Daily FX Market Outlook by AceTrader-12-9-2011

Market Review – 10/09/2011 01:20 GMT

Euro tumbles on heightened concerns over Greek default and ECB Stark’s resignation

The single currency continued its descent this week and tumbled sharply to a 10 year-low against the yen and to a 6-month low against the greenback on speculation over the possibility of a Greece default and the resignation of European Central Bank executive board member and also its chief economist Jurgen Stark.

Bloomberg reported that the German government may set up a fund to recapitalize its banks if Greece cannot meet its debt commitments. This news reignited worries over the potential of a Greek default and rattled German and European equities.  
Although the single currency recovered briefly to an intra-day high at 1.3936 in Asia, renewed selling pressured the pair to 1.3789 in European morning on worries about Greek default. Later, the single currency extended its decline in NY morning after the news of Stark’s resignation, spurring rumours of conflicts over the central bank’s bond buying programme as Stark was opposed to ECB bond purchase of struggling euro-zone countries. The pair eventually reached a 6-month low of 1.3627 in NY afternoon before staging a recovery after supportive comments from Greek Finance Minister Evangelos Venizelos who said ‘rumour of imminent Greek default is speculation game in bad taste against euro.’  
Active cross selling of euro vs other currencies pressured the single currency as eur/jpy, eur/gbp and eur/chf tumbled from 107.90 to a 10 year-low of 105.30, 0.8720 to to a 5-month low of 0.8598 and 1.2187 to 1.2056 respectively.  
Versus the yen, the dollar traded narrowly in Asia and then rose above Tuesday’s high of 77.73 to a 1-month high of 77.86 on risk aversion together with dollar’s broad-based strength. However, active cross buying of the yen against other currencies sent the pair to an intra-day low of 77.10 in NY morning before staging a strong rebound on short-covering.  
Although cable briefly rose to 1.5991 in Asian morning, the British pound fell sharply in tandem with euro to 1.5895 in European session. Despite sterling’s recovery to 1.5974, renewed selling sent the pair to session low at 1.5845 in NY afternoon before stabilising.  
Mounting debt worries in the eurozone sent European and U.S. stocks tumbling on Friday, DJI closed the day at 10992.13, down by 303.68 points or 2.69% whilst European bourses ended the day with steep losses with FTSE-100, CAC-40 and DAX closed down 2.35%, 3.60% and 4.04% respectively.  
G7 finance ministers start their 2-day meeting in Marseille, France today, the main agenda at Friday’s meeting is to discuss what action to take to prop up the slowing global economy as well as to calm the biggest confidence crisis in financial markets since the global credit crunch.   
Data to be released next week :  
Japan Domestic CGPI, tertiary industry index, Australia Trade balance on Monday.  
U.K. House prices, CPI, RPI, Trade Balance, Australia NAB business, U.S. Import n Export, Fed Budget on Tuesday.  
Australia W’pac consumer confi., Japan Capacity utilisation, Ind prodn, Swiss PPI, U.K. Claimant count, ILO unemployment, Avg. earnings, EU Ind prodn, U.S. PPI, Retail sales, Business Inventories on Wednesday.  
New Zealand RBNZ rate decision, Japan Tankan Manufacturing, Swiss SNB rate decision, U.K. Retail sales, EU Employment, HICP final, U.S. CPI, Real earnings, Current account, Jobless claims, Capacity utilisation, Philadelphia Fed survey on Thursday.  
EU Current account, Trade balance, Labour cost, U.S. Net LT TIC flows, U. Michigan survey Prel., NAHB housing mrkt index on Friday.