Daily FX Market Outlook by AceTrader-25-5-2011

Market Review – 24/05/2011 20:21 GMT

The single currency strengthens against the greenback on Tuesday on rate hike expectations

The single currency rebounded on Tuesday as German business confidence stayed near a record high in May, fueling speculation that the European Central Bank would boost borrowing costs. Despite intra-day’s brief drop to as low as 1.4002 in Australian morning just ahead of Tokyo opening, euro ratcheted higher throughout the day to as high as 1.4133 in New York trading.

  
  
German Ifo business climate index in May came in at 114.2 versus the forecast of 110.2 and revised 114.2 in April whilst German Ifo current condition index in May came in at 121.4 versus forecast of 117.0 and revised 121.0 in April.  
  
European Central Bank Executive Board member Lorenzo Bini Smaghi told Austrian Radio that ‘ECB will do whatever it takes to maintain price stability in the medium term; in mid-term must consider possibility oil, food prices may rise faster than thought’. Smaghi also said ECB has instrument of monetary policy so ECB would use it to ensure inflation would return below 2 percent.  
  
Despite cable’s initial weakness to a fresh 7-week low of 1.6055 in Australian trading on Tuesday, the British pound also ratcheted higher in tandem with euro and due to cross-buying in sterling and pound touched a session high of 1.6210 in New York morning session. Moody’s Investors Service said it might lower the credit ratings of 14 British lenders has once pressured pound to as low as 1.6069 in European session. During the day, eur/gbp dropped from 0.8753 to 0.8706 while gbp/jpy surged from 131.45 to as high as 133.13.  
  
The greenback extended Monday’s gain against the Japanese yen on Tuesday as the Japanese government maintained its overall economic assessment and modestly improving risk-appetites encouraged cross-buying of euro versus yen. The usd/jpy rose from Asian low of 81.62 to 82.21 near European closing before retreating on profit taking, trading around 81.90 near New York closing.  
  
Commodities rebounded strongly after Goldman Sachs raised its year-end target for Brent to $120/barrel from $105/barrel and its 2012 forecast to $140/barrel from $120/barrel, citing strong fuel demand growth. Spot gold price and silver price also rose strongly in tandem with oil prices. Spot gold price rallied from $1514.00/oz to as high as $1527.40/oz while spot silver price jumped from $34.94/oz to $36.68/oz.   
  
On the data front, U.K. April Public Sector Net Cash Requirement (PSNCR) came in at 3.259 billion pound versus -5.834 billion pound in April in 2010. Eurozone March industrial production (non seasonal adjusted) came in better-than-expected at 14.1% versus street forecast of 12.9% and eurozone March industrial production (seasonal adjusted) fell to 1.8% decrease from the previous reading of 0.9% increase. U.S. April new home sales m/m came in at 7.3% increase to 323,000 versus economists’ forecast of no change at 300,000 and revised reading of 8.3% increase to 301,000 in March. Richmond Fed May manufacturing index slid to -6 versus 10 in April.  
  
Data to be released on Wednesday include:  
  
Japan import and export, trade balance, Bank of Japan Monetary Policy Meeting minutes; German Gfk consumer confidence; U.K. GDP and BBA mortgage approvals; U.S. durable goods.

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