Daily FX Market Outlook by AceTrader 15-2-2011

Market Review – 14/02/2011 19:13 GMT

Euro hits a three week low versus dollar on WestLB rescue hitch

The single currency pared its initial intra-day gain against the greenback in European session on Monday and fell from 1.3559 to a three-week low of 1.3428 in early New York trading as concerns over the eurozone debt concern heightened ahead of peripheral bond auctions in Spain and Italy this week after a source told Reuters that German bank WestLB was struggling to come up with a rescue deal ahead of presenting a restructuring plan to the European commission. Source quoted that saving banks are so far blocking the WestLB rescue.

However, short-covering in euro lifted price from 1.3428 and eur/usd later rebounded to 1.3506 before retreating near New York closing. Euro cross-pairs also tumbled on increasing risk aversion and eur/jpy, eur/chf and eur/gbp fell fm session highs of 112.95, 1.3203 and 0.8448 to as low as 112.09, 1.3053 and 0.8399 respectively before staging a recovery in New York.  
In other news, Reuters reported German Finance Minister Wolfgang Schaeuble said there was no need to boost the firepower of the eurozone rescue fund and that discussion of the matter was fuelling market speculation over the finances of eurozone countries.   
The British pound also weakened versus the US dollar and cable tumbled from session high of 1.6080 to 1.5982 in U.S. morning, near Friday’s European low of 1.5963 and then traded in a volatile manner later in the day after Moody’s downgraded various Irish covered bonds.  
The euro-led decline also pressured the other higher-yielding currencies and the Australian dollar and New Zealand dollar fell from intra-day high of 1.0075 to 1.0003 and from 0.7620 to 0.7545 versus the US dollar respectively before stabilising.   
On the data front, economy in Japan shrank slightly in the final quarter of 2010 as GDP in Q4 showed an annualised contraction of 1.1% versus expansion of 4.5 percent in previous reading, the data also confirmed that Japan lost its place to China last year as the world’s second-largest economy and highlighted Tokyo’s increasing reliance on its giant neighbour. Other data reported that eurozone industrial production in December dropped 0.1 percent M/M and increased 8.0% Y/Y compared to consensus forecast of a decrease of 0.5 percent and a rise of 8.8 percent respectively.  
Economic indicators to be released on Tuesday includes:  
Australia RBA’s Board February Minutes, Japan Capacity utilization, industrial production, machine tools orders and Bank of Japan rate decision, German GDP data and ZEW index, UK DCLG house prices, CPI and RPI data, eurozone GDP data and trade balance, and US Empire state manufacturing, retail sales, import price index, export price index, Net LT TIC flows, Foreign treasury buys, NAHB housing market index and Business inventories.