Daily FX Market Outlook by AceTrader 8-2-2011

Market Review – 07/02/2011 20:38 GMT

Euro rebounds from a two-week low on short-covering in New York

The single currency was little changed on Monday as the continued rise in U.S. stocks together with short-covering lifted the euro fm a two-week low in New York afternoon trading.

Although the single currency recovered to 1.3627 at European opening on Monday after Friday’s sharp fall to 1.3543, euro then ratcheted lower to 1.3508 in NY morning, however, short-covering lifted the single currency in NY mid-day and extended intra-day rebound to 1.3600 in late NY session after the hawkish remarks fm Yves Mersh. Governing council member Yves Mersh was quoted as saying that the European Central Bank could raise interest rates to contain inflation even before it exited measures to support liquidity in the bloc. Earlier, the euro was pressured by the release of weaker-than-expected German December industrial orders, which came in at a decrease of 3.4% versus street forecast of -1.5% n the previous reading of 5.2%.   
In the other news, ECB chief Jean-Claude Trichet said that the European System Risk Board, ESRB, will single out problems bubbling in individual countries if they pose a risk to the wider system.  
Despite the British pound’s rebound to 1.6186 in European morning after Friday’s selloff to 1.6336, cable retreated in tandem with the single currency to 1.6090, however, cross buying in sterling especially versus the euro cushioned the pound’s downside n price traded sideways in NY mid-day. Eur/gbp extended recent descent to as low as 0.8389 as the above-target Britain inflation pressures the BoE to raise interest rate this year.  
Versus the Japanese yen, the dollar was relatively quiet compared to Friday’s rally fm 81.10 to 82.47 as the pair was confined inside intra-day narrow range of 82.16-82.48. Yields on U.S. 10-year notes increased as much as six basis points to 3.69 percent, the highest level since May 4. 30-year T-bond yields rose as much as four basis points to 4.76 percent, the highest since April 12.   
Data to be released on Tuesday:  
Japan current account, economic watch DI, Swiss unemployment rate, Canada housing starts.