The Euro gave up some of its gains and the US Dollar mounted a limp fight back in yesterday’s trade. The data that impelled traders to take profit on the strength of the Euro and the weakness of the US Dollar ca=me from both sides of the Atlantic.
Eurozone purchasing managers were at their least optimistic in 7 months in August. A strengthening Euro won’t have helped their mood and neither will the ongoing financial problems within the Eurozone which continue to weigh on consumer sentiment. From the US side of things, fresh claims for unemployment benefits rose in line with our forecast but above the market consensus. This negative report was counterbalanced to some degree by the modest rise in the sales of existing (rather than new build) homes. However, most traders will be keeping their powder dry until they see today’s US Durable goods orders. This measure of long term investment is a clear and rather reliable confidence bellwether and a positive reading could well see the US Dollar regain a lot of its recent weakness but as the spectre of further quantitative easing remains and traders start to assume the Fed will act on this in November, the US Dollar is bound to remain on the back foot to some degree.
For the Euro, this morning’s German IFO business sentiment report is a key indicator of future strength or weakness. European Commission President, Jose Manuel Barroso used a press conference in New York to try to reassure markets that the EU banking sector is strong and the efforts being made by EU countries are going to be effective. Whether the markets bought it or not is unclear but it was a valiant effort. The Euro retreated from a 5 month high against the US Dollar and an equally strong position against the Pound to close at slightly weaker levels. That may have also had something to do with the fact that Ireland’s economy joined that of Greece in contracting. Ireland and Greece are two of the four most worrying economies of the Eurozone so traders will be watching the other two, Spain and Portugal, very closely.
Sterling had a relatively calm day. Poor mortgage data failed to do too much damage to the Pound as we have come to be rather inured to poor housing market data but there is little else in the news for Sterling traders to focus on and that will generally allow the Pound to get washed about in the wake of the US Dollar and Euro.
The whole market has a certain edginess about it with the threat of intervention from the Bank of Japan and the Swiss National Bank still in the air. The Japanese holiday yesterday appears to be have been ignored by the BOJ who are rumoured to have been selling the Yen in order to achieve their aim of aiding Japanese exporters. This intervention or ‘currency manipulation’ to give it a politically incendiary title is exactly what the US and China are locking horns over elsewhere. President Obama is urging the Chinese authorities to cease their micromanagement of the Chinese Yuan in order to make trade between the US and China a little fairer to US exporters. He may get some minor concessions but if he looks at the track records of all his predecessors, he will know that whistling into the wind has a greater appeal and a far greater success rate.
In essence, the markets are volatile but trading within current ranges. There is the potential for the US Dollar to break out after the Durable Goods data and a possibility that Sterling will regain some of its losses before London shuts up shop for the weekend.
And in other news, rumours that Iranian President Mahmoud Ahmadinejad is writing a book about how to make friends and influence people are said to be untrue. In a speech at the United Nations (a bit of a misnomer I think you’ll agree) he called for a fresh enquiry into how the US orchestrated the September 11th attacks. He said, "some segments within the US government orchestrated the attack to reverse the declining American economy.......and its grips on the Middle East, in order also to save the Zionist regime." Having a chip on your shoulder is one thing but this chap has a whole flotilla of timber shipments on his.
cat (Catharine Higginson) #1