Daily FX Market Outlook by AceTrader 31-1-2011

Market Review – 29/01/2011 01:13 GMT

The greenback and Swiss franc strengthen on Friday as Egypt turmoil increases safe-haven demand

The greenback rose broadly, except versus Japanese yen and Swiss franc on Friday as unrest in Egypt increased safe-haven demand. The dollar index, which measured the performance of the US Dollar against a basket of six other currencies, gained 0.54 percent to 78.148 in late New York trading.

Risk aversion put pressure on major stock markets around the globe, Dow Jones Industrial average index dropped by 1.39% or 166 points to 11823, while FTSE 100 index, CAC 40 index, DAX index and Nikkei 225 closed down by 1.40% , 1.41%, 0.74% and 1.13% to 5881, 4002, 7102 and 10360 respectively on Friday.  
Protesters demonstrated throughout Egypt, with clashes erupting in central Cairo in unprecedented protests against President Hosni Mubarak’s 30-year rule. Hosni Mubarak imposed a curfew from 6 p.m. to 7 a.m. local time in Egypt from Friday and deployed military (the first time since anti-government protests erupted in Egypt) to monitor a curfew on the streets of Cairo. Stock market in Egypt is closed on Friday after Egypt’s benchmark, EGX30, stock index tumbled 11 percent on Thursday, the most since October 2008, leaving it with a two day loss of 16 percent.   
Fitch Ratings had revised the rating outlook on the Arab Republic of Egypt to Negative from Stable due to the recent upsurge in political protests and the uncertainty added to the political and economic outlook ahead of September’s elections. The agency affirmed Egypt’s long-term foreign currency Issuer Default rating (IDR) at ‘BB-‘, long-term local currency at ‘BBB-‘, short-term foreign currency IDR at ‘B’ and Country Ceiling at ‘BB+’.  
Safe-haven flows amid worries over escalating protests in Egypt against the government pressured the European currencies and other higher-yielding currencies. Euro nose-dived in Friday’s New York session and tumbled by more than one percent against the dollar to a session low of 1.3584 after being capped below Thursday’s two-month high of 1.3760. The British pound weakened against the greenback and dropped from 1.5967 to as low as 1.5826 before stabilising, while Australian dollar and kiwi were off from their session highs of 0.9988 and 0.7795 to around 0.9930 and 0.7730 respectively in late New York trading.  
Active cross-buying in Japanese yen and Swiss franc on risk aversion pressured the usd/jpy and usd/chf and the pairs dropped from 82.93 to 81.98 and from 0.9472 to 0.9404 respectively on Friday, while their cross-pairs, eur/jpy, aud/jpy, gbp/jpy and eur/chf tumbled from 113.90 to 111.51, from 82.26 to 81.33, from 132.11 to 129.82 and from 1.2990 to 1.2805 respectively before stabilising due to short covering.  
On the data front, U.S. GDP data showed that economy accelerated in the fourth quarter of 2010 as consumer spending climbed by the most in more than four years, U.S. annualised GDP rose 3.2% in Q4 compared to a grow of 2.6% in previous quarter but falling short against the consensus forecast of 3.6%. University of Michigan final index of consumer sentiment decreased to 74.2 from 74.5 in December, fell less than median forecast of 73.1 and up from a preliminary figure of 72.7 issued earlier this month.   
Economic indicators to be released on next week include:  
New Zealand trade balance, imports and exports, Japan industrial production, construction orders and housing starts, German retail sales, eurozone HICP flash, Canada GDP and PPI, and U.S. personal spending, personal income, PCE data and Chicago PMI on Monday;  
Australia RBA rate decision, NAB business confidence and house price index, Switzerland retail sales and PMI, German Manufacturing PMI, unemployment rate and unemployment change, eurozone Manufacturing PMI and unemployment, UK Manufacturing PMI and Mortgage approval, and U.S. construction spending and ISM manufacturing on Tuesday;  
U.K. BRC shop price index and PMI construction, eurozone PPI data, and U.S. ADP employment on Wednesday;  
New Zealand unemployment rate and employment change, Australia building approvals, trade balance, Switzerland trade balance, German Services PMI, eurozone Services PMI and ECB rate decision, U.K. Services PMI, and U.S. Jobless claims, productivity labour cost durable goods data (revision), factory orders and ISM non-manufacturing on Thursday;  
Canada unemployment rate and Ivey PMI, and U.S. non-farm payrolls, private payrolls, unemployment rate and average hourly earnings on Friday.