Daily FX Market Outlook by AceTrader 4-4-2011

Market Review – 06/04/2011 19:59 GMT

Euro rallies to a 14-month high ahead of ECB rate decision

Euro rose broadly on Wednesday as ECB’s interest rate hike prospect continued to support the single currency. The European Central Bank is widely expected to raise its benchmark interest rates by 25 basis points from the record low of 1.0% on Thursday.

Euro maintained a firm undertone throughout the day on Wednesday and price pierced through the previous resistances at 1.4269 and 1.4283 easily in European morning. Later, despite a brief dip from 1.4317 to 1.4274 in reaction to news that Moody’s has downgraded certain Portuguese government related issuers in New York morning, renewed buying there pushed the single currency to a 14-month high of 1.4350 in New York midday on speculation that the ECB would signal more interest rate hikes to come. Cross-buying in euro also supported the single currency, eur/jpy strengthened to a fresh 11-month high of 122.62, while eur/gbp and eur/chf rebounded strongly from 0.8720 to 0.8798 and 1.3066 to 1.3180 respectively.  
Moody’s cut ratings of five Portuguese regional and local governments and ratings remain on review for downgrade.  
In the other news, Portugal Finance Minister Frernando Teixeira dos Santos was quoted as saying that Portugal needs to resort to financial aid from the European Union.  
Cable retreated after the much worse-than-expected U.K. economic data. Although the British pound extended recent ascent from last week’s low of 1.5937 to as high as 1.6364 in European morning, price then fell sharply following the release of weaker-than-expected U.K industrial output and manufacturing output data. However, intra-day firmness in euro lifted the pound from 1.6257 to 1.6340/41 in New York midday.  
UK February industrial output came in at -1.2% m/m, weakest since August 2009, and 2.4% y/y, weakest since July 2010. The economists’ expectations were 0.4% m/m and 4.3% y/y respectively. UK February manufacturing output came in at 0.0% m/m and 4.9% y/y, versus forecast of 0.6% m/m and 5.8% y/y respectively.  
The dollar also went through a roller-coaster session against the Swiss franc. Having strengthened to an intra-day high of 0.9297 in Asia, the usd/chf pair then tanked to a day’s low of 0.9130 after the higher-than-expected Swiss inflation data. Swiss March consumer price index rose by 0.6% m/m and 1.0% y/y, compared to economists’ forecast of 0.2% m/m and 0.6% y/y respectively. Eur/chf also tumbled from 1.3244 to 1.3066 before staging a strong recovery in New York session.  
The surge in commodity prices (spot gold price hit another record high of 1460.90/oz, spot silver price rose to a new 31-year high of 39.70) sent Australian dollar, New Zealand dollar and Canadian dollar (known as commodity currencies) higher. Aud/usd posted a fresh 29-year high of 1.0452, nzd/usd rallied from 0.7670 to 0.7809 while usd/cad slumped to a 3-year low of 0.9569.  
Data to be released on Thursday include:  
Australia Employment change and Unemployment rate; Japan BOJ rate decision; German industrial production; U.K. BOE rate decision and BOE asset purchase target; ECB rate decision; Canada building permits; U.S. jobless claims.