Daily Market Outlook

Mon, Jul 7 2008, 03:31 GMT
by AceTrader Team

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Market Review - 04/07/2008 19:31 GMT

Euro posts weekly losses on Trichet’s comments and weak German factory orders

The single currency dropped to a one-week low of 1.5654 versus the dollar after a government report showed German manufacturing orders unexpectedly declined for a sixth straight month in May. Factory orders in May fell 0.9% from April versus market's expectation of a gain of 0.8%. Euro remained under pressure as European Central Bank President Jean-Claude Trichet said on Thursday he had ‘no bias’ and that economic growth is ‘not flattering’ after the ECB raised its refinancing rate by 25 basis points as widely expected. The single currency also weakened versus the Japanese yen from 168.07 to 167.14.  
  
Trichet indicated that the ECB's quarter-point rate increase to 4.25% will help bring inflation back below the 2% ceiling. According to ECB staff forecasts, European inflation accelerated to a 16-year high of 4% in May. Economic growth may weaken to 1.5% next year from 1.8% this year and 2.6% in 2007. The implied rate on the December Euribor futures contract fell 0.15 percentage point to 5.13 percent on Thursday, suggesting the ECB may not increase rates further this year.   
  
The Japanese yen continued to fall this week as business confidence slid to the lowest in almost five years. The Tankan index of manufacturer sentiment released earlier on Tuesday slid to 5 points in June, the lowest since September 2003. The U.S. currency moved inside a tight range of 106.60-106.88 and 1.0232-1.0277 against the Japanese yen and Swiss franc respectively in thin trading on Friday due to the U.S. Independence Day holiday. The British pound weakened briefly from 1.9849 to 1.9795 and moved sideways in European session.  
  
Interest-rate futures on Thursday showed a 81% chance the Fed will increase its target rate for overnight lending between banks by at least a quarter-percentage point by year-end, compared with 85% odds a week ago. The U.S. currency only dropped briefly on Thursday’s release of U.S. non-farm payrolls which fell by 62,000 last month, following a revised drop of 62,000 in May, as traders booked profit on speculation U.S. officials will say the currency has fallen too far and try to stem gains in oil prices before a Group of Eight summit. Leaders from Canada, France, Germany, Italy, Japan, Russia, the U.K. and the U.S. will meet in Hokkaido, Japan, from July 7.  
  
Next week will see the release of U.K. industrial and manufacturing production and German industrial production on Monday; Japan’s leading indicators and economic watch, U.K. DCLG house prices, U.S. pending home sales on Tuesday; U.K. Nationwide consumer confidence, German trade balance and current account, U.K. trade balance and eurozone GDP on Wednesday; Japan’s domestic CGPI, current account and trade balance and U.S. jobless claims on Thursday; Japan’s industrial production and consumer confidence, German WPI, U.S. trade balance, University of Michigan survey and Fed budget on Friday.

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Published on  Mon, Jul 7 2008, 03:45 GMT

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