Sighs of Relief Plump Euro

Hopes for an emergency EU ministerial summit to counter rising fears over contagion from a possible default in Greece toned down concerns about Italy inspiring a recovery in the region’s currency. Meanwhile investors pushing hard for a rebound in risk looked to Chinese growth figures for reassurance. Stronger second quarter growth in the world’s number two economy tells us little about the future yet offers no solace for Europe’s little problem of debt.

Euro – You could refer to Tuesday’s price action for the euro currency as capitulation as the unit slid to a four-month low while investors were panicked out of many positions. Midway through the day the worst levels had been rejected as the last panic-struck investor had been flushed out and the mindset had been changed by the ECB on a bond-buying binge across those governments in most need. With no follow-through drama emerging this morning the path of least resistance was upwards earlier as buyers of the single currency nudged it to as high as $1.4109 forcing any recent shorts to consider getting out of the trade. However, nothing has changed other than the fear of a possible EU summit, which would likely serve up more words telling us how the problem is likely to be resolved. As more investors realize this the euro’s earlier gain is looking fragile with the unit back to $1.4050. Expect a test of $1.4000 later in the day.

U.S. Dollar – Fed Chairman Bernanke delivers his thoughts on the prospects of the economy along with offering some perspective on the current monetary policy stance in Washington starting today. Minutes of the recent June meeting sparked debate over the likelihood of fresh quantitative easing. Many in the market had written off the likelihood after last month’s policy conclusion, but clearly some element of the FOMC most likely headed by Bernanke himself, is of the opinion that there is worse to come for the U.S. economy. The dollar lost some ground as risk units rebounded while it fell most sharply against the Swiss franc. Its index slid by 0.5% to 75.61.

Canadian dollar – The rebound for commodity prices boosted the Canadian dollar. The move was sparked by a stronger than forecast reading for Chinese growth during the three months ending June With more than half of Canada’s national export revenues coming from minerals and natural resources, rising prices for crude oil, copper and gold don’t go unnoticed north of the border. The local dollar reached almost $1.0400 U.S. cents this morning.

Aussie dollar – The Aussie rejected Tuesday’s lows and has risen by about 150 pips to trade at $1.0688 U.S. cents. The 9.5% GDP figure from Beijing surpassed expectations but still marks a mild decline from the first quarter. The sigh of relief across the Eurozone helped resuscitate the Aussie despite a weakening of consumer confidence according to a reading from Westpac and the Melbourne Institute. An 8.3% decline to 92.8 in its consumer confidence reading was the biggest slip since October 2008 and sent confidence reeling to the lowest since May 2009. However, a recovery for regional stocks was all that was needed to fuel an Aussie rebound.

British pound – The impact of fiscal austerity was once again reflected in the June claimant count data, which painted an ugly picture of an already grim Britain. Government job cuts of 300,000 aimed at plugging a towering fiscal deficit dripped through to the bottom line adding pressure on private employers to create new jobs when incomes and growth are barely registering any movement. The number of new unemployment claimants rose by 24,500 during June and with May’s reading revised upwards the two-month gain in unemployed has now risen by 12,000 more than thought before today’s report. The expectation today was for a rise of 15,000 in comparison. The report adds weight to the argument that the Bank of England will maintain lower interest rates for longer, which earlier weighed on the pound. However, given the dumbing down for risk aversion today the pound is taking advantage of slippage in the greenback and stands at $1.5980.

Japanese yen – Finance Minster Noda claimed that the yen’s gains had been particularly “one-sided” lately although a recovery in Japanese equity prices helped steady the region. The yen nevertheless remains firm versus the dollar and is higher on the session at ¥79.20. Against the euro the yen eased to ¥111.38 after a second sharp monthly rebound during May for Japanese industrial production.

About Andrew Wilkinson 1023 Articles

Affiliation: Interactive Brokers

Andrew Wilkinson is the senior market analyst at Interactive Brokers Group, where he provides daily commentary and analysis on U.S. equity options trading throughout the trading day. Andrew provides webinars designed to explain option-related trading scenarios covering futures, fixed income, forex and equities.

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