ForexNewsNow Daily Market Outlook for February 16th, 2011

NEW YORK (Forex News Now) – Daily Market Overview – The U.S. Dollar continued trading mostly higher against other major currencies Tuesday, according to the daily forex news. With the exception of Sterling that shot up after the release of U.K. CPI, the Greenback rose against the commodity dollars, while ending Tuesday’s session largely unchanged against the Euro.

Sterling was Tuesday’s stellar performer against the U.S. Dollar as the GBPUSD news was deemed generally favorable for the rate. Intraday analysis showed that Cable rose from the 1.6005 level before the release of U.K. CPI to a high of 1.6149 seen after the number. While U.K. CPI came out as expected, the number was double the BOE’s target inflation level, leading to a relatively hawkish Inflation Letter from the BOE’s Governor to the U.K. Chancellor of the Exchequer.

In his letter, Governor King downplayed the excessive CPI inflation as temporarily resulting from the recent VAT rise and fall in Sterling, as well as gains in commodity prices. The letter also reiterated the MPC’s intention to take steps to ensure price stability in the medium term, including adjusting monetary policy when the inflation risk warrants such action.

EURUSD analysis showed the Euro finished Tuesday’s session with little change, despite worse than expected economic data. Nevertheless, the rate rose initially after EU finance ministers came to an agreement at the ECOFIN meetings in Brussels on the amount that will be allocated to the European Stability Mechanism. The program, to go into effect by 2013 will increase the effective lending capacity from €250B to €500B of the funds available in the European Financial Stability Facility or EFSF.

February 15^th Important Economic Developments:

1. Australian Monetary Policy Meeting Minutes Released – The RBA’s minutes from its February meeting primarily reiterated former comments by Governor Glenn Stevens. The gist of the minutes was that Australian monetary policymakers felt comfortable deciding to keep rates steady at 4.75%, with no rate changes foreseen in the near future despite the economic impact of flooding in Queensland. This news sent AUDUSD lower overall during the session.
2. BOJ Leaves Rates Steady – The BOJ released its decision to maintain its benchmark Overnight Call Rate at the expected <0.10% level. The Japanese central bank also released an associated Monetary Policy Statement to explain how its latest rate decision was made.  The Yen weakened to a session low of 83.90 after this news came out.
3. U.K. CPI Rises and Prompts Another Inflation Letter – This important measure of inflation in the U.K. has been of particular concern lately. The Consumer Price Index for January increased by +4.0% year on year versus last month’s +3.7% result. While in line with the market’s forecast, this result was double the BOE’s 2.0% target and sent Cable higher on the session. Furthermore, since the CPI was over 3%, BOE Governor King needed to write an open letter to the U.K. Chancellor of the Exchequer George Osborne explaining the excessive inflation.
4. U.S. Retail Sales Rise Less Than Expected – An important indicator of U.S. consumer spending, Retail Sales data measures the change in the total value of sales at the retail level, with the core data excluding the large but volatile automobile sector. Core Retail Sales was expected to rise by +0.6% but only rose by +0.3% compared with the previous +0.5% increase, while the consensus for Retail Sales was +0.5% but the result was only +0.3% versus the former +0.6% outcome. These lower than expected numbers sent the U.S. Dollar to test its session lows versus the Euro, Sterling, Swissie and Loonie.
5. German GDP and ZEW Survey Results Disappoint – These important economic indicators were expected to come out at +0.5% and 20.1 respectively, but instead disappointed the market by printing at +0.4% and 15.7 compared with the previous results of +0.7% and 15.4.

February 16^th Forex Events for Traders to Watch

1. U.K. Employment Report – Britain will release its monthly employment report, with the key Claimant Count Change expected to fall by -3.2K versus the previous -4.1K and the Average Earnings Index expected to rise by 2.0% 3m/y compared with its former 2.1% gain. This important economic number tends to affect the GBPUSD rate considerably upon its release, with a lower Claimant number usually favorably affecting Sterling. A limited risk strategy to profit from the anticipate rate swings could involve purchasing a binary forex option straddle or strangle on the GBPUSD exchange rate ahead of the numbers.
2. BOE Inflation Report and Press Conference – The U.K. central bank will release a key report containing its forecasts for inflation and economic growth for the upcoming two years. BOE Governor King will also hold an associated press conference to comment upon the report’s contents.
3. U.S. FOMC Meeting Minutes – The U.S. Fed’s policymaking committee will release the minutes from its last interest rate decision meeting. This detailed record provides traders with insight into the economic and financial conditions that influenced the FOMC’s last vote on the level of U.S. interest rates. More hawkish comments in the closely watched minutes will tend to boost the value of the U.S. Dollar against other currencies.
4. U.S. Building Permits and PPI Numbers – These are important indicators of housing market health and inflation for the U.S. economy. Building Permits are currently expected to show a 0.57M result, down from the previous 0.63M outcome, and the consensus for PPI is a rise of +0.9% m/m versus the former +1.1% result. Higher numbers will usually favorably affect the U.S. Dollar.
5. New Zealand PPI Input – This important economic indicator is released quarterly and is presently expected to come out at +0.4% q/q, compared with the previous result of +0.7%. A level greater than the forecast will tend to boost the Kiwi’s value relative to other currencies.