Euro rises on higher than expected inflation data

  • The euro continues its upward direction today after Consumer Price Index data revealed a higher than expected figure reinforcing speculation of a rate hike. After the data, the single currency rose as high as 1.3738 versus the dollar from 1.3571. Expectations of ECB raising the rates before the Fed, gives the euro a yield advantage pushing the pair higher towards a two month high. Investors focus on ECB President Jean-Claude Trichet's speech later today expecting hawkish comments about inflation that can push the single currency further high. As long as tensions in Egypt do not worsen, speculators argue for a euro upward trend.
  • The Australian dollar rallied against the dollar breaking above parity level after the Reserve Bank of Australia decided to keep interest rates unchanged at 4.75%. The rate decision was expected and the Aussie was supported by RBA's hawkish comments fuelling expectations of a rate hike in the following months. The Aussie was also supported by rising commodity prices and higher than expected Housing data pushing it up to 1.0038 against the dollar from 0.9864.
  • Against the Japanese Yen, the dollar plummeted below the 82 yen. Heightened risk aversion in the market encourages unwinding of carry trades pushing the Yen higher. The pair dipped as low as 81.74 from 82.24 traded yesterday.
  • Sterling appears stronger versus the dollar on expectations of the Bank of England lifting rates in the near future. Pound sentiment increased after a UK newspaper revealed a BoE policymaker making comments about inflation and interest rates hike. Against the dollar, the sterling edged as high as 1.6077 from 1.5824.

Currency to watch out for: EURUSD & USDJPY

  • § The EURUSD pivot point is at 1.3640 with a preference to enter into Long positions at 1.3650
  • § The USDJPY pivot point is at 82.10 with a preference to enter Short positions at 82.05             

Today's calendar and market movers:

  • § UK Purchasing Manager Index Manufacturing in January is forecasted to fall to 58.1
  • § Europe's Unemployment rate in December is forecasted to remain unchanged at 10.1%
  • § US ISM Manufacturing in January is forecasted to 57.6

Equity Markets:

US equities were positive on Monday with the S&P500 trading up 0.77% and the DJIA trading up 0.58%. The European bourses are mixed with the FTSE trading down -0.31%, the DAX trading down -0.36% and the CAC up 0.08%. The NIKKEI and the HSI at the time of writing are trading up 0.36% and -0.23% respectively.

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