Sighs of relief plump euro

Hopes for an emergency EU ministerial summit to counter rising fears over contagion from a possible default in Greece toned down concerns about Italy and inspired a recovery in the region’s currency. Meanwhile investors pushing hard for a rebound in risk looked to Chinese growth figures for reassurance. Stronger second quarter growth in the world’s number two economy tells us little about the future yet offers no solace for Europe’s little problem of debt.

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Euro – You could refer to Tuesday’s price action for the euro currency as capitulation as the unit slid to a four-month low while investors were panicked out of many positions. Midway through the day the worst levels had been rejected as the last panic-struck investor had been flushed out and the mindset had been changed by the ECB on a bond-buying binge across those governments in most need. With no follow-through drama emerging this morning the path of least resistance was upwards earlier as buyers of the single currency nudged it to as high as $1.4109 forcing any recent shorts to consider getting out of the trade. However, nothing has changed other than the fear of a possible EU summit, which would likely serve up more words telling us how the problem is likely to be resolved. As more investors realize this the euro’s earlier gain is looking fragile with the unit back to $1.4050. Expect a test of $1.4000 later in the day.

U.S. Dollar – Fed Chairman Bernanke delivers his thoughts on the prospects of the economy along with offering some perspective on the current monetary policy stance in Washington starting today. Minutes of the recent June meeting sparked debate over the likelihood of fresh quantitative easing. Many in the market had written off the likelihood after last month’s policy conclusion, but clearly some element of the FOMC most likely headed by Bernanke himself, is of the opinion that there is worse to come for the U.S. economy. The dollar lost some ground as risk units rebounded while it fell most sharply against the Swiss franc. Its index slid by 0.5% to 75.61.

Canadian dollar – The rebound for commodity prices boosted the Canadian dollar. The move was sparked by a stronger than forecast reading for Chinese growth during the three months ending June With more than half of Canada’s national export revenues coming from minerals and natural resources, rising prices for crude oil, copper and gold don’t go unnoticed north of the border. The local dollar reached almost $1.0400 U.S. cents this morning.

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