Daily FX Market Outlook by AceTrader 22-2-2011

Market Review – 21/02/2011 16:01 GMT

Dollar n yen strengthen on the escalation of geopolitical tensions in the Middle East and Libya

The dollar n the Japanese yen strengthened on Monday as violence in Libya n the Middle East increased demand for both currencies as safe-haven assets.

Although euro’s breach of Friday’s top of 1.3716 to a marginal high of 1.3727 in NZ trade on Monday, the single currency ratcheted lower in Asia due to the escalation of geopolitical tensions in the Middle East and Libya. Later, despite staging a brief recovery abv 1.3700 after the release of much stronger-than-expected German Ifo index, renewed selling at 1.3709/10 capped the pair’s upside and the euro eventually weakened to an intra-day low of 1.3647 in late European session with financial markets in U.S. and Canada closed for holiday on Monday.  
German business confidence rose for the ninth month in a row to a record high of 111.2 in February fm the reading of 110.3 in January. German manufacturing PMI in February also came in better-than-expected at 62.6 vs forecast of 60.3 n the reading of 60.5 in January.   
The British pound also fell on Monday due to dlr’s broad-based rebound. Cable ratcheted lower fm Asian morning high of 1.6263 (1 pip shy of last Friday’s 1.6264 high) n price later dropped to 1.6205 in European mid-day b4 staging a recovery after mildly hawkish remarks fm MPC Martin Weale who joined BoE hawk Andrew Sentance last month in voting for a 25 b.p. rise in the U.K. official interest rates.  
Martin Weale was quoted on Reuters as saying that ‘rising inflation matters a lot as expectation may get built into wage demands; raising interest rate in short term would not bring CPI rapidly back to target; perfectly possible that small rate rise now would stop bigger rise later.’  
Despite the dlr/jpy pair’s recovery fm 83.01 (AUS) to 83.27, the Japanese yen strengthened on crosses on Monday as eur/jpy, aud/jpy n gbp/jpy fell fm 113.98 to 113.57, 84.35 to 83.91 n 135.17 to 134.72 respectively.   
Data to be released on Tuesday:  
Germany Gfk index, Swiss trade balance, U.K. PSNCR, PS net borrowing, Canada retail sales, U.S. S&P/ Case-Shiller home price index, consumer confidence, Richmond Fed manufacturing index.