Market Review – 12/07/2011 21:32 GMT
Euro rebounds on short covering after the European officials’ supportive comments
Despite initial selloff below 1.4000 to a 4-month low at 1.3838 in Europe on fears that eurozone leaders were not able to limit risks of European debt crisis, the single currency rebounded on short-covering after positive comments from the European officials. However, euro retreated from 1.4054 in NY afternoon after Moody’s downgraded Ireland’s rating to junk status. Euro also tumbled to a fresh lifetime low at 1.1555 against the Swiss franc.
Germany’s FINMIN Wolfgang Schaeuble said it was inevitable that the private sector would participate in reducing Greece’s debt burden. Luxembourg’s FINMIN Frieden said that there will be no country defaulting in the eurozone.
Earlier, euro edged lower from Australian high at 1.4063 after comments by the newly-elected IMF Chief Christine Lagarde who said in Washington that IMF is not yet ready to discuss conditions or terms of a 2nd Greek bailout and price dropped below 1.4000 lvl to 1.3933 in Asian morning. Later, although the pair tanked to 1.3838 in European morning, the single currency rebounded on short-covering and rose further after the comments from European officials. The pair climbed to 1.4054 in NY afternoon after the release of U.S. June FOMC minutes before retreating as Moody’s downgraded Ireland’s rating by one notch to Ba1 fm Baa3 and said Ireland’s credit outlook remained negative.
The FOMC minutes stated that ‘Fed officials divided on further stimulus if economy stays weak; FOMC agreed on sequence of steps for exiting monetary stimulus; Fed concerned about Greece and spreading European debt woes could cause significant strains in US; Fed expected inflation to subside to levels at or below those consistent with dual mandate.’
Earlier in Europe, a Bank of Italy source denied market rumours of problems with Tue’s bond auctions.
Although the greenback recovered briefly to 80.38 just ahead of Tokyo open, renewed selling sent the pair lower and price pierced through support at 79.57 to 79.18 in European morning due to active cross buying in yen vs euro (eur/jpy tanked from 112.95 to 109.58). Later, usd/jpy fell again from 79.86 due to dollar’s broad-based weakness and dropped to 79.23 ahead of NY closing.
Cable ratcheted lower in tandem with euro in Asian session and then tanked to a near 6-month low of 1.5781 in European morning after the release of U.K. CPI and trade balance as U.K. CPI came in at -0.1% m/m and 4.2% y/y versus the economists’ forecast of 0.2% and 4.5% respectively whilst U.K. May trade balance was -8.478 bln pounds, the biggest deficit since Dec. 2010, against consensus forecast of -7.37 bln pounds. However, cable rebounded strongly on dollar’s broad-based weakness and climbed to as high as 1.5949 in NY afternoon.
Data to be released on Wednesday include:
Australia W’pac consumer confi., China GDP, Industrial Production, Retail Sales, Japan Industrial prod’n, Capacity utilisation, Germany WPI, Swiss Combined PPI , U.K. Claimant count, ILO unemployment rate, Avg. earnings 3m, EU Industrial prod’n, U.S. Export price index, Import price index, Fed budget.