European Market Review: What to Expect

by: TradingHelpDesk

Previous session overview
The euro and dollar fell against the yen in Asia Friday as weak Chinese stocks and lower U.S. long-term interest rates prompted players to sell those units for the Japanese currency.

Japanese exporters joined in the selling on a regular settlement day, dealers said, while the dollar came under further pressure ahead of the redemption of U.S. Treasurys on August 17.

With the outlook for Chinese share prices remaining grim, the euro and dollar are expected to continue heading southward against the yen, traders said.

Short-term foreign exchange market players have recently grown sensitive to movements in Chinese share markets, amid concerns that weaker-than-expected Chinese growth may drag on a global recovery. A slumping Shanghai Composite index, down 2.4% in early afternoon trade, again triggered a selloff in risk sensitive currencies such as the euro.

Meanwhile, the dollar stood at JPY95.22 compared to JPY95.36 late Thursday in New York. The greenback had fallen against the yen overnight, after U.S. retail sales data marked a 0.1% drop in July, disappointing expectations for a 0.8% rise. Sentiment remained negative in Asia, dealers said.

Euro rose to a one-week high at USD1.4328 against the greenback on Thursday as the euro zone's two biggest economies unexpectedly returned to growth in the second quarter of the year. In Germany, Europe's largest economy, gross domestic product rose surprisingly by 0.3% in the second quarter.

The British pound rebounded even though the UK unemployment rate jumped to 7.8 percent during the second quarter, the highest rate in 14 years, up from 7.1 percent during the first quarter. Friday, Bank of England in its inflation report indicated that rates will not be raised for some time.

A bullish economic outlook from the central bank sent the Australian dollar to 11 month highs in Asia Friday before renewed jitters on the Shanghai stock exchange sparked a bout of profit taking.

Market expectation
The euro is under some pressure on Friday, as the slump in the Chinese stock markets dents risk appetite more broadly in Asia.

Currency market reactions to data and other events could continue to be rather fickle for some time yet, given the still-rampant uncertainties relating to growth and also the low-liquidity summer environment, said analysts. They also said there's scope for the local unit to resume its climb higher if U.S. consumer confidence numbers due later surprise on the upside.

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