Thread: Daily FX Market Review by AceTrader-21-9-2010

Market Review - 20/09/2010 22:56 GMT

Euro hovers near five-week high against dollar on ahead of U.S. Fed meeting


The single currency hovered near five-week high against the greenback on Monday, as investors were focusing on the FOMC meeting starting at 13:00 GMT on Tuesday and waited to see whether U.S. Fed would consider further stimulus measures to support the fragile U.S. economy.

Although the single currency edged higher from 1.3034 in Asian morning due to cross buying in euro and climbed to an intra-day high of 1.3122 after the Irish government denied Friday's rumours that it might need help from the IMF, euro retreated from there as spreads of both Irish and Portuguese bond yields versus 10-year German bunds continued to widen to new lifetime highs of 412 basis points and 383 basis points respectively. Later, the pair rebounded from 1.3029 in NY morning on rumour bids at 1.3030 by European semi-official names and rose to 1.3096 before moving sideways, as market was waiting for the statement of FOMC meeting on Tuesday.

The single currency was supported by the firmness in U.S. and European stock markets, as DJI rallied by 146 points or 1.37% and closed the day at 10753.62. FTSE-100, CAC-40 and DAX also surged by 1.71%, 1.77% and 1.37% respectively.

In other news, Irish Prime Minister Brian Cowen said that he had the full support of his colleagues and was determined to pursue his economic reform policies. Earlier, a member of parliament from Cowen's ruling party said it was time to replace Cowen as price minister.

Reuters reported that ECB's Ewald Nowotny, central bank governor of Austria, said that markets were not stable enough to withdraw unlimited banking funding. He added that there was no medium-term inflation risks.

EU Economic Affairs Commissioner Olli Rehn said 'Europe's economic recovery has gained momentum, we have a solid ground on our feet; financial markets are still fragile in Europe and Europe's long term growth potential remains very modest.'

The greenback edged lower from 85.84 in Asia due to market holiday in Japan and investors were reluctant to open yen positions on worries that Japan might intervene in forex market and dipped to 85.50 in European morning, however, buying interest at there lifted dollar and the greenback rose to 85.80 in NY afternoon.

Although the British pound rose in Asia in tandem with euro after Friday's selloff from 1.5730 to 1.5612 and climbed to an intra-day high of 1.5686 after BOE said in its quarterly bulletin that 'rally in the pound in the past 3 months may reflect improved investor confidence in the outlook for the U.K. public finances', cable then dropped from there due partly to stop selling plus cross selling in sterling vs euro and yen (eur/gbp rallied from 0.8330 to 0.8413 while gbp/yen dropped from 134.44 to 133.23), and eventually fell to 1.5536 in NY afternoon.

Earlier in Europe, Moody's said 'UK's AAA rating to withstand challenges' had led to minor short-covering in pound. Moody's said its stable outlook on U.K. reflected government's commitment to stabilise and to reverse deterioration in financial strength. The ratings agency also added 'UK economy can grow moderately in face of austere fiscal consolidation.'

The Australian dollar rose strongly against the greenback from 0.9355 in part due to Reserve Bank of Australia (RBA) Governor Glenn Stevens's hawkish comments that RBA stood ready to use interest rates to help manage an expected strong pick-up in the domestic economy in coming months. Aud/usd eventually rallied to 0.9495 in NY morning.

Economic data to be released on Tuesday include:

Australia RBA's Sept Minutes, Japan Leading indicators, Machine tools orders, Swiss Trade balance (chf), U.K. PS net borrowing, PSNCR, Canada CPI core, CPI, U.S. Building permits, Housing starts, Fed rate decision.

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Market Review - 21/09/2010 23:00 GMT

US dollar falls broadly as Fed offers to ease

The greenback dropped against other major currencies on Tuesday, as the statement of U.S. FOMC meeting indicated that U.S. Fed prepared to ease monetary policy if needed to boost the U.S. economy.

The greenback edged lower from 85.77 in Asia on speculation that Japan might be blamed on manipulation of the Japanese yen and dropped to 85.26 in European morning. Later, despite dollar's rebound to 85.66 on talk of good bids by a Scandi buyer, dollar fell again from there and extended its weakness to 84.97 in NY afternoon after the release of the statement of U.S. Fed's FOMC meeting.

The Fed's statement indicated vote on policy was 8-1 with Thomas M. Hoening dissenting. U.S. Fed said it prepared to provide additional accommodation if needed to support economic recovery. The Fed kept rates exceptionally low in 0-0.25 percent range for an extended period of time.

In other news, Chairman of the Japanese Bankers Association, Masayuki Oku, said the new Basel III regulations requiring banks to hold 7% in top quality capital are 'harsh' although Japan's banks have no need now to strengthen their capital further.

The single currency rose from 1.3057 in Asia due partly to cross buying in euro (eur/chf rallied from 1.3116 to 1.3244.) and surged to 1.3149 in European morning in anticipation of good demand at the Irish bond auction. Euro then retreated from there on profit-taking despite solid demand at the Irish debt auction and dipped to 1.3108 after the release of stronger-than-expected U.S. housing starts figure. Later, although fell briefly to 1.3109 after U.S. Fed's rate decision, the pair rebounded strongly on dollar's broad-based weakness and rallied to a 6-week high of 1.3288 in NY afternoon.

Ireland sold 1.5 billion euros of government bonds, showing strong support from investors. Greece also sold 390 million euros of 3-month T-bills while Spain sold 7 billion euros of 12-month and 18-month bills, the top end target it had set.

U.S. housing starts rose by 10.2% to 0.569M in August, much stronger than the downwardly revised reading of a increase of 0.4% in July.

Earlier, ECB Governing Council member Nout Wellink said he would reconsider exit plans if they are afraid of negative impact; he saw no immediate threat of inflation in eurozone, the only threat for inflation would come from commodity prices.'

Although the British pound ratcheted higher to 1.5588 in Asia on short-covering following Monday's selloff from 1.5686 to 1.5536, cable fell briefly but sharply to 1.5503 in European morning on cross selling in sterling versus euro (eur/gbp rallied from 0.8390 to 0.8493/94) before staging a rebound to 1.5570 in NY morning. Later, the British pound rallied from 1.5531 on dollar's broad-based weakness after U.S. Fed's rate decision and climbed to an intra-day high of 1.5645 in NY afternoon.

On data front, U.K. public sector net borrowing rose to a record high of 15.3 billion pound in August, much higher-than-expected of 12.51 billion due to hefty interest payment on gilts.

Economic data to be released on Wednesday include:

New Zealand Current account, Australia Westpac leading economic, Japan All industry index, U.K. BOE meeting minutes, EU Industrial orders, Consumer Confidence, Canada Leading indicators, Retail sales, ex. Autos, U.S. Home Price Index.

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Market Review - 23/09/2010 23:07 GMT

Euro falls on worries over eurozone’s economic recovery


Euro weakened from a 5-month high against dollar on Thursday, as worries about the growth of European economy resurfaced after the release of weak Irish, German and eurozone economic data.

The single currency traded sideways in Asia after Wednesday's rally to a 5-month high of 1.3441, but then tumbled from 1.3415 to 1.3308 in Europe after the release of a surprise 1.2% fall in the Q2 of Irish GDP from the Q1 as well as a rise to a record high of 500 basis points of 5-year Irish credit default swap. The widening of Irish/German 10-year bond spread to a record high of 426 basis points added further pressure on the single currency. Later, despite euro's brief recovery after the release of worse-than-expected U.S. weekly jobless claims (which came in at 465K versus the forecast of 450K), selling interest emerged again and sent the pair to an intra-day low of 1.3304 in NY morning before recovering.

The single currency was pressured after the release of weaker-than-expected German and EU service and manufacturing PMI data, as German services and manufacturing PMI came in at 54.6 and 55.3 versus the expectations of 57.0 and 57.6 while EU services and manufacturing PMI were both 53.6 versus the forecast of 55.5 and 54.5.

The Portuguese 5-year CDS increased by 29 basis points to 420 basis points, which also add pressure to the single currency.

In other news, reports showed that Irish and some other Ireland-based banks remained shut out of capital markets, forcing them to rely on emergency funding from the ECB and Ireland-based banks got 95 billion euros (US$125 billion) of cash from ECB in August.

Although the greenback edged higher versus the Japanese yen in Asia after Wednesday's sharp fall to a 1-week post intervention low of 84.27 as Japanese market was closed for holiday and rose to an intra-day high of 84.68 in European morning, dollar dropped from there on cross-buying of yen especially versus euro (eur/jpy dropped from 113.43 to 112.18). The greenback extended its decline after the release of higher-than-expected U.S. weekly jobless claims and hit an intra-day low of 84.26 in NY morning before trading narrowly.

Earlier in Asia, Japanese Prime Minister Naoto Kan said he was determined to shore up a fragile economic recovery as evidenced by a big push to weaken the Japanese yen.

In other news, according to a senior U.S. official, U.S. President Obama said in the meeting with Chinese Premier Wen Jiabao that China needed to do more to resolve a dispute over the value of yuan. Earlier, Wen said there was no relation between the yuan and U.S. trade deficit.

Although the British pound edged higher in Asia and rose to 1.5688 in European morning, cable dropped in tandem with euro to an intra-day low of 1.5612 in Europe. Cable then staged a rebound from there and rallied above last week's high of 1.5730 to 1.5742 on cross unwinding in sterling versus euro(eur/gbp tanked from 0.8567 to 0.8472) before retreating.

Economic data to be released on Friday include:

Germany Import price index, Ifo index , Swiss SNB quarterly bulletin, U.S. Durable goods, ex. Defense, ex. Transport , New home sales, New homes change.

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