Market Review - 21/02/2014 21:06GMT

Euro strengthens against the dollar after disappointing U.S. home sales data

The single currency rose against the dollar on Friday after the release of disappointing U.S. existing home sales data which fell sharply to the lowest level in more than a year in January, the latest sign that the housing market in U.S. is buckling under higher mortgage rates and harsh winter.

During the day, although the single currency retreated after staging a brief jump to 1.3725 in Asia, renewed buying limited intra-day losses to 1.3702 and price later rallied to 1.3759 in New York morning after disappointing U.S. exiting home sales data but profit-taking knocked price to 1.3720 b4 recovering.

According to the National Association of Realtors, U.S existing home sales fell by 5.1% to a seasonally-adjusted annual rate of 4.62 million in January from 4.87 million in December, the lowest level since July 2012, when it stood at 4.59 million.

Versus the Japanese yen, dollar rose above Thursday's high of 102.43 to 102.71 in Asia after the BOJ monetary policy meeting minutes highlighted worries over the health of emerging economies together with the release of Japan's record trade deficit but cross-buying of yen knocked price down to 102.34 in European morning. Later, the pair rose again on renewed cross-selling on yen and the pair penetrated Tuesday's high of 102.74 to a fresh 2-week high at 102.83 in New York morning before easing.

Bank of Japan on Friday released the minutes of the meeting held on Jan. 21-22 and noted that, 'with regard to the emerging and commodity-exporting economies, many members said that the developments in these economies, some of which we're facing structural problems such as current account deficits, continued to warrant attention together with developments in the global financial markets.'

Cable fluctuated wildly on Friday as despite falling from Asian high at 1.6686 to a fresh 1-week low at 1.6610 in European morning after downbeat U.K. retail sales, price swiftly rallied to 1.6690 on short-covering. Later, cable retreated to 1.6656 but only to rally to 1.6725 in New York on dollar's broad-based weakness (except versus yen) after worse-than-expected U.S. existing home sales data before falling sharply to 1.6613 in New York trading.

Official data showed that U.K. retail sales dropped 1.5% in January, more than the expectation of 1% decline. Retail sales in December were revised down to a 2.5% increase from a previously estimated 2.6% gain. On a yearly basis, U.K. retail sales rose 4.3% last month, compared to expectations for a 5% increase, after a 5.3% advance in December.

A separate report showed that public sector net borrowing in the U.K. dropped by 6.4 billion pounds in January, confounding expectations for a 9 billion pounds decline. Public sector net borrowing for December was revised down to a 9 billion pounds increase from a previously estimated 10.4 billion pounds jump.

The Sydney G20 Finance Ministers and Central Bank Governors meeting will be held over the weekend of 22-23 February 2014, with the main meeting being held on the Sunday. Australia Treasurer Joe Hockey said earlier on Wednesday that 'Australia will use its presidency of the Group of 20 advanced and emerging economies to push for agreements on strengthening global growth and to generate ideas on funding public infrastructure.'

Data to be released next week:

UK house prices, Germany Ifo business climate, current assessment, expectations, import price index and EU CPI on Monday.

Germany GDP, exports, imports, Italy retail sales, consumer confidence, UK CBI trends, U.S. house price index and consumer confidence on Tuesday.

Germany Gfk consumer confidence, UK exports, imports, GDP, U.S. mortgage applications and new home sales on Wednesday.

New Zealand trade balance, exports, imports, Swiss GDP, France consumer confidence, Germany unemployment, CPI, HICP, EU economic confidence, consumer confidence, Canada current account, U.S. durable goods and jobless claims on Thursday.

Japan manufacturing PMI, jobless rate, CPI, industrial production, retail sales, housing starts, construction orders, UK Gfk consumer confidence, France PPI, Swiss KOF indicator, Italy unemployment rate, EU unemployment rate, Canada GDP, U.S. GDP, personal consumption, core PCE, pending home sales and U. of Michigan consumer confidence on Friday.