A mild rebound overnight in Chinese equities helped to reduce risk aversion as traders sold the Japanese Yen against higher yielding currencies such as the Euro and this mild bullish tone has translated into the EURUSD which has also risen this morning. However, whether this rebound can be maintained in the face of the current media scrutiny of the debt problems within the eurozone is debatable. Moreover although the EU has scheduled a summit for Thursday traders expect member countries to fail to offer any detailed plans on how to deal with the fiscal crisis in Greece, Spain and Portugal. This growing scepticism is likely to lead to further risk aversion, weak equity markets and a renewed demand for safe haven assets which include the Japanese Yen. As of 09.00 GMT the euro had climbed to JPY122.80 and USD1.3716, up from JPY121.97 and USD1.3659 respectively in New York Monday.
Elsewhere, the US Dollar rose against the Yen following comments from Fed Member James Bullard who hinted that the discount rate the Fed charges banks for emergency loans could soon rise as part of its plans to end the quantitative easing programme. Meantime a late sell off on Wall Street saw the Dow close below the psychological 10,000 level for the first time in three months. With little in the way of significant fundamental news in the US today (or elsewhere) markets will continue to look for direction and are now waiting for tomorrow’s appearance by Ben Bernanke before the House Finance Committee.
In the UK the British Pound tumbled to USD1.5535 (a fresh 8 month low) on sovereign debt concerns & the possibility of a hung parliament. In this morning’s trading although the FTSE has managed to post a modest rebound despite bad retail sales figures have had a negative effect on sterling with the rate falling back to USD1.5599 at time of writing. Unlike the eurodollar where we have an “inside day” pattern & likely to see a modest rebound, the chart pattern for cable is much more negative.
The small rise in Chinese equities also helped to push the Aussie dollar higher although ongoing worries surrounding the global economy has continued to drive traders and investors in the safety of long dated bonds.
Some of you have asked why this commentary does not focus solely on one market and the reason for this is simply twofold: first in trading and investing it is essential to have an understanding of the bigger picture, and secondly it is the intermarket dynamic which tells us whether the market mood is risk tolerant or risk averse. Market mood is in turn driven by the news (manipulated or otherwise). Regardless of whether you are a technical or fundamental traders (in any market) you will still need to consider both sides of the trading equation.
Fundamental News for Today:
Very thin today but here some are some highlights:
German final CPI which came in on target at -0.6% with the German trade balance ahead of target at 16.7bn. In contrast to the UK trade balance which came in worse than expected at -7.3bn against a forecast of -6.6bn as imports shot up at their fastest rate since March 2005. Little news in the US this afternoon and the main number in the Far East later tonight is the Japanese Core Machinery Orders forecast to improve dramatically to 8.1% from -11.3% last time.
For Australia the important number is the Home Loans data which is forecast at -4.8% against a previous of -5.6%. This is generally considered a leading indicator of demand in the housing market and therefore can provide an excellent guide as to the health of the broader economy.
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