Daily FX Market Outlook by AceTrader-1-2-2011

Market Review – 31/01/2011 20:04 GMT

Euro rises on higher-than-expected eurozone inflation data

Euro rose on Monday as higher-than-expected eurozone data fueled speculation that European Central Bank (ECB) may raise its interest rate quicker than the U.S. or other developed economies. In addition, the single currency was also underpinned by the tightened yield spreads between the 10-year eurozone peripheral countries’ bonds n German bund on talk of growing support in the eurozone for giving Greece more time to pay back its European Union bailout to avoid default.

Despite extending Friday’s decline to 1.3570 in Asian morning on Monday, the euro brushed aside the continued turmoil in Egypt n ratcheted higher, intra-day rise later accelerated after the release of higher-than-expected eurozone CPI, which came in at 2.4% vs previous reading of 2.2% Jan Y/Y, January figure was the highest in 2 years. Later, the single currency rallied to as high as 1.3740 in NY morning b4 retreating on profit-taking.  
The British pound also extended Friday’s selloff in Asian morning to 1.5821, however, cable then rallied strongly to 1.6050 (10 pips shy of Jan 18 high of 1.6060) on active short-covering as Guardian newspaper quoted Bank of England policymaker Martin Weale saying that he saw a compelling case for an increase in the bank rate. Weale joined hawk Andrew Sentance in calling for a rate hike at January’s meeting of the Monetary Policy Committee. The British pound was also supported by cross-buying in sterling vs euro n yen as eur/gbp fell sharply fm 0.8619 to 0.8530 n gbp/jpy rallied fm 129.88 to 131.60.  
Versus the Japanese yen, the dollar dropped below Friday’s 81.98 low to of 81.77 in NZ trading on renewed cross-buying in yen, lack of follow-through selling swiftly prompted short-covering n the pair then recovered to 82.26 b4 retreating to 81.91 in NY again on dlr’s broad-based weakness.  
Data to be released on Tuesday:  
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.