Daily FX Market Outlook by AceTrader 27-1-2011

Market Review – 26/01/2011 23:38 GMT

Euro trades near fresh two-month high as Fed gives less upbeat U.S. outlook

The single currency climbed to a fresh 2-month high of 1.3723 against the dollar in European morning on Wednesday but then retreated on profit-taking. The stronger-than-expected U.S. new home sales data pressure price to 1.3643 in New York morning.

Later, the pair traded in a volatile manner, rising to as high as 1.3708 after FOMC rate decision and then falling again to a session low of 1.3640, however, the Federal reserve later said in the statement that a high U.S. employment rate justified its $600 billion bond-buying program and eur/usd rebounded strongly to around 1.3700 level ahead of NY closing. FOMC kept Fed fund rate exceptionally low for an extended period in 0.00-0.25 percent range in January and said in the statement that economic recovery would continue but at rate ‘insufficient to bring about a significant improvement’ in labor market, and although commodity prices had risen, longer term inflation was expected to be stable and underlying inflation was trending down. Fed also said that growth in household spending picked up late last year but was still constrained by high unemployment.  
The British pound rebounded from 1.5769 versus the dollar (just above Tuesday’s low of 1.5750) in European session after the release of minutes from the January meeting of the Bank of England’s Monetary Policy Committee as it reported that two policymakers voted for an interest rate hike, cable later penetrated Asian high of 1.5839 and rallied to an intra-day high of 1.5938 after FOMC rate decision and the release of Fed’s statement. The two Bank of England Monetary Policy Committee members, Martin Weale and Andrew Sentance, both voted for a quarter-point rate rise, and Adam Posen maintained his call to add 50 billion pounds to the 200 billion-pound bond purchase plan, while other six members of the MPC voted to keep the benchmark interest rate and the stimulus program unchanged. In sterling’s cross pairs, eur/gbp retreated from a 2 1/2 month’s high and dropped from 0.8673 to as low as 0.8596, whilst gbp/jpy rallied from a session low of 129.53 to 131.07.  
The greenback’s renewed firmness in New York lifted dollar against the Japanese yen and usd/jpy rose to a session high of 82.62 before easing. The greenback was supported by the stronger-than-expected U.S. new home sales as U.S. Commerce Department reported that sales of new single-family homes rose 17.5 percent to 329,000 in December, the biggest monthly jump since 1992 and five times faster than the consensus forecast of 3.5 percent. The gain showed that buyer were returning to the market after mid-2010 slump to take advantage of low mortgage rates and reduced price, and there was a gradual path in U.S. economy recovery.  
Economic indicators to be released on Thursday includes:  
Australia Westpac leading economic index, Japan trade balance, export and import, eurozone business climate, economic confidence and industrial sentiment, and US durable good orders, jobless claims and pending home sales.