Daily FX Market Outlook by AceTrader 18-1-2011

Market Review – 17/01/2011 21:34 GMT

Euro ratchets lower on uncertainty on euro zone rescue fund

Euro weakened on Monday as the ECB’s Governing Council member Athanasios Orphanides played down talk of tighter policy and the market’s hopes for an increase in eurozone’s bailout fund faded.

Euro edged lower in Asian trading after meeting selling in early NZ trading at 1.3416. Asian traders and other names sold euro steadily ahead of 2-day EU finance ministers’ meeting in Brussels on Monday. The finance ministers would discuss on an increase in the effective lending capacity of the eurozone rescue fund EFSF. Euro later dropped to 1.3243 before staging a rebound.   
Euro was under pressure as ECB’s Orphanides had said the market’s reaction to ECB’s statement on inflation last week was exaggerated.  
German weekly Der Spiegel reported over the weekend, citing a strategy paper from EU Monetary Affairs Commissioner Olli Rehn that the EC believed that an increase of tensions in sovereign debt markets is unavoidable in the first months of 2011. The magazine reported Rehn’s team has drawn up a plan that included making all of the 440 billion euros in EFSF actually available for borrowing.  
Dollar had traded narrowly against the Japanese yen in Tokyo as focus was on other dollar majors. The pair later fell from 83.01 to 82.35 in European afternoon before staging a recovery from there.   
Despite the British pound’s initial sideways trading in Asia, cable rose above last Friday’s high of 1.5889 to a 8-week high of 1.5955 due to talk of buying from Russian names together with speculation that U.K. may raise interest rates sooner than expected. Price later retreated from there and move narrowly in thin market condition as U.S. was closed for Martin Luther King holiday.   
Earlier in Asia, cable showed muted reaction to an unexpected 0.3% monthly increase in the Rightmove House Price (asking prices) for Jan (Dec showed a 3.1% decrease).   
U.S. Fed’s Plosser said he did not rule out a rate increase in 2011 but would depend on growth in the world’s biggest economy and indicated QE2 could end earlier if conditions call for it and QE2 created challenges for some countries. Plosser added that U.S. unemployment will be uncomfortable for some time.  
Economic indicators to be released on Tuesday include:  
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.