EU Morning Report

Euro rises on ECB officials' hawkish comments

 Euro rallied against the dollar on Wednesday after European Central Bank officials expressed their concerns about inflation and hinted that policy must adjust in order to tackle the problem. Policymakers' hawkish stance suggests that interest rates are likely to rise soon, raising the demand for the single currency. Demand from Asian central banks and hedge funds, as well as short covering helped the euro jump and break above the 1.37 level. Today, the euro bounced recovering yesterday's losses edging as high as 1.3728 from 1.3523 dollars.

 The US dollar weakened on Wednesday after a fall in US Treasury yields. Against the Japanese Yen, the greenback extended its losses sliding as low as 82.52 from 82.88. The dollar edged slightly lower against the Swiss franc falling to 0.9353 and the pair was last trading around 0.9370. On Tuesday, Consumer Confidence and Manufacturing Index data revealed higher than expected figures but the S&P/Case Shiller Home Prices surprised the markets after it showed a higher than expected decline.

Sterling rose ahead of the Bank of England MPC minutes released at 9:30 GMT. Investors expect to see if the rumor that a third member Andrew Sentence also voted for a rate hike is true. Speculators expect the minutes to reveal a hawkish picture and lift expectations for an early rate hike. Sterling jumped to 1.6227 versus the dollar from 1.61 traded on Tuesday.

The Australian dollar edged higher today recovering losses and climbing above parity again as risk appetite in the market heals. The Aussie plummeted on Tuesday weighed by rising tensions in Libya and a deadly earthquake in New Zealand falling as low as 0.9966 against the dollar. Today, the Aussie bounced back breaking above parity and trading as high as 1.0059 dollars. The Kiwi appears firmer today rising to 0.7511 versus the dollar after a massive earthquake knocked it as low as 0.7431 on Tuesday.

Gold was little changed today trading around 1,400 dollars an ounce. Oil ticked higher today rising as high as 95.96 dollars a barrel as tensions in oil producing Libya resume.

Currency to watch out for: EURUSD & USDJPY

  • § The EURUSD pivot point is at 1.3625 with a preference to enter into Long positions at 1.3635
  • § The USDJPY pivot point is at 83.00 with a preference to enter Short positions at 82.95            

Today's calendar and market movers:

  • § Europe Industrial New Orders in December is forecasted to fall 1%
  • § US Existing Home Sales in January is forecasted to fall 1.1%

Equity Markets:

US equities were negative on Tuesday with the S&P500 trading down -2.05% and the DJIA trading down -1.44%. The European bourses are also negative with the FTSE trading down -0.30%, the DAX down -0.05% and the CAC down -1.15%. The NIKKEI and the HSI at the time of writing are trading down -0.80% and down -0.43% respectively. 

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