week in risk-seeking mode, but that waned as we progressed through the
week and by the start of yesterday's European session risk nose-dived
as investors were spooked by renewed concerns about the political
uncertainty in Egypt and worries that inflation concerns will slow
global growth. The dollar has been the chief beneficiary - the
greenback has risen by 1.5 per cent over the last two days on a
broad-based basis. EURUSD has lost its momentum and fallen below
1.3595 - the top of the Ichimoku cloud. The pair is now bouncing along
the 1.3520 zone, and a weekly close down here would spell further
losses for the single currency.
The yen and Swiss franc have been hit the toughest by the dollar's
resurgence, as the greenback takes the prize for most sought-after
safe haven. A weekly close above 78.55 - the base of the daily
Ichimoku cloud chart - in the dollar index would be positive for an
extension of dollar gains next week, and we could see back to the
80.00 highs from last month.
A stronger dollar is weighing on commodities and stocks. The Eurostoxx
index is down more than 1 per cent so far today, and the futures
market is pointing to a weak opening for US stocks. While the euro is
being weighed down by the rise in the dollar, European equities are
getting hit by concerns about the solvency of Portugal. Its 10-year
lending costs are back at unsustainable levels, above 7 per cent,
which is the threshold that could cause the Iberian nation to apply
for bailout funds from the EFSF rescue facility. This concern is
weighing on sentiment towards the European banking sector, which holds
a lot of the peripheral nations' debt. The financials' sector in the
Eurostoxx 50 is down more than 1 per cent so far today, which is
dragging down the entire market as it makes up nearly 30 per cent of
the index.
The pound is performing honestly well, but GBPUSD is showing weakness
and is currently below 1.6000. As expected, the Bank of England kept
rates on hold yesterday but the sceptre of rate hikes has not
evaporated. The market is still expecting 3 rate hikes this year, and
the 3-month GBP swap rate has started to rise again after a sharp drop
yesterday. The pound is still in an uptrend and we expect it to retain
its bullish tone as we close the week. Next week, but, is a different
ball game. The Inflation Report next Thursday is a major consequence
risk for the pound as the Bank of England will give their outlook on
growth and inflation for the next 2 years. This will highlight whether
the market has been right to price in such aggressive hikes, or if it
has got ahead of itself. Whatever the outcome, it has the potential to
be a volatile time for GBP.
Elsewhere, the Aussie dollar is back below parity, diminishing in line
with other risky assets. It was also weighed down by comments from RBA
Governor Stevens who said that expectations of further rate hikes not
taking place until the latter part of this year were okay, as the Bank
was ahead of the curve on the inflation front due to its previous rate
hikes since 2009. German CPI fell in January as expected, but the
annualised rate remains at 2 per cent, which is at the high end of the
ECB's target inflation rate. UK Producer prices for January reinforced
the growing pressures in the inflation pipeline. This is likely to
fuel further concerns about the Bank of England's inflation-fighting
credibility and calls for the Bank of England to hike rates.
In contrast to this, the Centralized Reserve is about to lose one of
its hawkish members. Fed Governor Warsh is will step down on March 31.
He was one of the more outspoken critics of the following round of
quantitative easing.
Ahead today, the University of Michigan confidence data is out. It is
expected to rise to 75.0 from 74.2 in January. The trade weigh is also
expected to deteriorate, with the shortage rising from $38.3bn to
$40.5bn in December. This might garner some attention, as weak exports
could weigh on growth vacant forward.
Source: ActionForex.Com
No comments:
Post a Comment