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FOREX: Franc, Yen and Dollar Shine as Market Confidence Sinks Again

By , Currency Strategist
18 July 2011 07:05 GMT

Talking Points

  • Swiss Franc, Yen and US Dollar Outperform on Safe-Haven Demand
  • Asian Stocks Tumble on EU Stress Tests, US Debt Ceiling Deadlock
  • NZ Dollar Soars on Strong Economic Data but Gains Prove Fleeting
  • S&P 500 Index Futures Sink, Hinting Risk Aversion Set to Continue

The Swiss Franc remained the safe-haven of choice as market confidence soured in overnight trade, rising against all of its top counterparts. The Japanese Yen and US Dollar followed closely behind. Asian shares slumped as much as 0.5 percent, with markets jittery after the results of European bank stress tests released on Friday failed to reassure investors. The uneasy mood is being compounded by continued deadlock among US policymakers as they jostle for political points in the debate to raise the federal debt limit ahead of a looming August 2nd deadline.

Looking at the EU stress tests, it becomes clear the the European Banking Authority (EBA) learned little from last year’s questionable outing. Indeed, the exercise chose to ignore the one thing markets are acutely concerned about – the impact of a sovereign default within the Euro Zone on lenders’ balance sheetsseemingly defeating the point of the entire endeavor. An article in The Economist perhaps put it best, likening the tests’ outcome to a doctor who declares a patient complaining of chest pain to be healthy as long as he’s not having cardiac arrest.

S&P 500 stock index futures are sharply lower while peripheryEuro Zone CDS spreads – which represent the cost of insuring against a default in any of the so-called “PIIGS” and consequently rise with increased credit risk – are pushing higher. Indeed, the markets now price in the probability of a default in Greece at 87.2 percent while the chances of the same thing happening in Portugal and Ireland stand at 63.4 and 62.8 percent, respectively. This points to continued risk aversion, promising further gains for safe-haven currencies against the spectrum of their major counterparts.

On the overnight data front, New Zealand Consumer Price Index figures printed substantially stronger than expected, with the yearly inflation rate jumping to 5.3 percent in the second quarter to mark the highest reading in over two decades. Separately, the Performance of Service Index showed the non-manufacturing sector expanded at the fastest pace in nine months. The outcomes gave the New Zealand Dollar a healthy boost early in the session but the onset of broad-based selling across the spectrum of sentiment-sensitive currencies promptly reversed the advance.

Asia Session: What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

22:30

NZD

Performance Services Index (JUN)

54.7

-

53.0 (R+)

22:45

NZD

Consumer Prices Index (QoQ) (2Q)

1.0%

0.8%

0.8%

22:45

NZD

Consumer Prices Index (YoY) (2Q)

5.3%

5.1%

4.5%

23:01

GBP

Rightmove House Prices (MoM) (JUL)

-1.6%

-

0.6%

23:01

GBP

Rightmove House Prices (YoY) (JUL)

0.1%

-

1.1%

1:30

AUD

New Motor Vehicle Sales (YoY) (JUN)

-11.5%

-

-14.8% (R-)

1:30

AUD

New Motor Vehicle Sales (MoM) (JUN)

1.3%

-

-7.5% (R+)

Euro Session: What to Expect

GMT

CCY

EVENT

EXP

PREV

IMPACT

No Data

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.3934

1.4207

GBPUSD

1.5930

1.6183

Open Positions

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18 July 2011 07:05 GMT