Daily FX Market Outlook by AceTrader-13-5-2011

Market Review – 12/05/2011 20:51 GMT

Euro pares early losses in New York as commodity prices rebound strongly

Euro rebounded strongly from a near six-week low on Thursday as commodity prices recouped initial sharp losses. In addition, the single currency was also supported by widening interest rate differentials as the European Central Bank is expected to raise interest rates further later this year after European Central Bank policymaker Luc Coene was quoted as saying that April’s interest rate hike was ‘certainly’ not a one-off.

Earlier in the session, despite euro’s initial sideways trading in Asian session following the sharp selloff from 1.4423 to 1.4172 in the previous session, price then pierced through said support easily and extended recent descent to a near six-week low of 1.4123 in European morning. However, the single currency later managed to rebound in tandem with commodity prices in New York morning due to the hawkish remarks from ECB policymaker Luc Coene and euro eventually rose to an intra-day high of 1.4277 before easing. Cross-buying in euro versus the Japanese yen and sterling also lifted the single currency as eur/jpy and eur/gbp rebounded strongly from 114.18 to 115.56 and from 0.8674 to 0.8753 respectively.  
Sterling tanked broadly in European morning after the release of worse-than-expected U.K. industrial production data and although cable extended its recent decline to a day’s low of 1.6235 in European morning, price also staged a recovery to 1.6322 in New York midday on dollar’s broad-based weakness.   
Elsewhere in the market, the Australian dollar, the New Zealand dollar and the Canadian dollar, known as three commodity-linked currencies, also benefited from the rise in commodity prices. Aud/usd and nzd/usd rebounded from 1.0567 to 1.0698 and from 0.7841 to 0.7991 respectively whilst usd/cad retreated from 0.9695 to 0.9611. Spot gold and silver prices rebounded strongly from 1479.10 to 1507.80 and from 32.38 to 35.88 respectively.  
China’s central bank increased the reserve requirement ratio for its commercial banks by another 50 basis point to a record high of 21%.  
U.K. March M/M industrial production came in at 0.3% versus street forecast of 0.8%.  
Data to be released on Friday include:   
German GDP; Swiss combined PPI; EU GDP; U.S. CPI, real earnings and University of Michigan survey final.