Daily FX Market Outlook by AceTrader-17-8-2011

Market Review – 16/08/2011 22:04 GMT

Euro pares its gain on disappointing French-German proposal

The single currency retreated on Tuesday as German Chancellor Angela Merkel and French President Nicolas Sarkozy said in a press conference that they did not support the creation of eurobonds or an expansion of the EFSF to contain the debt crisis.

The single currency ratcheted lower from Australian high at 1.4454 on cross selling of euro and fell sharply to 1.4355 in European session on weak German and eurozone GDP data (German and EU Q2 Q/Q GDP growth was 0.1% and 0.2% vs forecasts of 0.5% and 0.3% respectively). However, euro rebounded on weak U.S. data and extended its gain to 1.4473 in NY midday after the German and French leaders announced their conclusions but price retreated swiftly to 1.4377 in NY afternoon as their speech failed to ease worries about the debt crisis.  
U.S. housing starts and building permits for July dropped by 1.5% and 3.2% to 604k and 597k vs forecasts of 600k and 605k, respectively.  
Cable edged lower in tandem with euro to an intra-day low of 1.6323 in European morning before rallying strongly on active cross buying of sterling vs euro which tumbled from 0.8824 to 0.8738. The British pound eventually climbed to 1.6478 in NY afternoon before retreating.  
The British pound was supported by higher than expected inflation with U.K. CPI m/m and y/y for July coming in at 0.0% and 4.4% vs market expectations of -0.1% and 4.3% respectively.  
Versus the Japanese yen, the greenback edged lower from Asian high of 76.91 to 76.66 on cross buying of yen but the pair staged a strong rebound to 76.93 in NY morning after Fitch reaffirmed its AAA rating of the U.S. However, price swiftly fell to 76.69 before staging a recovery in NY afternoon.  
Ratings agency Fitch affirmed U.S. AAA rating and assured its outlook remains stable. Fitch said “U.S.’s exceptional creditworthiness remains intact. AAA rating of U.S. reflects the pivotal role in global financial system and also reflects monetary and exchange rate flexibility which helps economy absorb and adjust to shocks.”  
Data to be released on Wednesday include:  
New Zealand PPI input, PPI output, EU current account, HICP final, U.K BoE minutes, ILO unemployment, avg. earnings, claimant count, U.S. PPI, PPI core.