Daily FX Market Outlook by AceTrader 11-1-2011

Market Review – 10/01/2011 21:47 GMT

Euro recovers from 4-month low on short-covering

The single currency extended last week’s selloff to a fresh four-month low at 1.2860 (NZ) on Monday due to lingering eurozone sovereign debt crisis after a senior eurozone source said on Sunday that pressure was growing on Portugal from Germany, France and other eurozone countries to seek financial help from the EU and IMF,

however, a Portuguese government spokesman later denied a German magazine report that Lisbon was under pressure from Berlin and Paris to seek a bailout. Euro recovered from said intra-day low and reached 1.2965 in NY on short-covering.  
In addition, a French government source said ‘it’s nonsense to say France, Germany pressuring Portugal to take aid.’ German Chancellor Angela Merkel also said Germany was not trying to force Portugal to accept a EU bailout and would not do so in the future.  
In other news, Greece is set to sell 1.5 billion euros (US$ 1.94 billion) of short-term debt on Tuesday and Portugal will sell as much as 1.25 billion euros in government bonds on Wednesday, followed by Spanish and Italian bond sales on Thursday.  
The greenback recovered from last Friday’s NY low 82.85 against the Japanese yen and reached 83.30 in NZ, however, price retreated from there and edged lower to 82.66 in NY session.  
Minneapolis Fed President Narayana Kocherlakota said ‘sees U.S. GDP growth of 3-3.5% in 2011; sees inflation rising 1.5-2% in 2011’; he said bar would be very high for him to support stops to bond buying program. Kocherlakota added that ‘unemployment rate between 6.5-8% is range that could lead to inflationary pressures’; he expected U.S. unemployment rate declining to close to 9% by end-2011, staying above 8% through 2012.   
Atlanta Federal Reserve Bank President Lockhart said US economy gained durable momentum and Fed’s QE helped. Friday’s job report confirmed economy is moving forward at modest pace with labor market improving. There was little sign of inflationary pressures and household deleveraging to continue in 2011.   
The British pound briefly retreated to 1.5505 (NZ) but cable rebounded in tandem with euro and reached 1.5569 in Asian morning. Although price fell sharply to 1.5475 later, cable rebounded strongly and rose sharply to 1.5604 in NY session as cross-buying in pound provided support to cable. Eur/gbp weakened to near 4-month low of 0.8285 before staging a recovery.   
Earlier in London morning, cable tanked after U.K. Halifax house price in December fell more than street forecast, came in at -1.3% m/m vs forecast of -0.4% m/m , recording the largest decline in 3 months.  
Economic indicators to be released on Tuesday include:  
Japan leading indicators, UK RICS house prices, Australia trade balance, Canada housing starts and US wholesale inventories.