Daily FX Market Outlook by AceTrader-7-7-2011

Market Review – 06/07/2011 19:41 GMT

Euro falls to one-week low due to persistent fears of European debt crisis

Euro tumbled to a one-week low versus the dollar on Wednesday due to the escalating concerns on European debt crisis together with interest rates hike by the Chinese central bank, spurring demand for the greenback and the Swiss franc as safe-haven assets.

Despite ratcheting higher on minor short-covering to 1.4467 in European morning following the selloff to 1.4395 in the previous session, the widening of periphery bond yields gave euro bears extra ammunition to give euro another bashing, price penetrated said support easily and intra-day decline accelerated after the People’s Bank of China raised interest rate by 25 basis points in European midday, the single currency later tanked to a one-week low of 1.4286 in New York morning before staging a minor recovery. Cross selling in euro also pressured the single currency as eur/jpy, eur/gbp and eur/chf tumbled from 117.05 to 115.56, 0.9018 to 0.8943 and 1.2172 to 1.1966 respectively.  
The Portuguese 10-year government bond yields jumped to a record 12.55 percent after Moody’s cut the country’s credit rating to junk on Tuesday, while Irish, Italian, Spanish and Greek yields also surged on bets that more ratings cuts may follow.  
China raised benchmark interest rates for the third time this year after inflation accelerated to the fastest pace since July 2008. Benchmark one-year lending rates will be hiked by 25 basis points to 6.56% and benchmark one-year deposit rates will be raised by 25 basis points to 3.5%, effective on this Thursday.  
The British pound tracked euro’s intra-day movement closely. Despite staging a modest recovery to 1.6090 at European open, cable also tumbled in European morning on active cross-selling in sterling versus the Japanese yen as the cross pair tumbled from 130.29 to 128.99. The pound eventually dropped briefly to a session low of 1.5947 in New York morning after triggering stops below recent good support at 1.5970.  
Elsewhere in the market, spot gold price jumped from $1510.70/oz to as high as $1533.40/oz as concerns over the European sovereign debt problems and the Chinese central bank’s rate move increased a flight to safety.  
Data to be released on Thursday include:  
Japan Machine orders, Australia Unemployment rate n unemployment change, Swiss CPI, UK Industrial production, manufacturing production and BOE rate decision, German Industrial production, ECB rate decision, US ADP employment and Jobless claims, and Canada New housing price index and Ivey PMI.