Daily FX Market Outlook by AceTrader-19-7-2011

Market Review – 18/07/2011 21:59 GMT

Euro drops on continued concerns over debt crisis before recovering

Despite the release of better-expected eurozone bank stress-test results last Friday, the single currency fell on Monday as investors continued to worry over eurozone debt crisis and risks for contagion to other EU countries. The greenback also hit a fresh lifetime low of 0.8034 vs the Swiss franc in New Zealand session on renewed risk aversion.

The single currency fell sharply from 1.4168 (NZ) to 1.4052 in Asian morning on renewed cross selling of euro vs yen (eur/jpy tumbled from 112.05 to a session low of 110.66) and then tanked to 1.4015 in European morning on risk aversion. Later, despite euro’s recovery to 1.4095 after the release of U.S. May net overall capital outflow and net long-term inflow ($67.5bln vs revised $66.6 bln inflow in April and $23.6bln compared to $30.6bln inflow in April), renewed selling interest sent euro to 1.4019 in NY morning but cross buying of euro vs other currencies lifted the pair above 1.4095 to 1.4121 in NY afternoon.  
In other news, Italian 10-year bond yields rose as much as 27 basis points 6.041% on Monday whilst Spanish 10-year bond yields hit new euro lifetime high of 6.38%.  
The British pound weakened from 1.6148 (NZ) and tanked to 1.6065 in Asian morning in tandem with euro before rebounding. However, renewed selling at 1.6129 sent the pair lower and cable tumbled to 1.6005 in NY morning due to active cross selling in sterling (eur/gbp rallied from 0.8706 to 0.8798 whilst gbp/jpy fell sharply from 127.66 to 126.67) before staging a strong recovery.  
The greenback opened lower and tumbled against the Swiss franc to a fresh record low of 0.8034 in New Zealand morning on renewed risk aversion due to eurozone debt contagion fears together with the wrangling over US debt ceiling. However, the pair rebounded on short covering and climbed to 0.8194 in NY afternoon. Eur/chf also nose-dived to a new lifetime low at 1.1365 in NZ.  
Spot gold rose sharply today and pierced through $1600 level to a fresh record high of $1605.90/oz whilst spot silver also rallied from $39.61/oz to $40.69/oz.  
The DJI once tumbled by more than 1% amid concerns that U.S. lawmakers may fail to reach a deal on debt ceiling before August 2 but then pared some of its loss. The DJI closed down by 94.57 points or 0.76% to 12385.16. The European stocks also fell sharply due to eurozone debt concerns as FTSE-100, CAC-40, DAX slumped by 1.55%, 2.04% and 1.55% respectively.  
Data to be released on Tuesday include:  
Germany ZEW Economic Sentiment, ZEW Current Situation, EU ZEW Economic Sentiment, U.S. Housing starts, Building permits, Canada Leading indicators, BOC rate decision.