Daily FX Market Outlook by AceTrader 17-1-2011

Market Review – 14/01/2011 19:42 GMT

Euro pares gains on profit-taking after rising to one-month high vs dollar

The single currency climbed above $1.3400 level against the dollar on Friday as traders bought euro aggressively on short-covering. Euro rose approximately 3.6% against the dollar this week as price was supported by a series of successful debt auctions by indebted eurozone countries together with ECB chief Trichet’s concerns over inflation on Thursday.

   
  
Euro initially hit a one-month high of 1.3458 in European morning on Friday, however, price retreated sharply from there on profit-taking and later weakened to 1.3314 in NY session before staging a recovery.  
  
In other news, Fitch downgraded Greece to BB+, outlook was negative, ratings became junk status. Fitch also cut Greece’s long term foreign and local currency issuer default ratings to BB+ from BBB-. The rating agency said the Greek heavy public debt burden rendered fiscal solvency highly vulnerable to adverse shocks. Greek debt was now rated junk by all three major rating agencies.  
  
In addition, China’s central bank raised banks’ reserve requirement by 50 b.p. on Friday after Chinese financial markets were closed, this move was the 7th increase since early 2009. However, market had rumoured such a move earlier on Friday so the reaction had not been too sharp.  
  
The greenback fell against the Japanese yen briefly to 82.40 in Europe, however, the pair quickly rebounded from there to 83.00 on buying by Japanese names. Although the pair dipped again after the release of weaker-than-expected U.S. economic data, price rose again and reached 83.08 in NY afternoon before trading narrowly.  
  
On economic front, U. Michigan consumer confidence in January unexpectedly dropped to 72.7 ( vs forecast of 75.4) from the previous reading of 74.5, retail sales in December came in at 0.6% versus the forecast of 0.8% and real earnings in December fell by 0.4% against forecast of -0.2%.  
  
The British pound initially rose in tandem with euro in European morning to 1.5867 and retreated on profit-taking, however, price rebounded after release of higher-than-expected U.K. PPI (Dec input prices increased by 3.4% on the month and were up 12.5% on the year, the largest rises since March and April respectively), sterling then fell briefly but sharply to an intra-day low of 1.5810 after news of raising of banks’ reserve requirement by China’s central bank. Cable later ratcheted higher 1.5889 in NY before moving narrowly.  
  
Economic indicators to be released next week include:  
  
UK Rightmove house prices, Japan Consumer Confidence, EU Finance Ministers’ meeting on Monday, UK Consumer confidence, RICS house prices, Japan Industrial production, UK CPI and RPI data, Germany ZEW data, US Empire state mfg, Net LT TIC flows, NAHB housing index, Canada BOC rate decision on Tuesday, EU current account, UK jobs data and US housing starts on Wednesday, Germany PPI, Swiss ZEW, UK CBI orders, US home sales data and jobs data, Canada leading indicators on Thursday, Germany Ifo data, UK retail sales and Canada retail sales on Friday.

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