Daily FX Market Outlook by AceTrader 11-4-2011

Market Review – 08/04/2011 19:41 GMT

Dollar falls across the broad on worries of U.S. government shutdown

The greenback declined against most of its counterparts on Friday as Democratic and Republican party leaders in Congress remain divided over a federal budget, resulting in potentially the first U.S. government shutdown in 15 years ahead of the Friday’s midnight deadline. The US Dollar Index, which tracks the greenback against a basket of currencies, sank to as low as 75.02, the lowest since December 2009.

Euro extended recent ascent to a fresh 15-month high due to prospect of widening interest rate differentials against other major currencies together with dollar’s broad-based weakness. The single currency jumped above Wednesday’s high of 1.4350 in Asian morning on concern of a U.S. government shutdown following the European Central Bank raised its lending rate to 1.25% on Thursday. Euro continued to ratchet higher in European and New York sessions and eventually climbed to a 15-month high of 1.4489 in thin late New York trading.  
German February exports came in at 2.7% m/m, strongest since September 2010 and versus forecast of 1.5%. German February imports came in at 3.7% m/m versus forecast of 0.8%. German February trade balance came in at 11.4 billion euro versus forecast of 12.5 billion euro.  
The British pound retreated from a fresh 15-month high on active cross-selling in sterling versus the euro. Although cable rose in tandem with the single currency in Asian session and price blipped up to as high as 1.6430 after the release of higher-than-expected U.K. PPI data, the pound then retreated to 1.6326 in New York midday on aggressive cross-selling in sterling especially against the euro and eur/gbp rose strongly from 0.8760 to 0.8845.   
U.K. March PPI input came in at 3.7% m/m and 14.6% y/y, higher than the forecast of 2.1% m/m and 12.5 y/y respectively. U.K. PPI output in March came in at 0.9% m/m and 5.4% y/y, the highest since October 2008, versus the expectations of 0.6% m/m and 5.1% y/y.  
The dollar gyrated inside near term range of 84.60-85.53 against the Japanese yen. Despite a brief bounce from 85.00 to 85.40 in New York morning, price then ratcheted lower to a day’s low of 84.68 later in New York midday before staging another recovery.  
The continued rise in commodity prices (U.S. crude oil futures climbed to a near 2-1/2 year high, spot gold price hit another fresh record high of $1473.40/oz and spot silver price rose to a new 31-year high of 40.65/oz) sent Australian dollar, New Zealand dollar and Canadian dollar (known as commodity currencies) higher. Aud/usd posted another fresh 29-year high of 1.0585, nzd/usd rallied from 0.7763 to 0.7835 while usd/cad slumped to a 3-1/2 year low of 0.9526.  
Data to be released next week include:  
Japan machinery orders; Germany wholesale price index; U.K. Nationwide Consumer Confidence on Monday.  
U.K. RICS house prices, BRC retail sales, CPI, RPI, trade balance and DCLG house prices; Japan machine tools orders; Germany CPI final, HICP final, ZEW index and current situation; Canada new housing price index, trade balance, exports and imports and BOC rate decision; U.S. export and import price index and Fed budget on Tuesday.  
Japan domestic CGPI; Swiss combined PPI; U.K. claimant count, ILO unemployment and average earnings; EU Industrial production; U.S. retail sales and business inventories on Wednesday.  
Swiss ZEW index; U.S. jobless claims and PCE index on Thursday.  
Japan industrial production; EU trade balance and HICP final; U.S. CPI, real earnings, foreign treasury buys, net LT TIC flows, capacity utilisation and industrial production on Friday.