[B]Talking Points
• Japanese Yen: Finding Support On Dollar Weakness
• Pound: Brown Says Stimulus Must Continue
• Euro: Higher On Earnings Optimism
• US Dollar: Falters on Questions Over Reserve Status
Euro Gains on Risk Appetite, Concern over Dollar’s Reserve Status[/B]
The Euro surged back above 1.4750 as it found support on the back of higher European stocks markets which were up by over 1.0% across the board. Risk appetite is being fueled by expectations that lean companies will benefit from the upswing in the inventory cycle and produce solid profits. Meanwhile, the only fundamental data on the day was German wholesale prices which unexpectedly fell by 0.2% in September versus estimates of a 0.3% rise. Cost for retailers have decline by 8.1% from a year ago as the sharp fall in oil continues to suppress energy costs. The continued disinflation in Europe’s largest economy will allow the ECB to maintain interest rates at their current record low 1.00%
The Pound fell over 150 pips in early trading before finding its footing on the increased risk appetite. Traders are becoming fearful that the BoE will keep interest rates low for a longer period than their G-7 counterparts as tight credit conditions have dictated their dovish outlook. This could be a weighing factor for the sterling if it doesn’t find support from the increasing broader optimism. Prime Minister Gordon Brown stated today that stopping quantitative easing would imperil the recovery and that doing more to cut the deficit would put the economy at risk. However, he remains confident that the deficit reduction plan will be met and that investors remain willing to buy U.K. government debt which will allow them to finance the stimulus efforts.
The dollar has come back under pressure after finding support during Asian trading as European traders weren’t as cautious ahead of earnings season. We could be seeing weakness over concerns that central banks are shunning the greenback as a storage of wealth, a Bloomberg article claims that 63% of new reserves last quarter were converted into Euros and Yen. There has been a prevailing concern that countries will continue and try to diversify away from the dollar following the crisis which may limit upside potential. Those fear were stoked by comments from the Kuwait finance minister, who stated that they remain on track to developing a single Gulf currency by 2010. There is an empty economic calendar today but with earnings from Goldman Sachs, Google and several Dow components expected to be robust in the week ahead, traders may look to get a head start which has futures pointing toward a higher open. Increasing optimism and risk appetite should be a weighing factor for the greenback if results match expectations.
Will The EUR/USD Challenge 1.5000? Join us in the Forurm
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Risk Appetite Growing Exuberant with Stocks on the Verge of New Highs and the Dollar a New Low[I]
To discuss this report contact John Rivera, Currency Analyst: <[email protected]>
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