Daily FX Market Outlook by AceTrader 21-1-2011

Market Review – 20/01/2011 17:30 GMT

The greenback rebounds broadly on strong U.S. economic data

The dollar rebounded across the board on Thursday after economic data showed U.S. economic recovery was on track and the dollar index rose 0.3% to 78.955 ahead of the New York closing. The U.S. weekly jobless claims decreased 37,000 in the week ended January 15 to 404,000 versus the forecast of 420,000 and 416,500 in previous week.

 The U.S. existing home sales in December increased 12% to a 5.28 millions, the most since May and much higher than the consensus forecast of 4.8% to 4.85 millions. The U.S. leading economic indicators also showed a sign the recovery would gather steam in the new year due to the higher than expected 1.0% percent versus the forecast of 0.6%. The greenback extended its intra-day rally after these data releases and pushed usd/jpy and usd/chf to session highs of 83.13 and 0.9685 respectively. On the other side, eur/usd and gbp/usd fell from 1.3525 to 1.3396 and from 1.6010 to 1.5839 respectively in U.S. session before rebounding on short-covering.   
  
The single currency rose to 1.3525 ahead of New York opening after retreating from Wednesday’s high of 1.3539 to as low as 1.3418. However, strong U.S. economic data pushed the pair lower in New York and it tumbled to 1.3396 before staging a recovery. Cable showed mute reaction and traded around the 1.60 level after the release of mixed UK. industrial trends survey that highlighted the dilemma faced by the Bank of England policymakers. However, it then dropped sharply in New York on the dollar’s broad based firmness and touched an intra-day low of 1.5839 in U.S. afternoon session before recovering.  
  
Commodity currencies dropped sharply on speculation that China will raise rates to cool economic growth and to curb inflation in the region. Australian dollar, Canadian dollar and New Zealand dollar all weakened against the greenback. Aud/usd and nzd/usd tumbled to 0.9832 and 0.7533 while usd/cad rallied to 1.0031 respectively in New York session.   
  
On data front, U.S. manufacturing in the Philadelphia region expanded in January for a fourth month but less than expected. The index came in at 19.3 compared to 20.8 last month and forecasts of 20.3.  
  
Economic indicators to be released on Friday include:  
  
New Zealand retail sales, Australia import prices index and export prices index, Japan Cabinet Office Monthly Economic Report and All industry index, German Ifo index, UK retail sales and Canada retail sales.

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