Thread: Daily FX Market Outlook by AceTrader-26-1-2011

Market Review - 25/01/2011 23:04 GMT

Sterling tumbles after a shock contraction in the UK economy

The British pound tumbled from Asian high of 1.6018 to 1.5750 after the release of much weaker-than-expected U.K. Q4 GDP data which came in at -0.5% q/q n 1.7% y/y versus the economists' forecast of 0.5% and 2.6% respectively, adding speculation that Britain could be entering a double-dip recession. British finance minister George Osborne said that the government would not change its austerity programme despite a shock contraction in the economy in the last quarter of 2010 which was driven by arctic weather in December. The British pound nose-dived from Asian high of 1.6018 to as low as 1.5750 after the data before recovering.

The single currency rose to 1.3688 in European morning and then retreated to an intra-day low of 1.3573 on profit-taking together with the selloff in cable after oversubscribed eurozone rescue fund's first debt offer. However, buying interest then lifted price and the single currency rose above 1.3700 to a fresh 2-month high of 1.3705 ahead of NY closing.

The European Financial Stability Facility's (EFSF) 5 billion euro offer was nine times oversubscribed, partly on Asian demand which included the Japanese government buying up over 20%. The order book for the issue closed with bids valued at 43 billion euros. High demand is likely to suggest confidence in the mechanism and in the whole euro system.

The greenback traded narrowly against the Japanese yen in Asia and European morning. Although dollar once rose to 82.67 after the release of better-than-expected U.S. consumer confidence (which came in at 60.6, the highest level for 8 months since May), the price sank to 81.97 due to the fall in U.S. Treasury yield as a report showed that U.S. President Obama would propose a budget freeze on non-security discretionary spending and dollar then staged a recovery on short-covering in NY afternoon.

The U.S. currency fell from 0.9523 to 0.9405 against the Swiss franc due to active cross buying in the Swiss franc as euro tumbled against the Swiss franc from 1.2985 to 1.2827. Australia Q4 CPI came out at 0.4% Q/Q versus economists' forecast of 0.8% and the previous reading of 0.7% while Australia Q4 core CPI at a decade low of 0.3%. The data strongly suggests the Reserve Bank of Australia (RBA) would keep its cash rates unchanged at 4.75% at February policy meeting next Tuesday, particularly as the 'Huge' impact of the Queensland floods. Australian dollar weakened to 0.9927 after the release of lower-than-expected inflation data and then rebounded briefly to 0.9993 before falling again to as low as 0.9888 on dollar's strength in European session.

The Canadian core CPI were -0.3% m/m and 1.5% y/y in December respectively, against consensus forecasts of -0.1% m/m and 1.6% y/y. The annual core inflation edged slightly higher fm Nov's 1.4% due to higher gasoline prices. U.S. currency rebounded against Canadian dollar fm 0.9912 to 1.0005 after the release of lower-than-expected Canada's inflation data.

Wednesday will see the release of Japan CSPI and BoJ monthly economic report, German import price index, UK's BOE minutes, and US new home sales and Fed rate decision.

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Market Review - 26/01/2011 23:38 GMT

Euro trades near fresh two-month high as Fed gives less upbeat U.S. outlook

The single currency climbed to a fresh 2-month high of 1.3723 against the dollar in European morning on Wednesday but then retreated on profit-taking. The stronger-than-expected U.S. new home sales data pressure price to 1.3643 in New York morning. Later, the pair traded in a volatile manner, rising to as high as 1.3708 after FOMC rate decision and then falling again to a session low of 1.3640, however, the Federal reserve later said in the statement that a high U.S. employment rate justified its $600 billion bond-buying program and eur/usd rebounded strongly to around 1.3700 level ahead of NY closing. FOMC kept Fed fund rate exceptionally low for an extended period in 0.00-0.25 percent range in January and said in the statement that economic recovery would continue but at rate 'insufficient to bring about a significant improvement' in labor market, and although commodity prices had risen, longer term inflation was expected to be stable and underlying inflation was trending down. Fed also said that growth in household spending picked up late last year but was still constrained by high unemployment.

The British pound rebounded from 1.5769 versus the dollar (just above Tuesday's low of 1.5750) in European session after the release of minutes from the January meeting of the Bank of England's Monetary Policy Committee as it reported that two policymakers voted for an interest rate hike, cable later penetrated Asian high of 1.5839 and rallied to an intra-day high of 1.5938 after FOMC rate decision and the release of Fed's statement. The two Bank of England Monetary Policy Committee members, Martin Weale and Andrew Sentance, both voted for a quarter-point rate rise, and Adam Posen maintained his call to add 50 billion pounds to the 200 billion-pound bond purchase plan, while other six members of the MPC voted to keep the benchmark interest rate and the stimulus program unchanged. In sterling's cross pairs, eur/gbp retreated from a 2 1/2 month's high and dropped from 0.8673 to as low as 0.8596, whilst gbp/jpy rallied from a session low of 129.53 to 131.07.

The greenback's renewed firmness in New York lifted dollar against the Japanese yen and usd/jpy rose to a session high of 82.62 before easing. The greenback was supported by the stronger-than-expected U.S. new home sales as U.S. Commerce Department reported that sales of new single-family homes rose 17.5 percent to 329,000 in December, the biggest monthly jump since 1992 and five times faster than the consensus forecast of 3.5 percent. The gain showed that buyer were returning to the market after mid-2010 slump to take advantage of low mortgage rates and reduced price, and there was a gradual path in U.S. economy recovery.

Economic indicators to be released on Thursday includes:

Australia Westpac leading economic index, Japan trade balance, export and import, eurozone business climate, economic confidence and industrial sentiment, and US durable good orders, jobless claims and pending home sales.

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Market Review - 27/01/2011 23:25 GMT

Yen tumbles across the board as S&P cuts Japanese debt rating

The Japanese yen sank against its counterparts on Thursday as the credit ratings agency Standard & Poor lowered Japan's debt rating one step to AA- from AA on concern that the country's sovereign debt ratio would rise, however, the report also indicated the outlook on the long-term rating was stable as Japan's strong external balance sheet and monetary flexibility partially offset the pressures stemming from the fiscal deficits which was expected to remain high in the next few years and 'peak only in the mid-2020s'. Japanese Finance Minister Yoshihiko Noda declined to comment on the downgrade. The greenback swiftly surged against the Japanese yen after the downgrading announcement and penetrated Wednesday's high of 82.62 to 83.22 in European morning before retreating and trading sideways for the rest of the day. Other currencies also strengthened against the yen as eur/jpy, gbp/jpy and aud/jpy rose from 112.42 to 114.02, from 130.60 to 132.68 and from 81.68 to 82.44 respectively.

The single currency rose to a fresh 2-month high of 1.3760 against the dollar in New York trading on European Central Bank (ECB) Executive Board member Lorenzo Bini Smaghi's comments about inflationary pressure in Bologna together with the release of worse-than-expected U.S. weekly jobless claims and durable goods orders data, however, profit-taking capped intra-day gain there and price subsequently fell to around 1.3679 in New York afternoon session before recovering.

ECB Executive Board member Lorenzo Bini Smaghi said in the speech that 'sharper rises in imported goods' carried an inflationary threat and keeping lending support in place for too long could prolong problems in the banking sector. His speech echoed recent hawkish comments from ECB President Jean-Claude Trichet, adding speculation that ECB may need to hike eurozone interest rates at some point this year.

Cable dropped briefly earlier in the day from 1.5944 to 1.5880 in European morning but the release of better-than-expected U.K. CBI retail sales balance data (37.0 in January versus economists' forecast of 35.0) together with active cross-buying in sterling (eur/gbp extended the fall from Wednesday's high 2 1/2 month's high of 0.8673 to a session low of 0.8581) later pushed price higher to 1.5991 before retreating on dollar's broad-based rebound in New York session.

Governor of the Reserve Bank of New Zealand (RBNZ), Dr Alan Bollard, announced to keep overnight call rate (OCR) unchanged at 3.00 percent in January at the New Zealand Parliament on Thursday. He said 'it is prudent to keep the OCR low until the recovery is more robust; economic outlook remains consistent with the December projections; but rates are likely to increase modestly over next two years as major trading partner activity continues to expand and forward indicators of activity have firmed'. The kiwi jumped from 0.7642 to 0.7746 after his hawkish comments before pullback briefly to 0.7672, and later climbed higher to 0.7747 in New York session.

On the data front, U.S. Labour Department showed that the jobless claims increased 51,000 to 454,000 in the week ended January 22 versus consensus forecast of 405,000. U.S. Commence Department reported that U.S. durable goods orders in December fell 2.5 percent against the economists' median estimate of an increase of 1.5 percent and a drop of 0.3 percent in previous month. U.S. National Association of Realtors later showed that monthly index of existing U.S. home sales gained 2.0 percent in December to 93.7.

Economic indicators to be released on Friday include:

Japan household spending, Tokyo CPI, National CPI and unemployment rate, Switzerland KOF indicator, and US GDP data, PCE, personal consumption, employment cost index and University of Michigan survey.

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Market Review - 29/01/2011 01:13 GMT

The greenback and Swiss franc strengthen on Friday as Egypt turmoil increases safe-haven demand

The greenback rose broadly, except versus Japanese yen and Swiss franc on Friday as unrest in Egypt increased safe-haven demand. The dollar index, which measured the performance of the US Dollar against a basket of six other currencies, gained 0.54 percent to 78.148 in late New York trading. Risk aversion put pressure on major stock markets around the globe, Dow Jones Industrial average index dropped by 1.39% or 166 points to 11823, while FTSE 100 index, CAC 40 index, DAX index and Nikkei 225 closed down by 1.40% , 1.41%, 0.74% and 1.13% to 5881, 4002, 7102 and 10360 respectively on Friday.

Protesters demonstrated throughout Egypt, with clashes erupting in central Cairo in unprecedented protests against President Hosni Mubarak’s 30-year rule. Hosni Mubarak imposed a curfew from 6 p.m. to 7 a.m. local time in Egypt from Friday and deployed military (the first time since anti-government protests erupted in Egypt) to monitor a curfew on the streets of Cairo. Stock market in Egypt is closed on Friday after Egypt's benchmark, EGX30, stock index tumbled 11 percent on Thursday, the most since October 2008, leaving it with a two day loss of 16 percent.

Fitch Ratings had revised the rating outlook on the Arab Republic of Egypt to Negative from Stable due to the recent upsurge in political protests and the uncertainty added to the political and economic outlook ahead of September's elections. The agency affirmed Egypt's long-term foreign currency Issuer Default rating (IDR) at 'BB-', long-term local currency at 'BBB-', short-term foreign currency IDR at 'B' and Country Ceiling at 'BB+'.

Safe-haven flows amid worries over escalating protests in Egypt against the government pressured the European currencies and other higher-yielding currencies. Euro nose-dived in Friday's New York session and tumbled by more than one percent against the dollar to a session low of 1.3584 after being capped below Thursday's two-month high of 1.3760. The British pound weakened against the greenback and dropped from 1.5967 to as low as 1.5826 before stabilising, while Australian dollar and kiwi were off from their session highs of 0.9988 and 0.7795 to around 0.9930 and 0.7730 respectively in late New York trading.

Active cross-buying in Japanese yen and Swiss franc on risk aversion pressured the usd/jpy and usd/chf and the pairs dropped from 82.93 to 81.98 and from 0.9472 to 0.9404 respectively on Friday, while their cross-pairs, eur/jpy, aud/jpy, gbp/jpy and eur/chf tumbled from 113.90 to 111.51, from 82.26 to 81.33, from 132.11 to 129.82 and from 1.2990 to 1.2805 respectively before stabilising due to short covering.

On the data front, U.S. GDP data showed that economy accelerated in the fourth quarter of 2010 as consumer spending climbed by the most in more than four years, U.S. annualised GDP rose 3.2% in Q4 compared to a grow of 2.6% in previous quarter but falling short against the consensus forecast of 3.6%. University of Michigan final index of consumer sentiment decreased to 74.2 from 74.5 in December, fell less than median forecast of 73.1 and up from a preliminary figure of 72.7 issued earlier this month.

Economic indicators to be released on next week include:

New Zealand trade balance, imports and exports, Japan industrial production, construction orders and housing starts, German retail sales, eurozone HICP flash, Canada GDP and PPI, and U.S. personal spending, personal income, PCE data and Chicago PMI on Monday;

Australia RBA rate decision, NAB business confidence and house price index, Switzerland retail sales and PMI, German Manufacturing PMI, unemployment rate and unemployment change, eurozone Manufacturing PMI and unemployment, UK Manufacturing PMI and Mortgage approval, and U.S. construction spending and ISM manufacturing on Tuesday;

U.K. BRC shop price index and PMI construction, eurozone PPI data, and U.S. ADP employment on Wednesday;

New Zealand unemployment rate and employment change, Australia building approvals, trade balance, Switzerland trade balance, German Services PMI, eurozone Services PMI and ECB rate decision, U.K. Services PMI, and U.S. Jobless claims, productivity labour cost durable goods data (revision), factory orders and ISM non-manufacturing on Thursday;

Canada unemployment rate and Ivey PMI, and U.S. non-farm payrolls, private payrolls, unemployment rate and average hourly earnings on Friday.

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