Market Review – 08/07/2010 22:08 GMTEuro rises to a two-month high on Trichet ‘s optimistic commentsDespite euro’s initial pullback to 1.2620 in Australia, the single currency extended recent rise and climbed abv Wednesday’s high of 1.2665 to 1.2688 in Asia on speculation stress tests for European banks will ease concerns about the health of the region’s financial system. Although euro retreated to 1.2634 , active cross-buying in euro lifted the single currency again and rose to 1.2702 in NY morning after ECB President Trichet’s optimistic comments. He said at a press conference that ECB interest rates remain appropriate and data suggested eurozone economic recovery continued in early 2010. He expected that the eurozone economy to grow ‘at a moderate and still uneven pace in an environment of high uncertainty. Although another round of profit-taking dragged the single currency lower again, renewed buying interest at 1.2653 limited euro’s downside and price then rose to a two-month high of 1.2713 in late NY session as DJI extended intra-day rise and closed up 120.71 points or 1.20% at 10139.
The European Central Bank left interest rates unchanged at an all-time low 1.0% in line with market expectations.
The comments from the International Monetary Fund also boosted risk appetite n supported euro as it said the U.S. dollar was ‘somewhat’ overvalued and greater currency flexibility in some countries will be needed to support the global economy.
Versus Japanese yen, the greenback traded with a firm undertone ahead of Tokyo opening after the release of Japan Machine orders, which came in at -9.1% m/m, the lowest since Nov 2009, versus -3.1% forecast and rallied to 88.47 in Asia on renewed risk appetites and active cross selling in yen due to the rally in Asian equities, as Nikkei rallied by 256.09, or 2.76% to 9535.74. Later, despite staging a pullback to 88.00 in European morning, price then climbed to an intra-day high of 88.64 on renewed cross selling in yen after the release of less-than-expected U.S. weekly jobless claims which came in at 454,000 versus the upwardly revised reading of 475,000 prior week. Eur/jpy, aud/jpy and gbp/jpy rose sharply from 110.75 to 112.52, 75.63 to 77.89 and 133.07 to 134.58 respectively.
Although cable rose abv Wednesday’s high of 1.5219 to 1.5241 in Asian mid-day fm 1.5174 , cross selling in the British pound especially versus euro (eur/gbp rose fm 0.8312 to 0.8381) pressured sterling to 1.5121. Later, cable managed a recovery after the Bank of England kept interest rates unchanged at 0.5% as widely expected n made no announcement of changes to the 200 bln pounds (304bln) of the asset-buying plan. However, renewed selling at 1.5169/70 pushed price to an intra-day low of 1.5102 before rebounding on the rally in U.S. equities.
The commodity-linked currencies advanced against the US dollar, as the Australian dollar rose fm 0.8623 to 0.8792 on upbeat job data (Australia’s employment change in June increased by 45.9K, versus forecast of 17.5K). The New Zealand dollar also gained fm 0.7023 to 0.7103 while usd/cad dropped fm 1.0485 to 1.0379.
On economic front, U.K industrial production and manufacturing production rose by 0.7% m/m, 2.6% y/y and 0.3% m/m, 4.3% y/y respectively while Britain Halifax house prices fell by 0.6% in June after 0.5% drop in May. German industry output rose by 2.6% in May, much stronger than economists’ expectation of 0.9% rise and upwardly revised 1.2% rise in April.
Economic data to be released on Friday include: Germany CPI, HICP, U.K. PPI, Trade balance, Canada Unemployment rate, Housing starts, U.S. Wholesales inventories.
