Daily FX Market Outlook by AceTrader-3-6-2011

Market Review – 02/06/2011 21:20 GMT

Euro touches one-month high on Moody’s warning on U.S.

The single currency rallied in New York session on Thursday as Credit rating agency Moody’s said ‘if no progress on increasing the statutory debt limit in coming weeks, expects to place the U.S. government’s rating under review for possible downgrade.’

  
  
Euro rebounded strongly from Australian morning low of 1.4308 and continued to move higher in Asian session after German Chancellor Angela Merkel said in a forum in Singapore that ‘Germany is fully committed to the European Union and the euro remains strong and stable currency’. The single currency penetrated Wednesday’s high of 1.4459 in early European trading to 1.4487 on comments from European Central Bank President Jean-Claude Trichet together with the early strong demand for 3.95 billion euros of medium-term Spanish bonds before dropping on profit-taking, however, renewed buying interest emerged at 1.4403 in New York and the single currency later touched a one-month high of 1.4515 against the greenback after Reuters news reported that eurozone officials had in principle approved the Greek program to run until mid-2014 and involved increased external funding and Moody’s usd-bearish comments on U.S. debt limit.  
  
Euro also strengthened against the Japanese yen, British pound and Swiss franc and touched session highs of 117.33, 0.8864 and 1.2225 respectively.  
  
Versus the greenback, the Japanese yen went through a roller-coaster session on Thursday. The dollar jumped shortly after Tokyo opening to 81.33 on broad-based selling of the Japanese Yen on news that the main opposition Liberal Democratic Party, the New Komeito party and the Sunrise Party of Japan had submitted the no-confidence motion on Prime Minister Naoto Kan to the Diet’s lower house on Wednesday evening and later renewed cross-buying of yen emerged after news that Kan said he would step down after the nuclear crisis has been dealt with. Later, the greenback weakened against the Japanese yen and fell to an intra-day low of of 80.55 on weak U.S. economic data before staging a recovery.  
  
Japan’s parliament on Thursday rejected a no-confidence motion submitted by opposition parties against Prime Minister Naoto Kan and his cabinet. The motion was defeated by a vote of 293 to 152 in the 480-member House of Representatives.   
  
The British pound rebounded after extending recent decline to 1.6306 in European morning and jumped to an intra-day high of 1.6418 after release of better-than-expected U.K. construction PMI before retreating, traded in a volatile manner in US session and closed around 1.6372 near New York closing. U.K. construction PMI in May came in at 54.0 versus economists’ expectation of 53.6. Earlier in the day, Bank of England policymaker Paul Fisher said that he would consider quantitative easing, which boosted speculation that interest rates would stay on hold for some time.   
  
In other news, European Central Bank President Jean-Claude Trichet said ‘loans and structural adjustment programmes are first stage of aid process and indicates Europe should consider strengthening central control economic policy if efforts to deal with its debt crisis do not deliver results’. Spain’s treasury sold 2.753 and 1.200 billion euros of 2014 and 2015 bond respectively. Spain said 2014 and 2015 bond bid-to-cover ratio were 2.5 and 3.0 versus previous auction of 1.8 and 1.6 respectively.   
  
On the data front, U.S. weekly jobless claims data came in at 422,000 versus the economists’ forecast of 415,000. U.S. productivity revised to 1.8% against the expectation of 1.7% and previous reading of 1.6%. U.S. April factory orders came in at -1.2% versus economists’ forecast of -1.0%.  
  
Data to be released on Friday include:  
  
China non-manufacturing PMI and HSBC services PMI; German services PMI; Eurozone services PMI; U.K. services PMI; U.S. average hourly earnings, non-farm payrolls, private payrolls, unemployment rate and ISM manufacturing.

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