Daily FX Market Outlook by AceTrader-11-8-2011

Market Review – 10/08/2011 21:21 GMT

Euro tumbles on concerns over French credit rating and bank woes

The single currency tanked against most of its counterparts on Wednesday as investors were worried about a possible downgrade of France’s AAA credit rating and its banks exposure to eurozone debt.

The single currency traded sideways in Asian session, reaching a low of 1.4310 in European morning before staging a rebound above Australian high of 1.4398 to 1.4402. However, the pair retreated sharply on risk aversion together with the selloff in global stock markets on speculation that France will be the next AAA-rated country to be downgraded and extended its selloff to 1.4163 in NY morning on worries about French banks with large exposure to eurozone debt but euro staged a recovery to 1.4238 on short-covering in NY afternoon. Active cross selling also sent euro lower as eur/jpy and eur/gbp tumbled from 111.24 to 108.30 and from 0.8886 to 0.8760, respectively.  
The DJI closed the day at 10719.94, down by 4.62% or 519.83 points. The CAC 40, DAX, and FTSE 100 indicies tumbled by 5.45%, 5.13%, and 3.05%, respectively.  
The British pound extended its rally from Tuesday’s NY low of 1.6176 to 1.6336 in Australia, however, it then ratcheted lower in tandem with euro in Asian morning. Despite cable’s recovery to 1.6281 due to BoE Governor Mervyn King’s speech, renewed selling pressured the pair to 1.6123 near NY closing.  
BoE Governor King said in a press conference after the release of quarterly inflation report that there is a ‘limit to what U.K. monetary policy can do’ and ‘we can carry out more asset purchases but this is not for today.’  
Versus the Japanese yen, the greenback rose to 77.30 in Australian morning but then ratcheted lower throughout the day to a low of 76.35 in NY morning, only 10 pips above its post-WWII low. Later, dollar strongly rebounded to 76.92 on short-covering ahead of NY closing.  
Data to be released on Thursday include:  
Japan machinery orders, Australia employment change, unemployment rate, Germany WPI, EU monthly bulletin, U.S. jobless claims, trade balance, Canada new housing price index, trade balance, exports, imports.