of almost 17 percent last year. Investors are beginning to favor policies promoting growth over austerity just as the biggest government-spending squeeze since World War II risks sending the U.K. into its second recession since 2009. U.S. President  Barack Obama has used outlays to drive America’s  recovery even as near-record deficits led to an August downgrade by Standard & Poor’s.“Given that there was no move from international bond investors to force this upon them, the U.K. is choosing a macro policy mix that is negative for the pound,” Mark McCormick, a New York-based currency strategist at Brown Brothers Harriman & Co. said in a Jan. 31 interview. “The main drag on the economy is the austerity measures taken to address the government deficit, which is meant to spur confidence in the bond market.”

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USD/JPY

Japan’s biggest makers of phones, televisions and chips say they’ll lose about $17 billion this year, about three-quarters of what Samsung Electronics Co. will spend on research to lengthen the lead over its competitors. Sony Corp.  More than doubled its annual loss forecast for the year ending March 31 as it announced a new chief executive officer, while Panasonic Corp. and Sharp Corp. predicted the worst losses in their histories. Their combined losses compare with the $22 billion that Samsung, Asia’s largest consumer-electronics company, said it will invest in capital expenditures. Japanese companies hurt by a stronger yen, flooding that swamped Thailand factories and weaker demand for their TVs may not be able to regain ground lost to Samsung and Apple Inc. That’s prompting Sony and Panasonic to focus on sectors including medical devices, solar panels and rechargeable batteries in an effort to revive earnings. “Japan’s consumer-electronics makers are in a total breakdown,” said Masamitsu Ohki, a fund manager at Stats Investment Management Co., a Tokyo-based hedge fund. “They need to compete with ideas, not technology.”Samsung is the world’s biggest maker of TVs, memory chips and flat-screen panels, and the second-biggest manufacturer of mobile phones. The Suwon, South Korea-based Company and its affiliates plan to spend 47.8 trillion won ($43 billion) this year on new product research and upgrading plants.

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USD/CAD

Canada’s dollar fell the most in three weeks versus its U.S. counterpart as concern that Greece’s leaders won’t reach an agreement to avert a default damped investor appetite for riskier assets. The currency dropped  after reaching a three-month high on Feb. 3 as employers in the U.S., the nation’s biggest trade partner, added the most jobs in nine months, even as Canada’s unemployment rate unexpectedly rose. The Canadian dollar pared losses today as an index showed business and government spending rose to an eight-month high. The U.S. dollar rose against most major peers as investors sought safety. “Canada has been outperforming,” said Dean Popplewell, head analyst in Toronto at the online currency-trading firm Oanda Corp. “It has appreciated on a feel-good factor that has come out of the U.S. and is pretty close to a short-term high.” The Canadian currency, nicknamed the loonie for the image of the aquatic bird on the C$1 coin, depreciated 0.2 percent to 99.57 U.S. cents at 3:20 p.m. in Toronto. It weakened as much as 0.6 percent, the biggest intraday drop since Jan. 13. The loonie gained to 99.28 Canadian cents on Feb. 3, its strongest level since Oct. 31, as it completed a fourth straight week of gains. One Canadian dollar buys $1.0043.

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