Daily Market Outlook by AceTrader-23-8-2010

Market Review – 20/08/2010 21:45 GMTEuro tumbles to a 5-week low on ECB Weber’s dovish comments

The single currency sank to a 5-week low against dollar on Friday after ECB Governing Council member Axel Weber, who is considered to be a hawk in ECB, suggested monetary policy should remain loose until next year, adding concerns about the strength of the global economy despite massive stimulus measures.    
Although the single currency traded narrowly in Asia after Thursday’s large swings and edged briefly higher to 1.2833 in European morning, euro tumbled from there after ECB Weber’s comments, he said it would make sense for the central bank to extend unlimited liquidity to banks past the end of the year and to resume exit discussions in early 2011, raising expectations that the central bank will keep eurozone monetary conditions loose for some time. Intra-day decline accelerated in European trading after hitting stops below 1.2770 and then this week’s low of 1.2734, euro subsequently tanked to a 5-week low of 1.2664 in NY before staging a recovery.  
The greenback edged higher against the Japanese yen in Asia and rose from 85.19 to 85.54 on fears of joint intervention, as Japanese Finance Minister Noda said that he was in communication with other G7 countries on currencies. He also said that he was watching currency market with utmost interest but declined to comment on intervention. He added that he had to look at economy to decide whether new bond issuance needed for any stimulus measures and Japanese economic recovery was continuing but pace had slowed. Later, although the greenback retreated from there to 85.24 and traded sideways in European morning, price later rebounded on dollar’s broad-based strength and climbed to 85.82 in NY before stabilising.  
Earlier in Asian morning, several Japanese government official had made several comments, Japanese government spokesman Sengoku said ‘does not know when the Prime Minister and BOJ Governor will meet; need to closely watch markets and real economy but should not fret too much. Satoshi Arai, Economy and Fiscal Policy Minister, said that yen’s rise posed downside risk to economy and seemed a little too rapid. He also said he could not rule out possibility of Japanese economy entering a lull and he would cooperate with BOJ in supporting economy. In addition, Koichiro Gemba, DPJ policy chief, said that he wanted the BOJ to act proactively and there were various measures the BOJ should take.  
The British pound ratcheted lower from 1.5594 in Asia after Thursday’s brief rise from 1.5510 to 1.5672 and then fell sharply to 1.5464 in tandem with euro on dollar’s strength against major currencies except yen. However, short-covering together with active cross buying in sterling lifted price to 1.5544 in late NY trading session, as eur/gbp fell sharply from 0.8247 to 0.8174.  
In other markets, DJI once dropped by more than 100 points and eventually closed the day down by 57.59 points, or 0.56% at 10214. FTSE-100, CAC-40 and DAX fell by 0.31%, 1.30% and 1.15% respectively.  
Economic data to be released next week include:  
Germany Services PMI, Manufacturing PMI, EU Manufacturing PMI, Services PMI, Consumer Confidence, U.S. Chicago Fed Activity on Monday, Germany GDP, Imports, Exports, EU Industrial orders, Canada Retail sales, ex. Autos, U.S. Existing home sales on Tuesday, Japan CSPI , Trade balance (jpy), Export, Import, Germany Ifo index, U.S. Durable goods, ex. Defense, ex. Transport, New home sales, House price index, Building Perm. Revise on Wednesday, Germany Gfk index, Import Price, U.S. Jobless claims, Midwest manufacturing on Thursday, Japan Household spending, National CPI, Tokyo CPI , National CPI (core) , Unemployment rate , Germany HICP prelim, CPI prelim, U.K. GDP, Swiss KOF indicator, U.S. GDP annualised, Personal consumption , GDP deflator, PCE core, U. Michigan survey Final on Friday.