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Risk-Appetite Rebounds Slightly on Macro Growth Hopes

Risk-Appetite Rebounds Slightly on Macro Growth Hopes

2011-10-18 13:33:00
Christopher Vecchio, CFA, Sr. Currency Strategist

Fundamental Headlines

Fed Presidents Differ Over Ability to Boost Growth – Bloomberg

Wholesale U.S. Prices Rise More than Forecast – Bloomberg

U.S. Bank Accounting Rule Has Big Earnings Impact – Reuters

China’s Economic Growth Slows – WSJ

France’s Credit Rating under Pressure – WSJ

European Session Summary

The U.S. Dollar was mixed across the board in premarket trade on Tuesday, with the world’s reserve currency posting gains against the Euro and the Swiss Franc while losing ground against the Australian Dollar and the Canadian Dollar. Data released during the Asian and European sessions offered a mixed view of global growth prospects, but for the most part, with the FX Carry Trade Index slightly higher, it appears market participants took the information received as constructive. Global growth concerns have been part of the reason that risk-correlated assets, such as global equity markets, have fallen sharply in the second half of the year; the other reason has been the Euro-zone debt crisis.

Accordingly, the Chinese third quarter growth print, despite slowing to its slowest pace since late 2009, remained above 9 percent, alleviating concerns of a ‘hard landing’ for the robust economy. Although the data disappointed, to an extent, the fact remains that industrial production in September expanded at a faster pace than previously expected, ultimately diminishing worries of what the ramifications of a slowing Chinese economy might be on emerging market economies, at least so far.

AUD/USD 5-minute Chart: October 17 to 18, 2011

Risk-Appetite_Rebounds_Slightly_on_Macro_Growth_Hopes_body_x0000_i1029.png, Risk-Appetite Rebounds Slightly on Macro Growth Hopes

Charts created using Strategy Trader– Prepared by Christopher Vecchio

As the currency of one of China’s largest trading partners, the Australian Dollar found support on the better-than-expected industrial production data. At the time this report was written, the Aussie was the best performing major currency on Tuesday, up over 0.18 percent against the U.S. Dollar. The Aussie’s strength comes after a dovish Reserve Bank of Australia’s Board minutes, which noted that inflation has become “less concerning.” Typically, such a statement would weigh on rate expectations for the Aussie; this was not the case today.

EUR/USD 5-minute Chart: October 17 to 18, 2011

Risk-Appetite_Rebounds_Slightly_on_Macro_Growth_Hopes_body_x0000_i1028.png, Risk-Appetite Rebounds Slightly on Macro Growth Hopes

Charts created using Strategy Trader– Prepared by Christopher Vecchio

In terms of how the Euro was performing in the overnight, the common currency was lower again after Moody’s Investor Service said that France’s top credit rating is under pressure. France’s ability to participate in any European bailout fund remains highly depend on the core country’s ability to maintain its top tier credit rating; likewise, the future economic stability of the Euro-zone very much lies within France’s ability to contribute to European bailouts. With Germany already stretched so thin – the German people are adamantly against bailing out indebted European nations – a collapse of the French credit rating would force Germany to contribute more, a scenario that would likely increase dissent within the country and threaten the current political regime.

24-Hour Price Action

Risk-Appetite_Rebounds_Slightly_on_Macro_Growth_Hopes_body_Picture_1.png, Risk-Appetite Rebounds Slightly on Macro Growth HopesRisk-Appetite_Rebounds_Slightly_on_Macro_Growth_Hopes_body_Picture_7.png, Risk-Appetite Rebounds Slightly on Macro Growth Hopes

Key Levels: 12:55 GMT

Risk-Appetite_Rebounds_Slightly_on_Macro_Growth_Hopes_body_Picture_4.png, Risk-Appetite Rebounds Slightly on Macro Growth Hopes

Thus far, on Tuesday, the Dow Jones FXCM Dollar Index is higher, trading at 9788.38, at the time this report was written, after opening at 9770.69. The index has traded mostly higher, with the high at 9807.65 and the low at 9743.80.

--- Written by Christopher Vecchio, Currency Analyst

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com.

Follow him on Twitter at @CVecchioFX

To be added to Christopher’s e-mail distribution list, send an e-mail with subject line "Distribution List" to cvecchio@dailyfx.com.

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