Optimism Drives Risk Appetite Ahead of European Open

Persistent risk appetite, displayed most overtly by ongoing stock market gains in Asia, continues to set a negative backdrop for the USD, which has started the new week making fresh trend lows. Signs of limits to investor appetite for U.S. government paper at last week’s record-level auctions adds to the negative sentiment of greenback. Today, an Mitsubishi UFJ earnings report (reporting its first profit in nine months) and China’s PMI manufacturing data showing an above-expectations reading of 52.8 (above the 50.0 “boom-bust” threshold and the highest outcome in a year), have given risk appetite another boost, which should set the tone into European and North America trade today. Cautiously upbeat comments came from ex-Fed Greenspan, Treasury’s Geithner and White House’s Summers over the weekend. Note too that PIMCO’s McCulley forecast that the Fed will not raise rates until 2011 gained some attention on newswires and in markets, which may perhaps be taken negatively by USD traders. The week ahead is packed with key economic releases. The U.S. August calendar gets off to a fast start today with the ISM manufacturing index, vehicle sales, and construction spending due out, while prime focus will be Friday’s July payrolls data. Europe has Euro-Zone manufacturing PMI, as does the U.K. and Switzerland.