Major Currencies vs. US Dollar (% change)
09Aug 2010 – 13Aug 2010
General Comment:
Last week, risk aversion has staged a comeback, with stocks reversingsharply lower having tested May’s swing top to post the worst weekly performance in over three months. This seems reasonable considering most of the engines of the global economic recovery are meaningfully faltering. Indeed, European growth is likely to remain lackluster as the region tries to trim its sovereign debt burden, Japan remains in deflation, China is willfully pulling on the brakes amid fears of overheating, and the US has notably lost pace.
With that being said, risky assets seem to be scope for a corrective rebound in the near term given the intensity of last week’s selloff as well as expectations of some encouraging results on second-tier US economic indicators. Producer Prices are set to rise for the first time in four months, Industrial Production is expected to pick up momentum, and Housing Starts are set to snap a two-month losing streak in July. Traders have long looked to the health of the world’s largest consumer market as a proxy for the global recovery at large, and while these results are unlikely to prove sufficient to stop risk aversion in its tracks, they could certainly engineer an upward retracement across global stock exchanges and bring correlated currencies along for the ride.
EURUSD:
The correlation between the Euro and the MSCI World Stock Index has continued to strengthen, linking the single currency with the ups and downs of Wall Street once again. Germany’s ZEW Survey of investor confidence headlines a fairly muteddomestic economic calendar. Expectations call for the forward-looking Economic Sentiment gauge to drop for the fourth consecutive month in August, an outcome that seems hardly surprising considering the headwinds facing economic growth in the currency bloc as its member governments push ahead with deficit-cutting measures including tax hikes and spending cuts as well as step up bond issuance. Euro Zone CPI and Current Account figures also of note.
Source: Bloomberg
GBPUSD:
As with the Euro, the correlation between the Pound and the MSCI World Stock Index has firmed from last week, pointing to risk sentiment as the dominant catalyst for price action. The release of minutes from the Bank of England’s August monetary policy meeting headlines the economic calendar, but traders are unlikely to see anything that has not been priced in already after last week’s publication of the quarterly inflation report. The same goes for July’s Consumer Price Index figures, with the third consecutive decline in the annual inflation rate only serving to reinforce the central bank’s well-publicized sanguine view on near-term price growth. July’s Retail Sales report rounds out scheduled event risk.
Source: Bloomberg
USDJPY:
Prices continue tracking closely with US Treasury yields, keeping the focus on US economic data and once again indirectly aligning the pair with risk appetite as overall confidence and the rates outlook seemingly continue to hinge on the same set of near-term developments. June’s All-Industry Activity Index amounts to the only bit of noteworthy event risk on the domestic calendar.
Source: Bloomberg
USDCAD, AUDUSD, NZDUSD:
The commodity bloc remains closely tied to risk sentiment(CAD: 0.70, AUD: 0.77 and NZD: 0.81), althoughcorrelationreadings for the Canadian and New Zealand units and the MSCI World Stock Indexcontinued to edge on diminishing rate hike expectations.Indeed, Credit Suisse indexes tracking one-year rate hike expectations for the Bank of Canada and the Reserve Bank of New Zealand fell 13.4 and 15 basis points respectively last week. Minutes from the RBA’s August rate decision as well as Canadian Leading Indicators and Consumer Price Index figures headline the local data docket.
Source: Bloomberg
Source: Bloomberg
Source: Bloomberg
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