US Dollar news:
The dollar starts down this morning as it is very much risk on for the markets. The euro bank stress test did just enough to calm the markets and as such the prices this morning are fairly close to where we were on Friday. One mover is GBP/USD which is up 0.36% for the day so far with Sterling climbing to $1.5476 with the high of the day 2pips short of $1.55.
The euro is also holding firm against the dollar, trading is in thin volumes so far but the single currency is edging ahead with a 0.10% gain and is at $1.2918 on the market. With risk back on the commodity lead currencies are receiving a slight boost, Australian Dollar and New Zealand Dollar both up on the US dollar and Canadian Dollar showing just 0.01% change for day and trading in the mid $0.9650 levels. The focus now for the dollar is which way EUR/USD trades “It will be back to fundamentals for the currency market on Monday-we are walking into a week with a large number of potentially dollar-negative event risks, and because of that, the EUR/USD could extend its gains,” said Kathy Lien, director of currency research at Global Forex Trading in New York.
Looking at the week ahead the first numbers for USD is new homes sales at 15:00 London time. This is a pretty significant piece of market data as the ripple effect from a new home sale is wide reaching within the U.S economy.
Pound news:
The EU bank stress test was supposed to be the make or break factor for GBP/EUR but the test results were pretty tame and as such Sterling has moved higher from last week but has still failed to get through €1.20. Last week Sterling remained well and truly in the mid €1.18 levels however huge GDP growth (1.1% versus 0.6% expected) saw Sterling mover higher, at one point touching €1.20 as the stress test results were trickling through. Unfortunately €1.20 was a brief encounter and this morning the price on the market is €1.1957 with a 0.10% change in Sterling’s favour. One would have hoped the very positive GDP news would have pushed Sterling higher but the relatively good news from the euro zone quickly capped any gains for GBP/ EUR.
The Pound also shot higher against the Greenback after the better than expected news. For much of the week Sterling was trading in the $1.52 levels and showing no clear direction however we start this week with a markedly higher price. $1.5464 is now the current level for Sterling on the market, levels not seen since pre-election.
Looking at the FX markets in general Sterling is benefiting from improved market sentiment; the Pound trading higher against the majority of its commonly traded pairs. With the high of the day so close to $1.55 we may see this resistance level breached during the week if things continue to stay ‘risk on’. With the U.K finances still in a very precarious state negative market sentiment tends to drag Sterling lower.
Euro news:
The Stress Test. Much was made about this test and the implications the results would have on the euro and of course euro zone market sentiment. The results were announced at 17:00 on Friday afternoon which was after the equity markets were closed but nevertheless no one in the city would have gone home early. As the results came through it soon became apparent that the test was a little too lenient to be taken seriously. Out of a possible 91 banks only 7 failed which was seen as a slightly low figure considering the amount of sovereign debt held by these banks. In the end “The handful of banks that failed were smaller banks of low consequence”, said Ron Leven, currency strategist at Morgan Stanley in New York. It would appear that despite the general feeling that the test was far from rigorous the results have done just enough to calm the markets. From here on in we are back to fundamentals for euro trading direction. EUR/USD may trade higher given the euro has held $1.2920, $1.30 is now the next major target for the currency pair given that we have visited this price within the last two weeks previously.
Quote of the Day
“Leap and the net will appear.” – Julie Cameron