Wednesday, January 26, 2011

Currency Roundup | FX Market | Fundamental Analysis | 26 January 2011

Currency Roundup | FX Market | Fundamental Analysis | 26 January 2011

USD : The dollar traded mixed, losing ground in the European session after inflationary data ignited ECB rate hike speculation; and then later after the published fall of -12.9% in MBA Mortgage Applications which compared with a 5.0% increase last month. There also seemed to be a sell-off effect ahead of today's FOMC meeting. However, the dollar rallied at the start of the US session after a surge in New Home Sales of 17.5% MoM in December improved the outlook for the flagging housing market. At midday GMT the dollar traded at 1.3693 against the euro and fell to 1.5959 to the pound.

EUR : The euro rallied higher and the gains were attributed to an above forecasted increase in the German Import Price Index of 2.3% in December compared to only 1.2% last month and 12.0% YoY - an increase of 2% on the previous month. This fuelled inflationary speculation and boosted expectations of an ECB rate hike. At midday GMT the euro traded at 1.3693 to the dollar and fell to 0.8633 against the pound.

GBP : The pound corrected higher, paring more of yesterday’s losses as the BOE minutes showed a shift in the voting. The voting at the January meeting shifted from 7-1-1 to 6 -2-1 with the majority still voting to keep interest rates and the asset purchase at the same levels and another board member, Martin Weale, joining Andrew Sentence in the 'rate-hike' camp and Posen still the lone advocate for further QE stimulus. The pound rallied on the news which showed an increased probability that the BOE will hike up rates . Taking the shine off the minutes rally however was the poorer performance of the Loans for House Purchases data which dropped below expectations in December, from 29,696 to 28,726. At midday GMT the pound rose to 1.5959 against the dollar and 130.34 against the yen.

JPY : The yen traded mixed as markets meandered in no clear direction. The BOJ published its monthly report which characterised the economy as still mildly recovering but not yet fully recovering. It also saw exports as being the main driver of the recovery and this implied the need to prevent the yen from substantially increasing in value. The possibility of more intervention implied by the report may have acted as a dampener on the yen as market participants anticipated a weaker yen going forward. Traders may also be awaiting the result of the FOMC which got underway today and will last till tomorrow. At midday GMT the yen traded at 82.19 to the dollar and 112.54 against the euro.

by Joaquin Monfort, Analytical expert , Forex4You © 2011

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