Thread: Daily FX Market Outlook by AceTrader-17-1-2011

Market Review - 14/01/2011 19:42 GMT

Euro pares gains on profit-taking after rising to one-month high vs dollar

The single currency climbed above $1.3400 level against the dollar on Friday as traders bought euro aggressively on short-covering. Euro rose approximately 3.6% against the dollar this week as price was supported by a series of successful debt auctions by indebted eurozone countries together with ECB chief Trichet's concerns over inflation on Thursday.

Euro initially hit a one-month high of 1.3458 in European morning on Friday, however, price retreated sharply from there on profit-taking and later weakened to 1.3314 in NY session before staging a recovery.

In other news, Fitch downgraded Greece to BB+, outlook was negative, ratings became junk status. Fitch also cut Greece's long term foreign and local currency issuer default ratings to BB+ from BBB-. The rating agency said the Greek heavy public debt burden rendered fiscal solvency highly vulnerable to adverse shocks. Greek debt was now rated junk by all three major rating agencies.

In addition, China's central bank raised banks' reserve requirement by 50 b.p. on Friday after Chinese financial markets were closed, this move was the 7th increase since early 2009. However, market had rumoured such a move earlier on Friday so the reaction had not been too sharp.

The greenback fell against the Japanese yen briefly to 82.40 in Europe, however, the pair quickly rebounded from there to 83.00 on buying by Japanese names. Although the pair dipped again after the release of weaker-than-expected U.S. economic data, price rose again and reached 83.08 in NY afternoon before trading narrowly.

On economic front, U. Michigan consumer confidence in January unexpectedly dropped to 72.7 ( vs forecast of 75.4) from the previous reading of 74.5, retail sales in December came in at 0.6% versus the forecast of 0.8% and real earnings in December fell by 0.4% against forecast of -0.2%.

The British pound initially rose in tandem with euro in European morning to 1.5867 and retreated on profit-taking, however, price rebounded after release of higher-than-expected U.K. PPI (Dec input prices increased by 3.4% on the month and were up 12.5% on the year, the largest rises since March and April respectively), sterling then fell briefly but sharply to an intra-day low of 1.5810 after news of raising of banks' reserve requirement by China's central bank. Cable later ratcheted higher 1.5889 in NY before moving narrowly.

Economic indicators to be released next week include:

UK Rightmove house prices, Japan Consumer Confidence, EU Finance Ministers' meeting on Monday, UK Consumer confidence, RICS house prices, Japan Industrial production, UK CPI and RPI data, Germany ZEW data, US Empire state mfg, Net LT TIC flows, NAHB housing index, Canada BOC rate decision on Tuesday, EU current account, UK jobs data and US housing starts on Wednesday, Germany PPI, Swiss ZEW, UK CBI orders, US home sales data and jobs data, Canada leading indicators on Thursday, Germany Ifo data, UK retail sales and Canada retail sales on Friday.

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Market Review - 18/01/2011 21:23 GMT

Euro gains on optimism eurozone debt crisis would be tamed

The single currency rose to 1-month high against the dollar on Tuesday due to optimism the eurozone officials may announce new measures to contain the sovereign debt crisis.

Eurogroup's president Jean-Claude Juncker said eurozone's finance ministers had discussed a European Commission proposal to increase the EFSF from about 250 billion euros to 440 billion. Euro rose from intra-day low of 1.3254 in Asia and extended intra-day rally to 1.3430 after the release of much stronger-than-expected German ZEW economic sentiment which came in at 15.4 in January versus the consensus forecast of 6.8. Euro later climbed to 1-month high 1.3467 before retreating on profit-taking.

The dollar remained under pressure against the Japanese yen in Asia and European morning session due to broad-based weakness, the pair weakened to 82.33 at NY opening, however, price rebounded to 82.83 after the release of U.S. November net capital inflows data. The Total Net US Treasury Department international capital (TIC) Flows came in at 85.1 billion in November versus forecast of 40.0 billion while total net foreign buys of TIC came in at 61.7 billion versus forecast of 40.0 billion.

The British pound ratcheted higher in tandem with euro from 1.5878 in Asia and cable's intra-day rally picked up momentum after rising above Monday's high 1.5955. The British pound later surged to 1.6060 before retreating on profit-taking.

Traders bought the pound after release of stronger-than-expected Nationwide consumer confidence (Dec came in at 53 vs forecast of 44) and U.K. RICS house price showed a smaller-then-expected decrease. In addition, U.K. Dec CPI rose by 1.0% m/m and 3.7% y/y respectively, much stronger than economists' expectation of 0.7% m/m and 3.3% y/y rise, adding speculation that the Bank of England may need to increase interest rates soon.

Economic indicators to be released on Wednesday include:

EU current account, UK jobs data and US housing starts

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Market Review - 19/01/2011 19:46 GMT

Euro touches 2-month high against the dollar on easing debt worries

The single currency climbed to an two-month high against the dollar on Wednesday on growing hopes that eurozone policymakers would prevent a debt crisis that had hurt Greece and Ireland from spreading. Euro was also supported as a report in a German newspaper showed that the Berlin government was considering a restructuring plan of Greek debt, allowing Greece to buy back its own debt using the eurozone crisis fund. During the day, euro retreated briefly from 1.3508 to 1.3435 in Europe before reported Asian sovereign buying emerged to push price higher to 1.3539 in New York session. The single currency also strengthened against other currencies as eur/gbp and eur/chf rose from 0.8378 to 0.8453 and from 1.2878 to 1.3000 respectively before retreating on profit-taking.

Volatile movements were seen in USD/CHF after Swiss government announced that they might extend some of the measures which were adopted during the financial crisis to ease the strain of the strong franc. Swiss Economy Minister Johann Schneider-Ammann said in a media conference that the government could extend additional funds for Switzerland's tourism industry which were provided as part of a package to boost the economy at the height of the financial crisis. The usd/chf rose from European morning low of 0.9568 and jumped to 0.9634 briefly in U.S. morning before falling to a two-week low of 0.9521 in late New York trading.

The greenback's broad-based weakness pushed usd lower versus the Japanese yen and the pair extended weakness to 81.85 in New York.

The British pound dropped from 1.6038 to as low as 1.5945 in early European trading before rebounding due to an unexpected drop in December's UK jobless claimant count (a decrease of 4.1K versus the forecast of a +1.5K and -1.2K in Nov), however, price failed to penetrate said European morning high and retreated again as analysts pointed to the risks of a soft labour market in the months ahead as the public sector starts shedding jobs. The British pound slipped below 1.6000 level versus the dollar in New York.

On economic front, U.S. housing industry continued to struggle more than a year into the U.S. economic recovery as housing starts touched the lowest level since October 2009 in December and reported a fall of 4.3 percent to a 529,000 annual rate compared the consensus forecast of -0.9 percent and 550,000 respectively, whilst a jump in December's building permits (635,000 versus the consensus forecast of 554,000 and 544,000 in previous month), a proxy for future construction, may reflect attempts to get approval before changes in building codes took effect at the beginning of this year.

Economic indicators to be released on Thursday include:

New Zealand CPI, Japan leading indicators, German PPI, Switzerland ZEW index, ECB's Monthly Report, EU consumer confidence, UK CBI orders, Canada leading indicators, US jobless claims, Existing home sales, leading indicators and Philadelphia Fed survey.

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Market Review - 20/01/2011 17:30 GMT

The greenback rebounds broadly on strong U.S. economic data

The dollar rebounded across the board on Thursday after economic data showed U.S. economic recovery was on track and the dollar index rose 0.3% to 78.955 ahead of the New York closing. The U.S. weekly jobless claims decreased 37,000 in the week ended January 15 to 404,000 versus the forecast of 420,000 and 416,500 in previous week. The U.S. existing home sales in December increased 12% to a 5.28 millions, the most since May and much higher than the consensus forecast of 4.8% to 4.85 millions. The U.S. leading economic indicators also showed a sign the recovery would gather steam in the new year due to the higher than expected 1.0% percent versus the forecast of 0.6%. The greenback extended its intra-day rally after these data releases and pushed usd/jpy and usd/chf to session highs of 83.13 and 0.9685 respectively. On the other side, eur/usd and gbp/usd fell from 1.3525 to 1.3396 and from 1.6010 to 1.5839 respectively in U.S. session before rebounding on short-covering.

The single currency rose to 1.3525 ahead of New York opening after retreating from Wednesday's high of 1.3539 to as low as 1.3418. However, strong U.S. economic data pushed the pair lower in New York and it tumbled to 1.3396 before staging a recovery. Cable showed mute reaction and traded around the 1.60 level after the release of mixed UK. industrial trends survey that highlighted the dilemma faced by the Bank of England policymakers. However, it then dropped sharply in New York on the dollar's broad based firmness and touched an intra-day low of 1.5839 in U.S. afternoon session before recovering.

Commodity currencies dropped sharply on speculation that China will raise rates to cool economic growth and to curb inflation in the region. Australian dollar, Canadian dollar and New Zealand dollar all weakened against the greenback. Aud/usd and nzd/usd tumbled to 0.9832 and 0.7533 while usd/cad rallied to 1.0031 respectively in New York session.

On data front, U.S. manufacturing in the Philadelphia region expanded in January for a fourth month but less than expected. The index came in at 19.3 compared to 20.8 last month and forecasts of 20.3.

Economic indicators to be released on Friday include:

New Zealand retail sales, Australia import prices index and export prices index, Japan Cabinet Office Monthly Economic Report and All industry index, German Ifo index, UK retail sales and Canada retail sales.

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