Acetrader-Daily Market Outlook 26-11-2010

The single currency fell briefly to 1.3287 on Thursday amid continued concerns over eurozone debt contagion, however, euro’s failure to penetrate Wednesday’s low of 1.3284 prompted traders to unwind short positions. Buying by European exporters and a few Middle-Eastern accounts also supported the pair. Euro rebounded later in the day to 1.3389 as European Central Bank Governing Council Member Axel Weber said the rescue fund for the indebted nations is sufficiently capitalized to calm the region’s financial markets.

European Central Bank Governing Council member Axel Weber said the European Union must decide on the details of a permanent crisis management quickly to calm financial markets. Weber added that it is very unlikely that Spain will need help. He also said the size of rescue fund to support the euro currency is sufficient and euro zone members will not let the euro fail.

German Chancellor Angela Merkel said market mechanisms must be able to work with the permanent eurozone crisis mechanism that is to be implemented fm 2003. Merkel added that Germany will press for a strong euro which is why tough budget savings must be made. She indicated no eurozone country is in danger of insolvency and private sector investors would only be affected by any changes to the eurozone crisis mechanism from 2013. Irish Finance Minister Brian Lenihan said the Irish government’s economic growth forecasts are reasonable and indicated deal with IMF/EU will be specific about fiscal requirements for 2011.

The British pound also weakened in tandem with euro and fell to a one-month low of 1.5725 Thursday on cross unwinding in sterling and then rebounded to around 1.5793. However, trading is relatively thin as U.S. markets closed for the Thanksgiving holiday. Bank of England Governor Mervyn King said May inflation report reflected his views and he has never spoken about balance of spending and taxes. King added it is possible that growth in the economy will not be strong enough to eliminate spare capacity for somewhile. BOE’s Posen said short term effects of government fiscal plans will be contractionary. The greenback also strength against the Swiss franc and rose above parity to a two-month high of 1.0021 before easing.

Friday will see the release of Japan National CPI (core), National CPI, Tokyo CPI , Germany CPI prelim., HICP prelim. and Swiss KOF indicator.

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