Thread: Daily FX Market Outlook by AceTrader-21-12-2010

Market Review - 20/12/2010 21:30 GMT

Euro falls as European debt worries grow

The euro tumbled broadly on Monday on lingering European debt worries as Moody's downgraded two Irish banks to junk status. Moody's also warned that it could downgrade the debt ratings of Spanish banks that would require financial aid from the Spanish government. In addition, ECB expressed serious concerns that Ireland's bailout package could affect the institution's liquidity operations in the eurozone, prompting traders to sell the single currency broadly.

Euro was also pressured by the release of weaker-than-expected eurozone consumer confidence which came in at -11.0 in December versus previous reading of -9.4 in November. Despite euro's initial gain to 1.3186, the single currency fell below Friday's low of 1.3133 and reached 1.3094 in NY session. Cross-selling in euro also pushed price lower as eur/chf tumbled to a lifetime low of 1.2636 while eur/jpy slumped from 110.72 to 109.57.

Although the greenback ratcheted higher against the Japanese yen at Tokyo opening and climbed to 84.13 due to heightening of tension on the Korean peninsula after Reuters news reported that S. Korean marines had ordered residents of Yeonpyeong island to move to air raid bunkers in anticipation of a live-fire drill, the pair retreated from said intra-day high and fell to 83.63 before staging a recovery.

In other news, St. Louis Fed President James Bullard told the CNBC TV business channel that the Federal Reserve's 600 billion bond buying program has been 'at least successful' so far. Bullard said nominal interest rates alone should not be used to judge the program's success. He said economic growth would likely be stronger next year than was anticipated even a few months ago.

The British pound initially rose from 1.5478 to 1.5577 in Europe, however, the pair retreated sharply to 1.5480 before moving narrowly in NY afternoon.

Economic indicators to be released on Tuesday include:

Australia's Board Minutes, Japan BOJ rate decision, Germany Gfk index, Swiss Trade balance, UK PSNCR, Canada CPI data and Retail sales.

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Market Review - 21/12/2010 21:23 GMT

Euro falls due to ratings warnings on Portugal and Greece

Euro weakened against dollar on Tuesday after Moody's said it might downgrade Portugal's ratings. Euro was further pressured as Fitch put Greece on rating watch. These prompted traders to lighten up on the single currency during the pre-holiday trading session.

Moody's Investor Service said it might downgrade Portugal's A1 rating by one or two notches after a review as it cited 'uncertainties about Portugal's longer-term economic vitality, which will be exacerbated by the impact of fiscal austerity.' Fitch also warned it might cut Greece's BBB- longer term foreign and local currency issuer default ratings. Although euro initially rose to 1.3202, the single currency retreated from there and fell to 1.3073 in NY session before staging a minor recovery. Cross-selling in euro also pressure price as eur/chf slumped to a fresh record low of 1.2547.

Earlier in Asia, euro was supported as Chinese Vice Premier Wang Qishan said on Reuters news that 'China supports efforts by the EU and the IMF to calm global markets in the wake of Europe's debt crisis but is keen to see more results in the meantime.'

The greenback briefly dipped to 83.50 versus the Japanese yen but the pair managed to rebound strongly and reached 83.91 in NY session before retreating sharply.

BOJ ended its monetary meeting and kept overnight call rate target unchanged at 0-0.10%. BOJ said policy board decision on call rate was unanimous and would steadily buy various assets and provide longer-term funds under asset buying fund.

The British pound rose to 1.5567 initially but cable swiftly retreated from there. Cable fell further after the release of higher-than-expected U.K. PSNCR and PS net borrowing. U.K. PSNCR was 16.811 billion pounds in November, versus the consensus forecast of 14.000 billion pounds whilst U.K. PS net borrowing was 22.774 billion pounds against the economists' forecast of 17.00 billion pounds. Cable eventually tumbled to 1.5437 in NY session before stabilising.

Economic indicators to be released on Wednesday include:

New Zealand current account, Japan trade data, Germany import price index, UK GDP, US home sales data and GDP.

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Market Review - 22/12/2010 21:21 GMT

Euro falls to record low against Swiss franc on European debt worries

Euro initially rose to 1.3183 in European morning on Wednesday after Reuters quoted the Jornal de Negocios daily newspaper that China would be ready to buy 4-5 billion euros of Portuguese sovereign debt, however, the single currency retreated from there and later tumbled to 1.3078 in NY afternoon as traders continued to seek safety from the eurozone's sovereign debt crisis and sold the euro for the Swiss franc. Eur/chf slumped to a fresh record low of 1.2440 while eur/jpy tumbled from 110.13 to 109.20

The greenback briefly rose to 83.86 against the Japanese yen in Asian morning but the pair then retreated and eventually reached 83.41.

On economic front, U.S. Q3 final GDP came in at 2.6% versus the economists' forecast of 2.8%. U.S. final Q3 GDP deflator was 2.0% against the expectation of 2.3% whilst core PCE rose by 0.5%, the smallest rise since records began in 1959. U.S. Nov. existing home sales rose by 5.6% to 4.68 million unit annual rate (In a Reuters survey the forecast was +5.0% and 4.71 million).

The British pound initially edged higher to 1.5493 but cable then fell sharply and eventually reached 1.5356 in NY session. Earlier, pound was pressured as U.K. final Q3 GDP revised down unexpectedly at +0.7% q/q and 2.7% y/y versus the economists' forecast of 0.8% q/q and 2.8% y/y.

In other news, the Bank of England's Monetary Policy Committee retained its three-way split at December's policy meeting as shown on the minutes. A growing number policy makers were worried about rising medium-term inflation risks. Adam Posen called for an extra 50 billion pounds more quantitative easing and Andrew Sentance urged interest rates to rise to 0.75% from 0.50%.

Economic indicators to be released on Thursday include:

New Zealand GDP, US personal income, PCE index, durable goods, jobless claims and new home sales , Japanese market will be closed for holiday.

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---
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---
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---
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---
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Market Review - 23/12/2010 21:27 GMT

Euro rebounds vs dollar on short-covering

The single currency ratcheted higher from Wednesday's NY low of 1.3078 to 1.3152 on short-covering but euro retreated sharply and fell to 1.3055. The single currency then rebounded strongly from there and reached 1.3141 due partly to cross-unwinding in eur/chf as the pair sky-rocketed to 1.2644 in thin NY trade. Although the single currency retreated sharply from 1.3141 after Fitch downgraded Portugal's credit rating to A+ with a negative outlook, the single currency edged higher again as price was supported after S&P affirmed AAA rating for France.

Fitch cut the Portugal's long term foreign currency rating issuer default rating to A+ from AA-, adding that the downgrade reflected slower reduction in the current account deficit and more difficult financing environment for government and banks. Later, S&P affirmed France's rating at AAA/A-1+ with stable outlook, and this provided support to the single currency.

Earlier, the Greek parliament approved the 2011 budget by a vote of 156 to 142, which included 14 billion euros in spending cuts and additional revenue aimed at cutting the Greek budget deficit.

The greenback initially dropped to 82.85 versus the Japanese yen on Thursday, however, the pair stage a brief but strong rebound to 83.41. Dollar fell again after the release of a series of US economic data and traded sideways in NY afternoon.

On economic front, US jobless claims fell to 420,000 in the week of Dec 18 (consensus was 420,000) from 423,000 in prior week. US durables orders in November decreased by 1.3% versus consensus of -0.5% and -3.1% in October. Personal spending was +0.4% versus consensus of +0.5% while personal income rose by 0.3% versus consensus of +0.2%.

The British pound edged higher in Asia and reached 1.5437 but price fell from there and reached 1.5374 before staging a strong rebound. Cable eventually edged higher to 1.5438 before moving narrowly.

BOE's Fisher said 'not impossible' that U.K. would see a quarter of negative growth in 2011, he added that the recovery would be on track but cautioned that 'at this stage of recovery in a cycle it's always going to be bumpy'. Daily Telegraph reported comments from BOE Markets Director Paul Fisher who said that U.K. rates will rise 'to a normalized position'

The German, Swiss and US market will be closed on Friday.

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