Market Review - 21/01/2014 21:15GMT

Euro trades in a choppy fashion versus dollar after German ZEW

The single currency traded in a choppy fashion against the dollar on Tuesday after release of lower-than-expected German ZEW economic sentiment and amid expectations that the Federal Reserve will continue to scale back stimulus measures at next week's policy meeting.

During the day, although euro climbed higher from Asian low of 1.3537 to 1.3562 in European morning, cross-selling of euro versus yen and especially sterling pressured price from there and euro weakened to 1.3517 after a report showed that the ZEW index for German economic sentiment ticked lower in January. Failure to re-test Monday's 7-week low of 1.3508 prompted short-covering, the pair bounced back to 1.3545 in New York morning and then climbed to 1.3569 near New York afternoon before easing. Versus the British pound, euro fell below Jan's low of 0.8231 to a fresh 1-year low of 0.8215 on Tuesday before recovering.

The ZEW Centre for Economic Research said on Monday that its index of German economic sentiment ticked down to 61.7 in January from 62.0 in December. Market had expected an increase to 64.0.

Versus the Japanese yen, although dollar rose from Australian low of 104.16 to 104.69 in Asia on the back of rally in Nikkei 225 index and then further to 104.75 in European morning, renewed cross-buying of yen pressured price from there and dollar later dropped in New York trading to 104.03 on risk aversion due to the decline in U.S. equity markets.

Cable went through a roller-coaster session on Tuesday. Although price rebounded from 1.6408 to 1.6453 in European morning and then briefly weakened to 1.6400 after data showed that British factory orders fell in January, losses were limited as growth in new manufacturing orders was the strongest since April 2011 and cable later rallied above last Friday's high of 1.6459 to a fresh 1-week high of 1.6487 in New York morning, helped by active cross-buying of sterling versus euro before easing.

The Confederation of British Industry said its index of industrial order expectations fell to -2 this month from 12 in December, and below expectations of a reading of 10.

In other news, IMF said on Monday that it 'raises global forecast to 3.7% in 2014 fm 3.6% in Oct, sees 3.9% expansion in 2015; lifts 2014 forecast for advanced economies to 2.2%, seen increasing 2.3% in 2015; keeps 2014 growth forecast unchanged for emerging economies at 5.1%, sees 5.4% growth next year; sees new downside risk of very low inflation in advanced economies, could turn to deflation in negative shock to economic activity; advanced economies still have large output gaps, austerity remains; raises U.S. forecast for this year to 2.8%, expects smaller fiscal drag to boost domestic demand; hikes U.K. growth forecast to 2.4% this year from 1.9%, sees 2.2% growth in 2015; ECB should help repair bank balance sheets, provide targeted lending to boost demand, reduce financial fragmentation; hikes 2014 Japan GDP forecast to 1.7% from Oct's 1.2%, says fiscal stimulus should partly offset drag from higher consumption tax this year; raises China forecast for this year to 7.5%, predicts 7.3% expansion in 2015; China's recent growth driven by temporary investment boost, must do more to move economy away from investment towards consumption; financial conditions in advanced economies eased, but remain tight in emerging markets; stronger growth in India with structural policies to support investment; stronger exports main driver of growth in emerging markets, domestic demand weaker than expected; financial market, capital flow volatility still concern emerging markets, especially as Fed starts to taper.'

Data to be release on Wednesday:

Australia Westpac consumer confidence, CPI, Japan rate decision, all industry index, leading indicators, U.K. MPC minutes, claimant count, ILO unemployment rate, average earnings, PSNCR, public sector Net borrowing, Italy current account, Swiss Zew index, US Redbook retail sales and Canada BOC rate decision.