Daily FX Market Outlook by AceTrader-29-7-2011

Market Review – 28/07/2011 22:00 GMT

Euro weakens on lingering debt crisis concerns

The single currency fell on Thursday as weak economic data from the euro zone and a jump in Italian bond yields at auction heightened worries that the euro zone sovereign debt crisis would spread to other countries. 

The single currency briefly breached Wednesday’s low at 1.4340 to 1.4330 in Asia after China’s SAFE said China did not pursue large holdings of FX reserves, implying it may not diversify its holdings of usd into euro. Later, despite a brief recovery to 1.4401 in European morning, renewed selling there sent the pair sharply lower after Italy sold 8 billion euros of 3-year and 10-year bonds with yields of 4.80%, the highest since July 2008, and 5.77%, the highest since February 2000, respectively. Euro later tumbled to an intra-day low of 1.4253 at NY open before staging a recovery to 1.4335 near NY closing. Active cross selling of euro also pressured the single currency as eur/jpy, eur/gbp and eur/chf tanked from 112.09 to 110.84, from 0.8804 to 0.8737 and from 1.1536 to 1.1422 respectively.  
Earlier in European session, the single currency was pressured after the release of worse-than-expected EU July economic sentiment which came in at 103.2, the lowest reading since August 2010, versus street forecast of 104.0 and 105.4 in June. The industrial sentiment and the business climate also fell to 1.1 and 0.45 in July respectively, compared with the previous reading of 3.5 and 0.95.  
Versus the Japanese yen, despite dollar’s brief rise to 78.03 in Asian morning, renewed selling emerged and price ratcheted lower to 77.63 in European morning on active cross buying of yen versus other currencies. However, buying interest above Wednesday’s 4-month low at 77.57 limited downside and the pair managed to recover to 77.90 in NY morning before retreating again to 77.64 at NY closing.  
In NY morning, the greenback was supported as U.S. weekly jobless claims were released at 398,000, less than the forecast of 415,000 and the previous figures which were revised up from 418,000 to 422,000.  
Although the British pound traded sideways in Asia and rose to 1.6365 in European morning, cable fell in tandem with euro and hit a session low of 1.6295 after the release of worse-than-expected U.K. CBI retail sales balance which came in at -5 in July, the lowest since June 2010 versus -2 in June. However, sterling edged higher in tandem with euro and climbed above said 1.6365 resistance to 1.6383 near NY closing.  
Data to be released on Friday include:  
New Zealand Building Permits, Japan PMI manufacturing, Unemployment rate, Household spending, National CPI, National CPI (core), Tokyo CPI, Industrial prod’n, Construction orders, Housing starts, China Leading Index, Germany Retail sales, U.K. Gfk Consumer Confidence, Nationwide hse prices, Mortgage Approval, EU HICP flash, Canada GDP, PPI, U.S. GDP annualised, GDP deflator, PCE core, Chicago PMI, U. Michigan survey Final.