Daily FX Market Outlook by AceTrader-18-7-2011

Market Review – 15/07/2011 21:34 GMT

Euro little changed against dollar despite better-than-expected stress-test results

The single currency hovered around 1.4157 against dollar near New York close after a choppy session on Friday. Although the European Banking Authority (EBA) released its stress-test results and showed that only 8 banks out of 90 had insufficient reserves in the event of an economic slowdown.

The EBA released its stress-test results and stated that ‘5 Spanish banks, 2 Greek banks, 1 Austrian bank failed the test; 16 of 90 banks had core capital of 5-6% and will have to take action to improve capital buffers.’  
Earlier, despite euro’s brief rise to 1.4199 in Australia after rating agency S&P, following Moody’s credit warning on Thursday, placed U.S. ‘AAA/A-1+’ ratings on credit watch negative, the pair dropped to 1.4095 in European morning on risk aversion due to renewed concerns over eurozone debt problems before recovering. The single currency later weakened marginally to 1.4192 after the release of weaker-than-expected University of Michigan consumer sentiment (63.8 in July vs forecast of 72.5), however, price rebounded to 1.4189 in NY midday after the eurozone bank stress-test results were released and then traded sideways in NY afternoon session.  
Verus the Japanese yen, although the greenback fell briefly to 78.89 on dollar’s broad-based weakness in Australia when S&P issued a credit warning on U.S. debt rating, buying interest quickly lifted the buck ahead of Tokyo open, the pair edged higher to 79.27 in European morning before retreating. Later, despite dollar’s rebound to 79.25 after the release of weaker-than-expected University of Michigan consumer sentiment, price traded narrowly for rest of New York session as market focus was on the euro and other major currencies.  
The British pound rose to 1.6177 in Australian morning initially in tandem with euro, however, cable then came under selling pressure at European open and briefly penetrated Thursday’s low at 1.6096 to 1.6086, price later weakened marginally to 1.6077 in NY morning but rebounded on short-covering to 1.6165 after the release of stress-test results and traded around 1.6142 near New York close.  
In early news, S&P said “at least a 1 in 2 chance it could cut rating; political debate on debt ceiling a significant uncertainty; sees increasing risk of policy stalemate; believes risk of payment default small but increasing.”   
On the data front, U.S. Jun CPI came in at -0.2% m/m and 0.3% y/y versus the economists’ forecast of -0.1% m/m and 0.3% y/y. U.S. New York Fed’s empire state manufacturing activity index rose from previous reading of -7.79 in June to -3.76 in July, much weaker than the consensus forecast of 4.5.  
Economic data to be released next week include:  
New Zealand CPI, U.K. Rightmove house prices, U.S. Foreign treasury buys, Net LT TIC flows, NAHB housing mrkt index on Monday (Japan Market Holiday);  
Germany ZEW Economic Sentiment, ZEW Current Situation, EU ZEW Economic Sentiment, U.S. Housing starts, Building permits, Canada Leading indicators, BOC rate decision on Tuesday;  
Australia Westpac leading economic index, Japan Leading indicators, Germany PPI, Canada Wholesale sales, EU Consumer Sentiment, U.S. Existing home sales on Wednesday;  
Japan Trade balance (jpy), Import, Export, All industry index, Swiss Trade balance (chf), Germany Manufacturing PMI, Services PMI, EU Manufacturing PMI, Services PMI, Current account (euro), U.K. N’wide Consumer Confi., PSNCR, PS net borrowing, Retail sales, Swiss ZEW investor sentiment, U.S. Jobless claims, Leading indicators, Monthly home price, Philadelphia Fed survey on Thursday;  
Australia Import price index, Export price index, Germany Ifo business climate, Ifo current assessment, EU Industrial orders, Canada CPI, CPI core, Retail sales on Friday.