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Market Review - 20/07/2011 22:03 GMT

Euro edges higher ahead of eurozone summit

The single currency rose on Wednesday on optimism that EU leaders will conclude a successful rescue deal to ease Greece's debt level at the eurozone summit on Thursday.

Although the single currency ratcheted lower to 1.4133 in Asian midday, the pair rebounded strongly due to active cross buying of euro vs sterling and climbed to 1.4239. Despite euro's retreat to 1.4166 in NY morning, renewed buying lifted the pair to 1.4234 in NY afternoon.

Earlier in European session, euro was supported as French Finance Minister Francois Baroin said 'a "strong message" is needed from EU summit, greater flexibility on Greek debt.'

In other news, the eurozone summit will start at 11:00GMT on Thursday, an hour later than initially planned, as the eurozone leaders allow time to reach a deal on private-sector involvement.

Despite the British pound's sharp fall to 1.6069 in European morning due to active cross selling of sterling vs euro, cable rebounded strongly after the release of BoE policy minutes and the pair rose in tandem with euro to 1.6167 in late NY trading session.

BoE minutes for July meeting were slightly less dovish than expected as it showed that MPC voted 7-2 to keep rates at 0.5% in July and MPC voted 8-1 to keep QE at 200 bln pound. BoE reported that 'recent developments had reduced chance that policy tightening warranted in nr term; balance of risks to med-term CPI little changed over month, substantial in both directions; data suggests modest underlying GDP growth continued in Q2, some softening of Q3 outlook; no clear evidence that higher inflation expectations feeding through wages; likely that current weakness of activity will last for longer than previously thought.'

Although the greenback climbed above Tuesday's NY high at 79.28 versus the Japanese yen due to Tokyo morning fixing demand to 79.32, sellers quickly emerged and price then fell to 78.72 in European morning and then dropped again to 78.71 in NY session before trading sideways.

On the data front, eurozone consumer confidence falls to -11.4 in July fm a downwardly revised -10.3 in June. U.S. June existing home sales dropped by 0.8% to an annual rate of 4.77mln units, the lowest since November, vs 4.81mln in May.

Data to be released on Thursday include:

Japan Trade balance (jpy), Import, Export, All industry index, Australia NAB business confidence, China HSBC Manufacturing PMI, Swiss Trade balance (chf), ZEW investor sentiment, Germany Manufacturing PMI, Services PMI, EU Manufacturing PMI, Services PMI, Current account (euro), U.K. N'wide Consumer Confi, PSNCR, PS net borrowing, Retail sales, U.S. Jobless claims, Leading indicators, Monthly home price, Philadelphia Fed survey.

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