Daily FX Market Outlook by AceTrader-20-7-2011

Market Review – 19/07/2011 21:55 GMT

Euro rises on optimism over EU summit

The single currency edged higher on Tuesday due to optimism that a deal will be reached to provide further aid for Greece at the eurozone summit on Thursday. However, euro retreated sharply lower in NY session on dollar’s strength on the basis of U.S. President Barack Obama’s comments as he said he supported a deficit-reduction plan proposed by the bipartisan ‘Group of Six’ senators and urged Senate leaders to start discussion about it.

Although euro fell to an intra-day low of 1.4069 at European open after extending previous gain in Monday’s New York session, the single currency rebounded strongly due to active cross buying of euro versus the Swiss franc (eur/chf rallied from 1.1516 to 1.1688) together with the sharp gain in European stock markets (FTSE-100, CAC-40 and DAX closed the day up by 0.65%, 1.21% and 1.19% respectively) and climbed to 1.4217 in European morning before retreating. Later, despite euro’s rise to 1.4213 in NY morning, selling interest around 1.4217 sent the pair lower and price tanked to 1.4108 in NY afternoon due to dollar’s strength after U.S President Obama’s debt-ceiling comments.  

In NY morning, the single currency was pressured as Germany’s Chancellor Angela Merkel said that ‘euro meeting on Thursday will not be one big step or spectacular solution that solves all problems.’   

Versus the Japanese yen, the greenback eased in Asian morning after an initial minor bounce from 78.97 to 79.15 and dropped to 78.97 at NY opening, however, the pair jumped to 79.09 after the release of stronger-than-expected U.S. housing data as U.S. June housing starts rose by 14.6% m/m to 629,000 unit rate (forecast was 575,000) and U.S. building permits rose by 2.5% to 624,000 unit rate in June. Later, the pair rebounded from 78.82 and rose to 79.28 in NY afternoon on dollar’s strength due to U.S. President Obama’s comments.  

Although the British pound traded sideways in Asian morning and dropped briefly to 1.6055 at Asian midday, cable rose strongly to 1.6160 in tandem with euro in European morning and then climbed to session high 1.6178 in NY morning before retreating.  

In other markets, U.S. stocks rallied on Tuesday as the DJI eventually closed the day at 12587.42, up by 1.63% or 202.26 points.  

Spot gold tumbled from a fresh lifetime high at $1609.50/oz to $1582.40/oz due to U.S. President Obama’s comments.  

On the data front, the German ZEW economic sentiment index fell to -15.1 in July, its lowest level since Jan. 2009, versus economists’ forecast of -12.4 from -9.0 in June. However, the German ZEW economic sentiment survey showed current conditions were holding up much better than expected at 90.6 versus the expectation of 85.0.  

Data to be released on Wednesday include:  

Australia Westpac leading economic index, Japan Leading indicators, Germany PPI, , Canada Wholesale sales, EU Consumer Sentiment, U.S. Existing home sales.

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