IB FX Brief: Eurozone worries bubbling under, dollar appeal wanes
The dollar hit a wall of resistance earlier in Tuesday trading after three daily gains against the currency majors. The underlying theme of further potential fallout associated with tensions encompassing the Eurozone from within the peripheral economies remains intact. But it would appear that risk aversion has traversed far enough for now at least, drawing bullish investors back into the fray.
Click on link for updated table throughout the day at http://www.interactivebrokers.com/en/general/education/FX-View.php?ib_entity=llc
Euro – With little regional economic data to focus on, dealers are still examining the ambitions of German Finance Minister Walfgang Schaeuble. He reiterated his plans to give private investors a role in future sovereign debt crises to ensure that they share the burden. His aim is to create a model free of moral hazard by ensuring investors understand their obligation from the outset and to prevent speculative assault on government obligations. The ongoing fears over Irish state finances continued to pound the euro driving it to the weakest so far this month reaching a low of $1.3824 according to Interactive Brokers data. But a later turn in the dollar’s fortunes has allowed the single currency to rebound sharply reaching $1.3971 in recent New York trading.
British pound – The story of the British economy remains mixed while the Bank of England appears to be faced with time enough to consider the need of further monetary stimulus. The inevitable fiscal austerity measures adopted over the late summer months by the government will undoubtedly cause a further slowdown in 2011. For whatever reason, the pace of growth in the third quarter was somehow masked and had lulled investors into the belief that a further dose of bond buying would be appropriate sooner rather than later. The surprisingly firm outcome for growth has provided sterling bulls a reason to raise the roof lifting the pound to its best reading since January. There was yet more positive manufacturing data released today with September data showing a fifth consecutive gain in output for the sector leading it to its strongest position in two years. However, a harbinger of weakening consumer confidence and perhaps spending emerged in the shape of the RICS survey on Tuesday. The balance of respondents showed the worst state for housing in 18 months with a negative reading worsening from -36 to -49. Surveyors report rising or falling house prices according to what they’re seeing in the real economy and the net number shows an unhealthy market for housing. The pound nevertheless rose to $1.6170 and it strengthened against per euro to its strongest in five weeks at 86.32 pence.
Aussie dollar – The Berlin speech from Germany’s Finance Minister unsettled investors overnight causing them to continue abandoning riskier positions including the Aussie dollar. However, earlier losses to as low as $1.0070 U.S. cents have so far been erased in New York and the Aussie has firmed up to $1.0168 cents.
U.S. Dollar – With a limited economic data this week the dollar is being buffeted by on and off again risk appetite. So far today investors have been treated to both directions and the dollar index has slipped 0.3% to 76.80.
Canadian dollar – The Canadian unit has several buoyancy aides this morning. The weakening greenback is of course the primary one while prices of commodities that Canada is so rich in have also risen. Gold reached a new record high in early trading as the European situation slowly evolves. The loonie has already touched parity again today and sits ever-so slightly beneath ahead of the release of data showing new home prices likely rose marginally in September. The Canadian dollar last traded at 99.96 U.S. cents.
Japanese yen – The yen strengthened once again this morning despite marginally improving risk appetite and in early North American trading stands at ¥80.63 against the dollar. The Japanese economy continues its anemic pace of recovery. Further evidence came earlier in the form of a dip in machine tool orders to the lowest since May in yen terms. On a year over year basis orders stood 70% higher but the chart appears to show a precipitous drop in the value of orders typically associated with the broad health of the economy. The yen added to Monday’s rise against the euro to ¥112.47 while one pound today buys fewer yen at ¥130.40.
Andrew Wilkinson
Senior Market Analyst
Note: The material presented in this commentary is provided for informational purposes only and is based upon information that is considered to be reliable. However, neither Interactive Brokers LLC nor its affiliates warrant its completeness, accuracy or adequacy and it should not be relied upon as such. Neither IB nor its affiliates are responsible
