Daily FX Market Outlook by AceTrader 1-4-2011

Market Review – 31/03/2011 20:14 GMT

Euro pares gains after Fed’s U.S. rate hike remarks

The single currency pared some of the intra-day gains after Minneapolis Fed President Narayana Kocherlakota, a voting member of the Federal Open Market Committee, commented in Wall Street Journal that ‘Fed could raise rates by end of 2011’.

Earlier, the single currency rose above previous resistance at 1.4148/49 and price then rallied to 1.4233 in European morning after the higher-than-expected eurozone March inflation data, however, the euro tanked to 1.4164 in New York morning on Reuters news that the European Central Bank would not announce plans for a new liquidity facility to help Irish banks. Later, although the single currency managed to recover in New York midday after the Irish bank stress test results were released as most of the details had leaked out earlier, the euro retreated again after U.S. interest rate hike comments from Fed’s Narayana Kocherlakota.   
Ireland said its four remaining banks require another 24 billion euros ($34.1 billion) to enable them to withstand potential losses from worsening economic situation. Ireland’s central bank said under ‘stress test’ scenario, the banks would be required to maintain a minimum capital ratio of 6%. Allied Irish Banks, Bank of Ireland, Educational Building Society (EBS) and Irish Life and Permanent need 13.3, 5.2, 1.5 and 4 billion euros respectively.  
Eurozone March inflation estimated at 2.6% y/y versus the expectation of 2.3% and much higher than the reading of 2.4% in February.   
The European Commission, IMF and European Central Bank said in a joint statement that bank stress tests published are a major step toward restoring Ireland’s banking system to health and can be comfortably funded under the country’s IMF-EU bailout program.  
The British pound fell against the dollar due to active cross-selling in sterling especially versus the single currency. Although cable extended erratic upmove from this Monday’s low of 1.5937 to 1.6152 in European morning, selling interest there capped intra-day rise and price later tumbled to 1.6117 on aggressive cross-selling in sterling following remarks from Bank of England policy maker David Miles. The eur/gbp cross pair extended recent ascent to a five-month high of 0.8853.   
In a speech to the Home Builders Federation, David Miles said requirements for larger mortgage deposits from first-time buyers were likely to lead to low transaction levels for several years. Monthly Mortgage approvals in Britain have hovered just below 50,000 since the financial crisis, compared to levels of 80,000-90,000 during the previous decade. Miles added BOE needs to recalibrate link between bank rate and mortgage rate.   
Earlier, the British pound was supported by the slightly better-than-expected U.K. Gfk consumer confidence and the unexpectedly increase in U.K. house prices. The latest GfK NOP Consumer Confidence Index showed UK consumer confidence remained unchanged at -28 in March, however, the reading is still 13 points lower compared to the same month in 2010. U.K. Nationwide house prices rose 0.5% M/M in March and 0.1% Y/Y versus economists’ forecast of -0.1% M/M and -0.7% Y/Y respectively.  
Data to be released on Friday include:  
Japan’s Tankan big manufacturing and capex; Swiss retail sales and PMI; German manufacturing PMI; EU manufacturing PMI and unemployment rate; U.S. non-farm payrolls, private payrolls, unemployment rate, construction spending and ISM manufacturing.