Daily FX Market Outlook by AceTrader-18-5-2011

Market Review – 17/05/2011 21:05 GMT

Euro recovers in New York afternoon on improved risk appetite

The single currency weakened to 1.4131 in Asia due to the selloff in aussie after the release of Reserve Bank of Australia minutes and despite euro’s early retreat from 1.4193 in Asian afternoon, buying interest emerged above 1.4129 and the single currency continued to ratchet higher after the release of mixed German Zew data in European morning and later euro rose to as high as 1.4225 before retreating swiftly after Eurogroup President Jean-Claude Juncker said a soft restructuring of Greek debt was needed and Greek debt level was totally unsustainable together with report of fairly good selling interest by European names which triggered broad-based long liquidations of euro.

  
  
Germany May ZEW current situation and economic sentiment index came in at 91.5 and 3.1 respectively versus economists’ forecast of 87.5 and 4.5 and previous reading of 87.1 and 7.6 in April.  
  
Euro staged a rebound after the release of weaker-than-expected U.S. April industrial production data (April data came in at 0.0% versus economists’ forecast of 0.4%) before falling sharply again and price fell to 1.4120. However, as U.S. stocks and commodities trimmed intra-day losses, the single currency rose sharply again in New York midday and breached European high of 1.4225 to 1.4239 in New York afternoon on improved risk appetite.  
  
Despite early brief drop to 1.6175 in Asia, the British pound rebounded strongly to as high as 1.6305 in London trading shortly after the release of higher(worse)-than-expected UK inflation data (April annual CPI came in at 4.5% versus forecast of 4.1% and previous reading of 4.0% whilst CPI M/M came in at 1.0% versus economists’ forecast of 0.7%), fueling market speculation that Bank of England may not keep its present rate unchanged until the end of the year. However, sterling dropped in European midday and fell to as low as 1.6175 before staging a recovery.  
  
The Japanese yen dropped the most in almost three weeks versus the dollar after Bank of Japan Governor Masaaki Shirakawa said the economy is in a ‘very severe’ state, fueling bets monetary policy may be eased further. Usd/jpy edged higher from Australian low of 80.74 to as high as 81.77 in European session and the pair then retreated to 81.27 in New York morning before stabilising. Eur/jpy, gbp/jpy and aud/jpy formed their lows (114.29, 130.86 and 85.29 respectively) in Australian session and reached their highs (116.23, 133.17 and 86.71 respectively) in European morning. The yen crosses then dropped in New York morning before staging rebounds in New York afternoon.  
  
Aud/usd and nzd/usd rose sharply from intra-day lows of 1.0505 and 0.7765 respectively in New York morning to as high as 1.0628 and 0.7848 respectively in New York afternoon whilst usd/cad tumbled sharply from 0.9794 to 0.9716 in New York session. Spot gold and silver prices tumbled from $1497.60/oz and $34.37/oz respectively in European session to as low as $1472.50/oz and $33.05/oz respectively in New York morning before recovery in New York afternoon.  
  
On the data front, U.S. housing starts fell 10.6% in April M/M versus expectation of an increase of 3.6%. U.S. building permits April M/M also dropped by 4.0% compared to street forecast of 0.9% increase. U.S. April capacity utilisation came in at 76.9% versus economists’ forecast of 77.6%.  
  
Data to be released on Wednesday include:   
  
Japan Tankan manufacturing and tertiary industry index; U.K. claimant count, ILO unemployment rate, average earnings 3m and MPC vote; Canada leading indicators and wholesale sales.

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