Daily FX Market Outlook by AceTrader 20-1-2011

Market Review – 19/01/2011 19:46 GMT

Euro touches 2-month high against the dollar on easing debt worries

The single currency climbed to an two-month high against the dollar on Wednesday on growing hopes that eurozone policymakers would prevent a debt crisis that had hurt Greece and Ireland from spreading.

Euro was also supported as a report in a German newspaper showed that the Berlin government was considering a restructuring plan of Greek debt, allowing Greece to buy back its own debt using the eurozone crisis fund. During the day, euro retreated briefly from 1.3508 to 1.3435 in Europe before reported Asian sovereign buying emerged to push price higher to 1.3539 in New York session. The single currency also strengthened against other currencies as eur/gbp and eur/chf rose from 0.8378 to 0.8453 and from 1.2878 to 1.3000 respectively before retreating on profit-taking.  
Volatile movements were seen in USD/CHF after Swiss government announced that they might extend some of the measures which were adopted during the financial crisis to ease the strain of the strong franc. Swiss Economy Minister Johann Schneider-Ammann said in a media conference that the government could extend additional funds for Switzerland’s tourism industry which were provided as part of a package to boost the economy at the height of the financial crisis. The usd/chf rose from European morning low of 0.9568 and jumped to 0.9634 briefly in U.S. morning before falling to a two-week low of 0.9521 in late New York trading.  
The greenback’s broad-based weakness pushed usd lower versus the Japanese yen and the pair extended weakness to 81.85 in New York.  
The British pound dropped from 1.6038 to as low as 1.5945 in early European trading before rebounding due to an unexpected drop in December’s UK jobless claimant count (a decrease of 4.1K versus the forecast of a +1.5K and -1.2K in Nov), however, price failed to penetrate said European morning high and retreated again as analysts pointed to the risks of a soft labour market in the months ahead as the public sector starts shedding jobs. The British pound slipped below 1.6000 level versus the dollar in New York.  
On economic front, U.S. housing industry continued to struggle more than a year into the U.S. economic recovery as housing starts touched the lowest level since October 2009 in December and reported a fall of 4.3 percent to a 529,000 annual rate compared the consensus forecast of -0.9 percent and 550,000 respectively, whilst a jump in December’s building permits (635,000 versus the consensus forecast of 554,000 and 544,000 in previous month), a proxy for future construction, may reflect attempts to get approval before changes in building codes took effect at the beginning of this year.   
Economic indicators to be released on Thursday include:  
New Zealand CPI, Japan leading indicators, German PPI, Switzerland ZEW index, ECB’s Monthly Report, EU consumer confidence, UK CBI orders, Canada leading indicators, US jobless claims, Existing home sales, leading indicators and Philadelphia Fed survey.