Daily FX Market Outlook by AceTrader-12-5-2011

Market Review – 11/05/2011 20:37 GMT

The euro tumbles broadly on renewed concerns over financial aid to Greece

The single currency tanked on Wednesday due to uncertainty over European leader’s willingness to offer more financial aid to Greece, fueling speculation that the country will eventually need to restructure its debt. In addition, the sharp selloff in commodity prices also weighed on the euro.

The euro traded sideways in Asian session and despite a brief rise to an intra-day high of 1.4423 in European morning, price then ratcheted lower in European session. Later, the selloff in U.S. stocks and commodities pressured the single currency even lower in New York morning and intra-day decline accelerated after the breach of Monday’s 1.4254 support. The euro eventually extended recent fall from last week’s 17-month high of 1.4940 to as low as 1.4172 in New York midday before staging a moderate recovery.   
The British pound was little changed against the dollar but tumbled against the euro after the Bank of England raised its inflation forecasts, boosting speculation that the Bank of England will raise interest rates from the present record low of 0.5% by the end of this year. Cable jumped from European low of 1.6345 to as high as 1.6518 following the hawkish Bank of England inflation report. However, intra-day selloff in the euro dragged the pound lower and price fell sharply to a day’s low of 1.6322 in New York midday. Active cross-buying in sterling versus the euro cushioned cable’s downside, as eur/gbp tanked from 0.8812 to 0.8679.   
Bank of England Governor Mervyn King said at the press conference after the release of Bank of England quarterly inflation report that ‘we are very likely to raise bank rate rather than sell assets as our first tightening move’. His comments also supported the British pound earlier.  
The Japanese yen also benefited from its safe-haven appeal and rose against most of its counterparts. Eur/jpy, aud/jpy, gbp/jpy tumbled from 116.88 to 114.57, from 88.10 to 86.13 and from 134.05 to 131.84 respectively.  
On the data front, German April final CPI came in at 0.2% m/m n 2.4% y/y as expected. U.K. March trade deficit came in at 7.66 billion pounds versus economists’ forecast of 7.25 billion. U.S. March trade balance came in at – US$48.18 billion versus economists’ forecast of – US$47.00 billion. U.S. April Fed budget came in at – US$40.49 billion versus economists’ forecast of – US$62.00 billion.   
Data to be released on Thursday include:   
Japan current account and economic watch DI; German wholesale price index; U.K. industrial and manufacturing production; EU industrial production; Canadian new housing price index; U.S. jobless claims, PPI, retail sales and business inventories.