Overview: August 12, 2014 Fresh signs of weakness in Europe sent the euro lower and to within pips of November 2013 lows against its U.S. counterpart. The greenback enjoyed near across the board gains and was back near September 2013 peaks on a trade-weighted basis. The euro slumped on news that German investors grew the least confident in 20 months in August. The Bavarian nation’s influential ZEW survey tumbled to 8.6 for this month, a December 2012 low, from 27.1. Markets had already braced for a big fall to 18.2. German investor morale has now fallen for eight straight months, showing how geopolitical instability in Ukraine was taking a bigger toll on investor attitudes. European Central Bank (ECB) President Mario Draghi warned last week that the greater geopolitical risks grow, the more likely the central bank would be to resort to stronger stimulus such as Fed- caliber bond buying. Worries about the health of the European economy weighed on sterling and depressed risk sentiment enough to pressure currencies from Canada and New Zealand. The pound faces a potentially critical day Wednesday when the Bank of England (BoE) releases fresh economic forecasts and U.K. jobs data come due. Also Wednesday, a report comes due on U.S. retail sales. EUR More worrying signs of weakness in Europe’s No. 1 economy had the euro deeper below $1.34 and within pips of recent November 2013 lows. German investors grew the least confident in 20 months in August as the influential ZEW survey tumbled to 8.6 from 27.1 in July. Markets had expected a still-sizeable decline to 18.2 in the latest period. With geopolitics in Ukraine sapping confidence in Europe, it increases already elevated pressure on the European Central Bank (ECB) to bring on stronger measures to safeguard its sputtering economy. Could the euro be on the brink of another big move lower? We’ll find out Thursday when quarterly growth comes due from Germany and the broader 18-nation economy. Forecasts call for German growth to grind to a halt with a zero reading for the second quarter. A negative reading would risk dealing a decisive blow to the single currency. Tread carefully, though, businesses because a positive GDP print could unleash a wave of euro-buying on short-covering. GBP Fragile risk sentiment and uneasiness on the eve of a big report from the Bank of England (BoE) kept sterling anchored below $1.68, a two-month low. A catalyst-laden Wednesday includes fresh economic forecasts from the U.K. central bank and the latest readings on Britain’s job market. Further improvement is on the cards for unemployment but a step backward is anticipated for pay growth. Weak wages would tend to give the BOE less reason to lift borrowing rates sooner which could mean further falls for sterling. But sterling bulls could find something to cheer about should the BOE not rule out a rate hike before the end of the year. Lots of uncertainty highlights the importance of having a hedge order in place to safeguard against undesirable market movements. AUD The Aussie dollar was a bit of an outlier as its commodity peers from Canada and New Zealand lost ground as risk aversion held sway. The Aussie instead kept its chin above water thanks to better news this week from China and data overnight that showed an improvement Australian business confidence to 11 in July from 8 in June. A report on Chinese inflation earlier this week showed prices steadied at 2.3 percent in July, a tame level that lends room to policymakers to further ease if they see fit. CAD An uptick in risk aversion over worries about the health of Europe’s biggest economy had the loonie at session lows against its U.S. counterpart. The loonie has had to navigate choppy seas over the past few sessions following mixed news on the Canadian economy. The previous week ended with a lousy snapshot of hiring which barely rose in July, though the survey was partially offset by better than expected housing news Monday. The loonie appears on a collision course with C$1.10 against the greenback with its timing seen dependent on a pop in U.S. yields. U.S. data, if positive, Wednesday on retail sales and Friday on industrial output loom as potential occasions for another leg lower in the loonie. USD U.S. divergence with Europe on the outlooks for growth and monetary policy had the buck in closer range of recent multimonth peaks. Still, U.S. yields remained low which limited the dollar’s allure and tempered its rise. A catalyst-laden Wednesday will be rich on news about the U.S. consumer and the outlook for U.K. central bank policy. With the potential for the USD to swing sharply up or down, seek clarity and certainty with a hedge order like a Forward Contract.
Posted on: Tue, 12 Aug 2014 20:44:20 +0000
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