Ain’t no thang but a chicken wing! With risk aversion taking over the markets, investors bought up the dollar like good ol’ Wingstop wings! EUR/USD closed almost 100 pips lower to finish at 1.4336. Meanwhile, AUD/USD came tumbling down as well, losing 160 pips to end the day at 1.0395.
The wave of risk aversion that hit the markets was due to a combination of factors.
First, concerns about the state of European banks began to creep back in the markets. Word through the forex grapevine is that one European bank had to request an emergency loan of as much as 500 million USD from the ECB.
This led to a sharp selloff in the stock market, with the FTSE and DAX closing over 4% lower, while the Dow dropped by as much as 500 points.
Second, we got a slew of poor economic reports, all of which pretty much came in worse-than-expected.
Unemployment claims came in at 408,000, which marked the bazillionth time that the figure has come in over the 400,000 level.
Existing home sales data was also disappointing, printing an annualized rate of 4.67 million, which was way off the expected 4.91 million figure. This was also a big drop off from June’s strong revised showing of 4.84 million.
The bad news continued when the Philly Fed Index flopped and came in at -30.7. The Ben Affleck-like performance wasn’t only way off the expected 4.0 figure, but it also marked the worst showing since March 2009! Ay caramba!
The only bit of “good news” was that CPI figures came in stronger than anticipated. Over the past month, prices rose by 0.5%. The index was expected to show an increase of just 0.2%. Ironically, this helped boost the dollar as well, as it gives the Fed less reason to be raising rates any time soon.
With no data releases scheduled for today, you might wanna keep an eye out on other markets to help you gauge risk sentiment. If it looks as if equity markets are falling and if gold is reaching for new highs, it may be a sign that risk aversion is still clouding the market, which may give you opportunities to build long dollar positions.