Daily FX Market Outlook by AceTrader-17-5-2011

Market Review – 16/05/2011 20:47 GMT

Euro pares gains in New York afternoon on Greek debt concern

Although the single currency opened lower in Australia and extended last Friday’s selloff to a fresh 6-week low of 1.4049 after the weekend’s news that Dominique Strauss-Kahn, head of the International Monetary Fund, was arrested in New York on Saturday over accusation of a sexual attack on his hotel room maid, euro later ratcheted higher in Asian midday partly due to hawkish remarks from European Central Bank Council member Ewald Nowotny who said it would be economic nonsense for Greece to leave Eurozone. Euro later rallied to as high as 1.4245 after ECOFIN Ministers attending the Eurogroup’s meeting unanimously agreed to grant financial assistance in response to the Portuguese authority’s request of 7 April 2011.

  
  
The single currency jumped up in New York morning after the release of U.S. March foreign treasury buys (came in at US$26.78 billion versus revised reading of US$30.58 billion in February) and net long term TIC flows data (came in at US$24.0 billion versus revised reading of US$27.2 billion in February) which showed that global demand for U.S. long-term financial assets such as government bonds slowed in March as investors shifted into shorter-term securities and China trimmed its portfolio of Treasuries.  
  
U.K. Rightmove said U.K. house prices rose by 1.3% m/m and 0.7% y/y in May, comparing to the 1.7% m/m and 0.1% y/y in April. Rightmove said U.K. house price, adjusted for inflation, were still 10% below their 2008 peak and they were being artificially supported by the Bank of England’s record low 0.5% base rate which has staved off repossessions. Despite euro-led brief drop to 1.6166 in Asian morning, the British pound found buying interest above last Friday’s low of 1.6147 and ratcheted higher to 1.6222 in Asian afternoon before retreating to intra-day low of 1.6160. Sterling later staged a rebound in New York morning to as high as 1.6255 before declining to near 1.6200 in New York afternoon partly due to cross-selling of sterling versus euro as market pushed back expectations for increase in the U.K.’s benchmark rate.  
  
Although the greenback bounced briefly from intra-day low of 80.63 to 81.07 in Asia, renewed selling interest emerged and cap dollar’s upside. Usd/jpy moved within the above tight range in European and New York sessions. Eur/jpy, gbp/jpy and aud/jpy reached intra-day highs in New York morning before retreating and moved within daily range of 113.41 and 115.23, 130.42 and 131.49, and 84.95 and 86.09 respectively.  
  
Aud/usd staged a rebound from intra-low of 1.0513 to as high as 1.0642 in New York morning and Nzd/usd rebounded from intra-day low of 0.7755 in European session to as high as 0.7868 in New York midday whilst usd/cad went through a roller-coaster session which rose from 0.9683 to as high as 0.9771 in European session and pared intra-day gains to 0.9690/92 in New York midday before recovery in New York afternoon. Spot gold and silver prices tumbled from intra-day highs of 1504.40 and 35.42 in New York morning as stock markets dropped sharply in New York afternoon.  
  
Data to be released on Tuesday include:   
  
Australia RBA’s board May minutes; Japan machine tools orders; U.K. CPI, RPI and DCLG house prices; Germany ZEW index and ZEW current situation; U.S. housing starts, building permits, capacity utilisation and industrial production.

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