ForexNewsNow Daily Market Outlook for February 9th, 2011

NEW YORK (Forex News Now) – Daily Market Overview – With the exception of the Euro, the U.S. Dollar gained overall against most major currencies on Tuesday, as reported in the daily forex news.

Most of the gains in the Greenback, especially versus the commodity dollars, were attributed to an interest rate hike by the People’s Bank of China that could dampen prospects for Chinese growth. Another key factor in the Dollar’s overall rise was the higher yields coming in the wake of weak demand at a $32B auction of three year U.S. treasury notes, with the benchmark 10 year yield closing at 3.725% versus 3.64% previously.

Nevertheless, intraday analysis showed the Euro firmed after hawkish comments by ECB Governing Council member Yves Mersch who stated, that the central bank was, “obliged to intervene vigorously if these price hikes trickle through the economic system in the form of secondary effects, which would be a danger to the anchoring of inflationary expectations.” He then added that, “We are capable of raising interest rates without exiting other non-conventional measures.”

Mersch also suggested that the Eurozone rescue fund should be allowed to buy sovereign debt directly and to permit the fund to lend money to troubled states to buy back their own bonds. The measures, he noted were, “not at all incompatible with the rigorous pursuit of fiscal consolidation efforts and structural reforms of all countries in the euro area.”

February 8^th Important Economic Developments:

1. Chinese Rate Hike Boosts Greenback Versus Comdollars – Adding support to the Greenback in currency market trading against the commodity currencies was a rate hike by The Peoples Bank of China. The PBOC raised its one year deposit rate by 25 bps to 3% from 2.75%, and its one year lending rate by the same amount to 6.06%. The changes will go into effect today. The PBOC has hiked rates twice this month alone to deal with inflation which is at a two year high running at 5.1%.
2. Better U.K. Data Improves Sterling Initially – Important U.K. economic data out Tuesday included the BRC Retail Sales Monitor that showed a 2.3% yearly gain that improved considerably upon the previous -0.3% drop. Also, the RICS House Price Balance narrowed substantially to -31% compared with its previous -39% result. This was a substantial improvement over the -38% forecast the market was expecting, and helped send Cable higher in early trading.
3. German Industrial Production Falls but Mersch Hawkish – Industrial production in Germany dropped again last month by -1.5% versus the 0.2% rise expected and the previous month’s -0.6% result that was revised slightly upward from -0.7%. Intraday EUR/USD analysis shows that the Euro fell significantly to a low of 1.3592 shortly after the release of this negative data, although the rate subsequently recovered its losses later in the day after the aforementioned hawkish comments from the ECB Governing Council member Mersch.
4. Canadian Housing Starts Disappoint – Canada saw a lower than expected improvement in its closely watched Housing Starts indicator, as it rose slightly to 170K from 169K. The market had been looking for a higher gain to 171K, so the disappointing outcome weakened the Loonie significantly after its release.
5. Australian Sentiment Improves but Chinese Hike Hurts AUD/USD – The Australian Dollar was boosted initially versus the Greenback by an improvement in the closely watched NAB Business Confidence index to 4 from its previous result of -3. Also favorable for the Aussie was news that the Westpac Consumer Sentiment index had gained by 1.9% versus its previous drop of -5.7%. Nevertheless, the Chinese rate hikes saw AUD/USD come off later in the day in anticipation of slowed economic growth in China — a major Australian trading partner.

February 9^th Forex Events for Traders to Watch

1. Fed Chair Bernanke Testifies – Chairman Ben Bernanke is scheduled to testify in Washington D.C. before the House of Representatives’ Budget Committee regarding monetary and fiscal policy and the U.S. economic outlook. This testimony generally starts with Bernanke reading a prepared statement, the text of which will appear on the Fed’s website. Following that, the committee questions Bernanke and the unscripted responses can result in considerable exchange rate volatility. Hawkish comments that indicate higher rates tend to appreciate the U.S. Dollar.
2. Australian Employment Report – This key report for the Aussie consists of the Employment Change that is expected to rise to 20.3K versus the previous month’s 2.3K result, and the Unemployment Rate that is expected to stay steady at 5%. This indicator often influences the AUD/USD rate considerably, with a higher Employment Change being good for the exchange rate, while a higher Unemployment Rate would tend to hurt AUD/USD. The resulting volatility could make purchasing a forex binary option straddle or strangle in AUD/USD ahead of the number a useful strategy to potentially profit from a significant move in either direction with limited downside risk. For more information on how to use forex binary options to capitalize on expectations and predictions surrounding economic events, click here.
3. U.K. Trade Balance – This important economic number can affect the GBP/USD exchange rate considerably, although it usually has a more muted effect. The market is currently expecting the U.K. Trade Deficit to narrow slightly to -£8.6B compared to the previous month’s result of -£8.7B. A narrower deficit than expected would generally be good for Sterling.
4. Japanese Core Machinery Orders – This is an important leading indicator for the Japanese Yen, representing the change in the value of private sector purchase orders for the manufacturers of machines, leaving out utilities and ships. The number is expected to rise by 5.2% on the month versus the previous month’s fall of -3.0%. A result above the consensus forecast would tend to be good for the Yen.
5. U.S. Crude Oil Inventories – Although a U.S. number, this data can affect the price of oil and hence the Canadian Dollar considerably due to the importance of oil exports for the Canadian economy. The market is currently expecting a drop in U.S. oil inventories to 2.2M barrels from its previous 2.6M barrel level.