Major Currencies vs. US Dollar (% change)
16Aug 2010 – 20Aug 2010
General Comment:
Risk sentiment remains in focus ahead of a busy week of US economic releases that threaten to show the world’s largest economy is slowing, undermining confidence in the continuity of the global recovery. Traders have looked to the pace of the US rebound as a bellwether for the world at large for some time as the other engines of global growth increasingly falter. Indeed, Europe has been sidelined as the region tries to unwind its sovereign debt burden, Japan remains in deflation (which is expected to deepen again in July after two months of moderation), and China is willfully putting on the brakes amid fears of asset bubbles and runaway inflation.
Sizing up the US economic calendar, the path of least resistance points to continued risk aversion in the week ahead. The spotlight falls on the second revision of second-quarter US Gross Domestic Productfigures, with the number expected to show that the annual growth rate slowed to 1.4 percent in the three months through June, the slowest in two years. Meanwhile, Existing Home Sales are set to drop 12.9 percent in July – the most in six months – while New Home Sales continue to hover at three-decade lows. Durable Goods Orders offer a bit of good news, with forecasts pointing to a 3 percent increase in July following two consecutive months of losses, but this release in isolation is unlikely to prove sufficient to stem the tide of risk aversion in and of itself.
EURUSD:
The correlation between the Euro and the MSCI World Stock Index remains firm, linking the single currency with the ups and downs of Wall Street once again. Germany’s IFO Survey of business confidence headlines a fairly muteddomestic economic calendar. Forecasts call for the closely watched forward-looking Expectations component to decline in August after hitting a 16-year high in the previous month, an outcome that seems reasonable with the onset of headwinds from the EU’s debt-reduction efforts increasingly close at hand. To that effect, the final revision of Germany’s second-quarter Gross Domestic Product reading is also of note as this time traders will see the breakdown of the components behind the headline figure and have an opportunity to size up the likely resilience of recovery in Euroland’s largest economy. Augusts’ preliminary German CPI figures round out the docket.
Source: Bloomberg
GBPUSD:
The correlation between the Pound and the MSCI World Stock Index has come off a bit from last week but remains formidable none the less, with risk sentiment likely to remain the dominant catalyst for price action. Second-quarter UK Gross Domestic Product figures headline the domestic calendar. As with Germany, traders will be most interested to see the breakdown behind the headline figure to see if the economy remains overly reliant on government spending to remain afloat as they gauge the growth and monetary policy implications of the ruling coalition’s austerity budget that aims to shrink the deficit by a whopping 6.3 percent of GDP by 2014-15.
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 US rates outlook continue to hinge on the same set of near-term developments. July’s Merchandise Trade Balance, Unemployment, and Consumer Price Index figures top the docket of domestic event risk.
Source: Bloomberg
USDCAD, AUDUSD, NZDUSD:
The commodity bloc remains closely tied to risk sentiment with prices continuing to show significant correlations to the MSCI World Stock Index (CAD: 0.72, AUD: 0.74 and NZD: 0.76) despite a broad-based unwinding of rate hike expectations.Credit Suisse indexes tracking one-year rate hike bets for the Bank of Canada, the Reserve Bank of Australia, andReserve Bank of New Zealand fell 15.4, 17, and 9 basis points respectively last week. While this is not big news for the RBA where the tightening outlook has been muted since early May, readings for the BOC and the RBNZ have nosedived in a matter of weeks to the lowest in over a year. Still, it appears that despite evaporating yield expectations, the commodity bloc still looks more attractive than the remainder of the G10 from a carry trade perspective, leaving the link with risk appetite largely undisturbed at least for now. Canadian Retail Sales headline a nearly-empty calendar of homegrown scheduled event risk.
Source: Bloomberg
Source: Bloomberg
Source: Bloomberg
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