Daily FX Market Outlook by AceTrader 6-5-2011

Market Review – 05/05/2011 20:26 GMT

Euro tumbles sharply as ECB’s Trichet signals ECB will not raise rates in June

The single currency tanked broadly on Thursday after European Central Bank President Jean-Claude Trichet surprised the market by stating clearly at the press conference after the central bank kept its benchmark interest rates unchanged at 1.25% that the European Central Bank would not raise interest rates at the June meeting.

Trichet was also quoted as saying that ‘current monetary policy is very accommodative; underlying pace of monetary expansion remains moderate; rates remain low; inflation likely to stay clearly above 2% on coming months; inflation expectations must remain firmly anchored; can hike rates as appropriate’.  
Despite staging a strong rebound from Asian low of 1.4807 to an intra-day high of 1.4900 in European morning following the selloff from a 17-month high of 1.4940 in the previous session, the euro fell sharply to 1.4818 after the release of much worse-than-expected German industrial order data. Later, the single currency plunged sharply to 1.4577 in New York morning as Trichet’s comments were less hawkish than the market had anticipated and price remained under heavy selling pressure in New York afternoon session, the single currency eventually dropped to an intra-day low of 1.4510 before stabilising in late New York trading. Eur/jpy, eur/gbp, and eur/chf tumbled from 119.76 to 116.15, from 0.9043 to 0.8865 and from 1.2796 to 1.2630 respectively.  
German industrial order fell unexpectedly by -4.0% in March versus the economists’ forecast of 0.1% with downwardly revised reading of 1.9% in February.   
The British pound also weakened against the dollar in another volatile trading session. Despite falling sharply from Asian high of 1.6544 to 1.6446 after the release of much weaker-than-expected U.K. CIPS services PMI data which came in at 54.3 versus economists’ forecast of 55.7, cable managed to recover in European midday. However, intra-day selloff in euro dragged the pound lower and price pierced through said support easily in New York morning to as low as 1.6405 in New York midday. Later, another wave of selling interest emerged in late New York session and cable eventually fell to an intra-day low of 1.6357 before staging a recovery.  
Bank of England (BOE) kept key interest rates unchanged at 0.5% as expected and maintained its asset purchase target at 200 billion pounds.   
The Australian dollar, the New Zealand dollar and the Canadian dollar, known as three commodity-linked currencies, tumbled against the greenback as oil and precious metal prices sank. U.S. crude oil price tanked 8.6% and closed below $100 per barrel as U.S. weekly jobless claims last week jumped to an eight-month high, fanning worries about the strength of the global economic recovery. Spot gold price tumbled from $1521.30/oz to $1464.30/oz while spot silver price continued to nose dive from $39.77/oz to as low as $34.37/oz. Aud/usd and nzd/usd tanked from 1.0771 to 1.0537 and from 0.7943 to 0.7816 respectively while usd/cad rallied from 0.9568 to 0.9713.   
U.S. weekly jobless claims came in at 474,000 versus the economists’ forecast of 410,000.   
Data to be released on Friday include:   
Swiss unemployment rate; U.K. input and output PPI; German industrial production; Canadian employment change and unemployment rate; U.S. average hourly earnings, non-farm payrolls, private payrolls and unemployment rate.