Daily FX Market Outlook by AceTrader-28-7-2011

Market Review – 27/07/2011 22:01 GMT

Dollar rebounds on short-covering despite continued debt limit impasse

The greenback recovered against most of its counterparts on Wednesday but remained under pressure versus the Japanese yen as politicians were no closer to reaching a compromise to raise the debt ceiling. The single currency tumbled due to the comments from German Finance Minister Wolfgang Schaeuble.  

The single currency extended its recent upmove to 1.4537 in Asian morning. However, euro retreated sharply from 1.4530 after comments from German Finance Minister Wolfgang Schaeuble who said he rejects carte blanche secondary bond market purchases by EFSF/ESM and that it would be wrong to think the eurozone crisis could be permanently solved by one-off summit. Euro eventually tanked to 1.4340 in NY midday before recovering.  
In other news, S&P cut Greece’s rating to CC from CCC with a negative outlook and viewed EU’s Greek debt restructuring proposal as a ‘distressed exchange’ which would amount to a selective default.  
ECB President Jean-Claude Trichet said speculating on Greek default ‘would be a sure-fire way of losing money given the decisions taken last Thursday.’   
Versus the Japanese yen, although the greenback fell below Tuesday’s low of 77.83 due to heavy selling from Japanese exporters and dropped to a fresh four-month low of 77.57 in European morning, the pair rebounded strongly on short-covering due to dollar’s broad-based recovery and climbed to 78.17 in NY midday before retreating.  
Earlier, usd/jpy was pressured after the release of U.S. durable orders as U.S. June durable goods orders reported at -2.1% vs forecast of 0.3%. June ex-transportation and ex-defense came in at 0.1% n -1.8% vs forecast of 0.5% n 0.3%  
Despite cable’s rise to a six-week high of 1.6440 in Asian morning, the British pound retreated in tandem with euro and tanked to 1.6355 after the release of UK CBI manufacturing order book balance which was -10 in July, the lowest since April, vs forecast of -2 and +1 in June. Sterling then dropped again from 1.6395 to 1.6313 in NY afternoon on dollar’s strength.  
The Australian dollar surged above its previous high of 1.1012 (May) after the release of higher-than-expected Q2 CPI data (0.9% Q/Q and 3.6% Y/Y versus street forecast of 0.7% and 3.4% respectively). Aud/usd eventually rallied to a fresh lifetime high of 1.1081 in European morning before retreating in NY session on dlr’s broad-based rebound.  
The U.S. and European stock markets tumbled on Wednesday as the DJI tanked by 198.75 points or -1.59% to 123.2.55. FTSE-100, CAC-40 and DAX fell sharply by 1.23%, 1.42% and 1.32% respectively.  
On the data front, German July prelim CPI rose by 0.4% m/m and 2.4% y/y versus forecast of 0.3% m/m and 2.3% y/y whilst German July prelim HICP increased 0.5% m/m and 2.6% y/y versus forecast of 0.3% m/m and 2.4% y/y. RBNZ kept its official interest rate unchanged at 2.5% but said ‘little need to keep current rate much longer’.  
Data to be released on Thursday include:  
Japan Retail sales, China Leading Index , Germany Retail sales, Unemployment change, Unemployment rate, EU Business climate, Economic sentiment, Industrial sentiment, Consumer sentiment , U.K. CBI distribution trade, U.S. Jobless claims, Pending home sales.