The risk rally came to a scratching halt with the Euro moderating to 1.2845. The Pound slipped to 1.5150, Loonie stood at 1.0580, Yen fluctuated at 86.80, and Aussie remained at 0.8725. The better than anticipated earning season for equities have contributed to greater risk, however, this session s demonstrating a break from it.
The Euro made a fresh new high before retreating to the downside. Euro reached an eight week high of 1.3030. The Euro was on tremendous rampage to the upside as investors remained positive about bank stress tests and deviation from deflationary pressures.
Psychological level of 1.30 showed its strength once more pushing the pair downwards. Nonetheless, the progress is intensifying in the Euro-zone. German Producer Prices showed signs of life as it significantly overprinted the forecasts. German PPI year on year grew at a pace of 1.7 percent compared to previous month of 0.9 percent. The following suggests that deflationary fears will moderate in the near term, as well as the fact that the EZ economy may outperform US economy.
The credit market in the Euro-zone has certainly stabilized. Looking at Spanish T-bill offering we see a demand of nearly €6 Billion, furthermore the yield on 12 month bill fell to 2.22% from previous month 2.30%. A lower yield suggests that it is less risky to lend to Spain.
Despite positive news and comments the higher beta currencies failed to rally. In Australia, RBA made surprisingly hawkish comments allowing investors to anticipate possible rate hike in the feature. Expect the Aussie to continue rising to 0.90 due to carry trade if next week’s CPI figures will beat expectations. Swiss economy never fails to print positive figures. Swiss trade balance grew at 1.77B versus 1.05B eyed. UK government borrowed nearly £14.5B compared to a forecast of £13.2. The government needed to up their borrowing and deviate from a strong stance on austerity due to the weakest tax revenue growth since January. The markets might punish the Pound if the government will not keep their word of austerity measures being taken seriously.
US economic figures continue to show considerable signs of weakness. Housing sector remains the Achilles heel of the economy. Housing Starts slipped by 5% to 0.55M, the only positive sign to take away from this was a rise in Building Permit.
Markets will focus on Canadian Interest rate decision today. Further in the day Japanese Monetary Policy Meeeting Minutes will be under the microscope.
Disclosure: No Positions