Thread: Daily FX Market Outlook by AceTrader-3-12-2010

Market Review - 02/12/2010 21:42 GMT

Euro surges on speculation of ECB's bond buying

The single currency rose in the choppy trading on Thursday on speculation that ECB was buying eurozone bonds, especially Portuguese and Irish debts. The US dollar fell broadly as upbeat home sales data boosted risk appetite and decreased the demand for the dollar as safe-haven asset.

The euro initially edged lower and fell to 1.3087 in Asia but the single currency rebounded from there and rose sharply to 1.3217, however, the pair fell sharply and tanked to 1.3060 before rebounding strongly on short-covering. Euro eventually hit an intra-day high of 1.3248 in NY session before stabilizing.

Earlier, ECB kept interest rate unchanged at 1.00% as expected and ECB's president Trichet said the central bank would give banks unlimited liquidity but didn't commit to step up the pace of its recent bond purchase program. Trichet's comments disappointed the market as investors expected ECB to unveil an aggressive new bond buying program. Trichet also added that the rate was "appropriate" given "contained" inflationary pressures. Later, ECB's governing council member Weber said Germany's economy would recover to its pre-financial crisis level by the end of 2011 while he was convinced the package agreed on regarding Ireland will lead to turnaround.

Although the greenback traded narrowly against the Japanese yen in Asia, the pair rose to 84.37 later but swiftly retreated from there and nose-dived to 83.48 in NY mid-day before stabilizing. Dollar fell sharply as US pending home sales unexpectedly rose in October and investors sold the dollar for riskier assets like stocks. DJI rose again and ended the day up by 0.95% at 11362.

In other news, St. Louis Fed's Bullard said QE had achieved desired effects on rates and he did not see spillover to US economy from intensified European debt woes. He added that QE would send inflation back up towards 2%. Philadelphia Fed's Plosser said he was not sure the current asset purchase program would have very big impact on the economy and monetary policy may not be the right tool to bring down unemployment. He added that Europe remained a risk out there for US.

Despite the British pound's initial sideways movement in Asia, cable later rose sharply to 1.5667 in European morning as cable was supported by the release of robust U.K. PMI for the construction sector where the Nov. index came in at 51.8, beating street forecast of 51.3. However, cable later fell sharply to an intra-day low of 1.5512 in tandem with euro before staging a strong rebound.

Economic data to be released on Friday include:

Swiss CPI, Germany, UK and EU services PMI, Canada jobs data and US jobs data.

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