Market Looks for Direction

Investors sought shelter in safe haven currencies yesterday as fears of further stimulus for the US economy faded following upbeat jobless claims data. The focus across the Atlantic has shifted on to consumer confidence data due later today. Meanwhile, China’s second quarter GDP data released earlier today matched market expectations. Across Europe, Italian bond auctions are expected to grab the spotlight today following a surprise credit rating downgrade by Moody’s. At home, with no major economic data scheduled in today’s trading session, traders are likely to position themselves for a raft of macro releases due next week.

Pound Sterling – UK Markets

The Pound declined against the US Dollar in yesterday’s trading session as the minutes of the Federal Reserve’s latest monetary policy meeting and positive US jobless claims data confounded expectations of a new round of monetary stimulus for the US economy. However, Sterling ended close to its multi-year high against the Euro yesterday as investors continued to fret about the Eurozone's progress in addressing the region's debt crisis. In today’s trading session, Sterling is trading in a fairly tight range against both the Euro and the US Dollar. In a noteworthy comment, the Office for Budget Responsibility indicated that deep spending cuts by the coalition to plug a record budget gap and reform public sector pensions have improved Britain’s long term economic prospects. With a light economic calendar today, traders are expected to position themselves for a raft of macro data due for release next week including consumer price inflation, the BoE minutes, jobless claims, retail sales and public sector borrowing.

US Dollar – US Markets

QE3 chatter took a backseat in yesterday’s trading session after data revealed that jobless claims in the US slipped to the lowest level since March 2008. The receding hopes for additional easing measures for the US economy supported the US Dollar against the majors in yesterday’s trading session. Meanwhile, the greenback is range bound against both the Pound and the Euro this morning. In tune to the US Federal Reserve’s (Fed) minutes released earlier this week, John Williams, the President of the San Francisco Fed, indicated that the central bank must be ready to act, if economy weakens further. Against the backdrop of dwindling QE3 hopes, today’s consumer sentiment and producer price inflation data are expected to provide more insights into the current state of the US economy. The forthcoming week sees the release of consumer price inflation and retail sales data which are likely to be closely tracked. Domestic macro indicators coupled with the outcome of the Italian bond auctions are set to provide further direction to the US Dollar against the majors in this trading session.

Euro – European Markets

The Euro moved lower against the US Dollar in yesterday’s trading session following fading hopes of additional monetary stimulus in the US. Additionally, concerns about the prevalent fragility in the Eurozone failed to recede after the ECB, in its monthly report, highlighted that downside risks to the economic outlook have materialised. Meanwhile, the unexpected jump in the monthly industrial production in the Eurozone failed to shore up sentiment among market participants. The Euro is trading in a tight range against its major counterparts this morning. Moody’s decision to lower Italian sovereign credit rating by two notches has triggered concerns that the recent pullback in yields on the Italian and Spanish bonds might be short-lived. Against the backdrop of the credit rating cut, the Italian bond auctions due later today are expected to garner increased market attention. Traders are also set to keenly eye the Eurozone consumer price inflation report slated next week especially after President, Mario Draghi yesterday indicated that inflation in the region is easing faster than expected.

Other Currencies – Highlights

The Aussie Dollar has strengthened against the US Dollar this morning after Chinese GDP data for the second quarter released earlier today was broadly in line with market expectations. Moreover, Wayne Swan, the Australian Treasurer, indicated that although the Chinese economic growth came in at a slower pace, it is “not adverse” to Australia. On the domestic front, the minutes of the Reserve Bank of Australia’s latest monetary policy meeting slated next week is likely to be keenly eyed owing to the uncertainty over the stance that the central bank might adopt in the near future. In today’s trading session, economic releases from the US and the outcome of the Italian bond auctions will be closely tracked by traders to gauge the direction for high yield currencies.