Daily FX Market Outlook by AceTrader 19-1-2011

Market Review – 18/01/2011 21:23 GMT

Euro gains on optimism eurozone debt crisis would be tamed

The single currency rose to 1-month high against the dollar on Tuesday due to optimism the eurozone officials may announce new measures to contain the sovereign debt crisis.

  
  
Eurogroup’s president Jean-Claude Juncker said eurozone’s finance ministers had discussed a European Commission proposal to increase the EFSF from about 250 billion euros to 440 billion. Euro rose from intra-day low of 1.3254 in Asia and extended intra-day rally to 1.3430 after the release of much stronger-than-expected German ZEW economic sentiment which came in at 15.4 in January versus the consensus forecast of 6.8. Euro later climbed to 1-month high 1.3467 before retreating on profit-taking.  
  
The dollar remained under pressure against the Japanese yen in Asia and European morning session due to broad-based weakness, the pair weakened to 82.33 at NY opening, however, price rebounded to 82.83 after the release of U.S. November net capital inflows data. The Total Net US Treasury Department international capital (TIC) Flows came in at 85.1 billion in November versus forecast of 40.0 billion while total net foreign buys of TIC came in at 61.7 billion versus forecast of 40.0 billion.  
  
The British pound ratcheted higher in tandem with euro from 1.5878 in Asia and cable’s intra-day rally picked up momentum after rising above Monday’s high 1.5955. The British pound later surged to 1.6060 before retreating on profit-taking.   
  
Traders bought the pound after release of stronger-than-expected Nationwide consumer confidence (Dec came in at 53 vs forecast of 44) and U.K. RICS house price showed a smaller-then-expected decrease. In addition, U.K. Dec CPI rose by 1.0% m/m and 3.7% y/y respectively, much stronger than economists’ expectation of 0.7% m/m and 3.3% y/y rise, adding speculation that the Bank of England may need to increase interest rates soon.   
  
Economic indicators to be released on Wednesday include:  
  
EU current account, UK jobs data and US housing starts

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