http://www.forex.com/uk/post?SDN=2aa3ae44-ba36-436b-81cc-0541dcb874c5&Pa=20db1fa6-e674-420c-9a87-2ee29261d638
Some observers of the currency market might think that it was detached from reality. The euro has risen more than 1 per cent against the dollar since the London market returned after the Christmas break, at the same time as Italy’s cost of borrowing has risen to a Euro-area high. Commodity currencies are also breaking higher along with stocks; the FTSE 100 is flirting with 6,000 as we end 2010, led higher by a robust performance from the miners.
The themes that are dominating during thin festive markets include expectations for robust global growth led by emerging markets, strong safe haven currencies and a weaker dollar across the board. The global growth story is fuelling commodity price gains. Copper hit another record yesterday and oil is still above the $90 per barrel level, although it is finding it difficult to convincingly break above $92 per barrel. This in turn is fuelling commodity currency strength. The Aussie dollar is above parity, and will start to look extremely interesting above 1.0200. It has been here before on a number of occasions during 2010, but has ended up stalling. If it can sustain strength at this pivotal level (it is currently trading at 1.0130/50) then the Aussie could gain upward momentum very quickly.
The euro has regained some strength vs. the dollar and 1.30 seems to be the low for now. If we break below this level on sovereign debt fears then the decline into the mid 1.20’s could be fairly rapid, especially since concern has spread to Italy’s extremely large financing requirements for 2011. However, with Germany’s economy still showing strength and its debt market remaining an extremely attractive investment, the euro’s stabilisation could well continue into 2011. Interestingly, the euro is the least weak of the major currencies, having risen against the greenback and the pound in recent days.
The rumour mill is once again focussing on Japan. The yen has risen strongly vs. the dollar, which is leading some market commentators to conclude that government intervention to weaken the yen might be around the corner. Indeed FX traders on the Tokyo Financial Exchange have become extremely bearish on the yen in recent days so a sharp correction in USD/JPY, especially in extremely thin markets over the coming days, is not beyond the realm of possibility. But for now, weaker USDJPY at the same time as Treasury yields are increasing seems to be the new normal.
As mentioned above, large-cap stocks have had a strong final week of the year. But this is not true for the smaller indices, including the Russell 3000 in the US and the Nasdaq. They have come off their highs in recent days. While these dips are a fairly normal reaction after such a strong run-up, any further decline should be watched by stock traders as the Russell and the Nasdaq led the run-up in large-caps and could also lead them on the downside.
US initial jobless claims and pending home sales are the main data releases of the week and could be market-moving events.
The themes that are dominating during thin festive markets include expectations for robust global growth led by emerging markets, strong safe haven currencies and a weaker dollar across the board. The global growth story is fuelling commodity price gains. Copper hit another record yesterday and oil is still above the $90 per barrel level, although it is finding it difficult to convincingly break above $92 per barrel. This in turn is fuelling commodity currency strength. The Aussie dollar is above parity, and will start to look extremely interesting above 1.0200. It has been here before on a number of occasions during 2010, but has ended up stalling. If it can sustain strength at this pivotal level (it is currently trading at 1.0130/50) then the Aussie could gain upward momentum very quickly.
The euro has regained some strength vs. the dollar and 1.30 seems to be the low for now. If we break below this level on sovereign debt fears then the decline into the mid 1.20’s could be fairly rapid, especially since concern has spread to Italy’s extremely large financing requirements for 2011. However, with Germany’s economy still showing strength and its debt market remaining an extremely attractive investment, the euro’s stabilisation could well continue into 2011. Interestingly, the euro is the least weak of the major currencies, having risen against the greenback and the pound in recent days.
The rumour mill is once again focussing on Japan. The yen has risen strongly vs. the dollar, which is leading some market commentators to conclude that government intervention to weaken the yen might be around the corner. Indeed FX traders on the Tokyo Financial Exchange have become extremely bearish on the yen in recent days so a sharp correction in USD/JPY, especially in extremely thin markets over the coming days, is not beyond the realm of possibility. But for now, weaker USDJPY at the same time as Treasury yields are increasing seems to be the new normal.
As mentioned above, large-cap stocks have had a strong final week of the year. But this is not true for the smaller indices, including the Russell 3000 in the US and the Nasdaq. They have come off their highs in recent days. While these dips are a fairly normal reaction after such a strong run-up, any further decline should be watched by stock traders as the Russell and the Nasdaq led the run-up in large-caps and could also lead them on the downside.
US initial jobless claims and pending home sales are the main data releases of the week and could be market-moving events.
Disclaimer: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
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