The USD gained with large strides on Monday against most of the major currencies except the JPY. Investor sentiment dropped off a cliff yesterday as the Empire State Manufacturing report produced a fall of -9.4 compared to the already poor estimate of minus -4.7. Also roiling the marketplace were additional worries about the housing data that will be brought forth today based on independent studies released yesterday that showed foreclosures remain very high, and mortgage rates that are climbing. The U.S equity markets turned in their worse performance in a month dropping broadly on all indexes. Basically what we saw on Monday was the fear that instead of growth being around the corner that the world�s major economies could simply bounce along the bottom. Build Permits and Housing Starts data is on cue today along with PPI data.
Yesterday�s results should serve as a stark warning that as much as some people are trying their best to talk up the markets that there remains the fact that the real value of companies and countries performances will have to be calculated and presented with eyes wide open. The housing market in the States is a critical underlying indicator of economic health and Building Permits are expecting to produce a number of 0.50 million. Tomorrow the CPI data is on the table along with Crude Oil Inventories. Investors showed that their sentiment can be easily rattled on Monday as the stock markets sunk on the combination of bad manufacturing news and the speculation that the housing sector is not about to recover anytime soon. The USD proved once again yesterday that it remains a bulwark as a safe haven when too many suspicions and questions start to arise. The USD will be watched closely today having gained widely against the EUR and GBP yesterday. If equity markets continue to be move uneasily the USD may find itself the recipient of additional strength.
With little in the way of major economic data to guide investors on Monday the EUR was taken lower. The European Union has clearly come under the shadow of transparency issues which are dogging its banking system. Yesterday speculation abounded about additional debt that banks have yet to write down in Germany and other countries amounting to over 205 billion EUR. At this point the European Union remains at odds with their counterparts in the U.K. and U.S. who have dealt with the financial crisis in a more open manner. Today the German ZEW Economic Sentiment survey will be released and is expecting a reading of 35.1 compared to the previous result of 31.1. Also being published today will be inflationary data and the broad European ZEW results. Economic data will be on the light side the remainder of the week from Europe and today�s German data therefore will get a lot of focus. However its stands to reason that sentiment will continue to be moved by the developing story that is following the European banking sector. It will be of interest for traders to see if positive data from Germany can help give the EUR footing. The EUR has slipped the past few sessions and investors will be keen to see how it reacts to pressure today.
The Sterling continued to give some ground back to the USD on Monday on a day of little economic data. The GBP was clearly taken lower on dollar centric movement coupled with weakening sentiment that caused a downturn in global equity markets. Today the U.K. will release CPI data and it is expected to have a rise of 1.9%, this number would be less than the previous outcome. Tomorrow the Claimant Count Change numbers will be presented. Investors are not expecting much of a surprise from the inflation data today. The Sterling has had a remarkably strong run the past couple of months though it has lost some ground to the USD the past few days. The GBP is still firmly within the stronger mode of its range considering the weakness it showed earlier this year. The question traders will be asking themselves is if the Sterling will be able to maintain its stability if risk appetite continues to dampen.
The JPY gained widely on Monday in the wake of risk appetite disappearing and equity markets taking a strong hit internationally. The JPY and the USD are both wide seen as safe havens for a variety of reasons. Asian investors proved again yesterday that when the stock markets get rocked that there are few other places they feel they can put their money to take refuge against a financial storm. Gold also continued to go lower yesterday as the USD climbed. Gold sunk to 932.00 USD but this has to be taken in the light that this remains a fairly high price for the precious metal. With uncertainty high going into today�s trading session it stands to reason that the JPY may see additional impetus if the risk averse seek a flight to quality.
Written by: Robert Petrucci
Bforex Chief Commodity Expert and Forex Analyst