Thread: Daily FX Market Outlook by AceTrader-16-12-2010

Market Review - 15/12/2010 21:35 GMT

Dollar rises as Treasury yields surge, euro drops on worries over Spain debt
The dollar strengthened against the Japanese yen, euro and the British pound as U.S. Treasury yields turned higher, making the US assets more attractive to oversea investors. Euro tumbled after Moody's said it may cut Spain's rating and fell to record low against the Swiss franc.

The greenback traded firmly against the Japanese yen in Asia and reached 84.08 in Europe, despite staging a pullback to 83.65, the pair rebounded again and rallied to 84.51 in NY afternoon before retreating. Dollar was supported by the rise in U.S. 10-year Treasury yield together with the release of U.S. industrial output which rose by 0.4% m/m in November versus the expectation of a rise of 0.3%. U.S. CPI data rose by 0.1% m/m and 1.1% y/y in November versus the expectation of 0.2% m/m and 1.1% y/y respectively.

Euro was pressured as ratings agency Moody's placed Spain's Aa1 rating on review for a possible downgrade. Spanish/German 10-year government bond yield spread widened by 7 basis points at 260 basis points whilst Spanish 10-year government bond yields rose by 10 basis points at 5.652%.

In other news, German Chancellor Angela Merkel said European Union leaders would adopt a deal on a rescue shield for the eurozone when they meet at a summit on the coming Thursday and Friday. Ireland's parliament voted (81 to 75) in favour of an 85 billion euro EU/IMF bailout, paving the way for the IMF to approve its portion of the funds later this week.

The single currency fell to 1.3285 in Europe and despite staging a brief recovery, euro fell again and eventually slumped to 1.3208. Cross-selling in euro also pushed the single currency lower as eur/chf fell from 1.2850 to 1.2758 before rebounding.

The British pound remained under pressure for the whole day on dollar's broad-based gain together with weak economic data. U.K. ILO unemployment rate came in at 7.9% in November, much higher than the expectation of 7.7%. U.K. claimant count decreased by 1,200 versus the economists' forecast of -3,000. Cable fell from 1.5772 and eventually sank to 1.5530. Cross-selling in pound also pressured price as eur/gbp rose from 0.8452 to 0.8548.

Economic indicators to be released on Thursday include:

Germany Services PMI, Manufacturing PMI, UK retail sales and US current account, housing starts.

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Market Review - 16/12/2010 21:55 GMT

Euro recovers as European leaders discuss solving the region's debt crisis

Euro edged higher against the dollar on Thursday after EU leaders agreed to set up a permanent crisis management mechanism to solve sovereign debt problems by making minor changes to the EU's governing treaty.

The single currency rebounded against the dollar on Thursday after the selloff in the previous session. Euro briefly rose to 1.3266 but retreated to 1.3181 later and the pair rebounded again in NY afternoon.

In other news, Spanish bond auction results were slightly better-than-expected as bid-to-cover ratio of Spanish 10-year bond was 1.7 versus 1.8 at previous auction, the bond average yield rose significantly to 5.446% from 4.615% at previous action. In addition, Moody's placed Greece's Ba1 bond ratings on review for a possible downgrade.

The greenback fell against the Japanese yen on profit-taking and fell to 83.97 before rebounding to 84.45, however, the pair dropped again and reached 83.88 ahead of NY closing. The dollar was once supported by higher Treasury yields together with robust US economic data.

On economic front, US Philadelphia Fed. business conditions index came in at 24.3 in December, much higher than forecast of 15.0 and the previous reading of 22.5. U.S. housing starts rose by 3.9% to 555,000 unit rate in November versus consensus forecast of 550,000.

The British pound rose from 1.5542 and edged higher to 1.5637 on Thursday before trading narrowly. Cable was supported by the release of U.K. retail sales data which came in at 0.3% m/m and 1.1% y/y versus the expectation of 0.4% m/m and 0.7% y/y respectively. In addition, a Bank of England survey in November showed U.K. inflation expectations for year ahead was 3.9% y/y versus the August's forecast of 3.4% y/y.

Swiss National Bank kept interest rate unchanged at 0.25% as widely expected. SNB's Hildebrand said aggravation of eurozone crisis would further hurt Swiss economy. The eur/chf tumbled from 1.2872 to a record low of 1.2736 on Thursday.

Economic indicators to be released on Friday include:

UK consumer confidence, Germany Ifo index, EU trade balance and US leading indicators.

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