Once again, Euro zone debt concerns have rattled the markets as Moody’s rating service has downgraded its rating on Anglo Irish Bank and speculation is that Spain or Portugal may be next. So yields on Irish debt have risen, which in turn have made the bonds more attractive to European Central Banks who snapped up the debt.
However, the markets have seemed to disregard this “news” as the Euro is tracking higher and European stock markets have turned higher. Consumer confidence figures in Germany came in better than expected.
In the UK, GDP figures came in as expected and the CBI retail sales index came in at the highest levels in nearly six years showing that the UK economy may still have some life. However, the Pound is lower.
And lastly, we have Dollar weakness this morning ahead of the home price index and consumer confidence figures, as US stock market futures have turned higher.
This morning cannot be classified as a typical risk taking scenario though, as commodities are lower and there is some mild Japanese yen strength, likely due to lower Asian stock markets and Euro debt concerns. This could also be a test of the levels that would cause the Bank of Japan to further intervene.
In the forex market:
Aussie (AUD): The Aussie is slightly higher on Dollar weakness after pulling back from a two-year high of 96.45 vs. USD. The premise is that the Aussie may be a bit over-extended after a tremendous run, and will likely trade on risk themes as there is no major news from Down Under.
Kiwi (NZD): Like the Aussie, the Kiwi is tracking mostly higher as well going into tonight’s trade balance figures. While traded similar to the Aussie, the Kiwi has taken a hit from the recent earthquake which has hurt the economy, yet it is near two-year highs against USD as well.
Loonie (CAD): The Loonie is lower following oil prices which have retreated below $76 on over-supply concerns. Canadian GDP figures are due out on Thursday and are expected to show a slight decline.
Euro (EUR): The Euro is higher across the board as anti-Dollar sentiment and German consumer confidence figures have buoyed it higher despite the increase in debt concerns from Ireland and possibly Spain and Portugal. (Click chart to enlarge)
Pound (GBP): The Pound is lower across the board as GDP figures came in as expected, showing quarterly gains of 1.2%. In addition, the CBI reported sales figures came in with a reading of 49, the highest in 6 months. However, Bank of England policy-maker Posen came out and said that the BOE showed restart its asset purchase program to prevent slow economic growth.
Dollar (USD): The Dollar is mostly lower ahead of today’s consumer confidence figures due out at 10AM EST. The Case Shilling Home Price Index just came in and showed home price growth slowed in July. However, the fact that there was any growth in prices should be viewed as positive as it shows that housing may be stabilizing.
Yen (JPY): The Yen is higher slightly across the board showing divergence from Dollar weakness, and the 84 level vs. USD is being tested to see how committed the BOJ is to intervention. With the threat of further quantitative easing from the US and our weak dollar policy, it may be futile for Japan to continue intervention in the near term. A note out today said that Japan may want to explore ways to benefit from a stronger Yen, so the market may be licking its chops. (Click chart to enlarge)
As you can probably tell by now, the markets are still in a heightened state of alert as the Euro debt crisis still looms. In addition, Japanese yen intervention, potential further quantitative easing here in the US, and both Euro and UK commitment to austerity leave the global economic landscape on shaky ground.
It is very easy for the markets to flip from mild risk taking to risk aversion on various data points; and correlations can still hold up when things seem “out of whack” before they revert to the mean.
Being able to spot these opportunities is of the utmost importance; as sometimes things just “have to give”.
To learn more about how you can take advantage of world events through the currency market, be sure to check out our currency trading courses!
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