Global Cues In Focus

Although market participants continued to fret over the liquidity crunch in China, risk appetite appeared to received a boost after two Fed policymakers sounded slightly more dovish yesterday, hinting that the Fed might continue with its accommodative stance. Meanwhile, with a light European economic calendar today, a slew of key US economic releases including durable goods orders, consumer confidence and new home sales will take centre stage, given its influence on the Fed’s future policy moves. Additionally, developments taking place in the Greek political arena holds significance. At home, data from the BBA just out has revealed that appetite for mortgage loans continued to show signs of improvement for May.

Pound Sterling – UK Markets

In today’s trading session, Sterling has limited its downside risks against the US Dollar and the Euro as the BBA report just released has revealed that mortgage loans in the UK rose more than expected for May, reaffirming the belief that the BoE’s FLS scheme is continuing to play a pivotal role in lowering borrowing costs and underpinning recovery in the housing sector. Although the Pound had lost ground against the Euro following upbeat German Ifo sentiment indices data, the currency managed to recoup most of its losses yesterday amid prevalent global economic worries. Markets are expected to pay modest attention to the CBI distributive trades survey for June scheduled later today for early insights into the UK retail sector. With last month’s retail sales data offering an upbeat view, it remains to be seen whether today’s report also echoes similar results. Besides, four MPC members including the BoE Governor, Mervyn King, are scheduled to testify to the Treasury select committee later today. The event holds relevance for gauging prospects of further monetary easing. Going forward today, developments taking place in overseas markets will be keenly eyed by traders.

US Dollar – US Markets

Although the calls for the partial unwinding of the Fed’s stimulus measures are getting louder, dovish comments from two Fed policymakers during yesterday’s trading session continued to highlight that the central bank’s future course of action remains unclear. These comments led high yield currencies to recoup some of their early session losses following concerns over tight liquidity conditions in the Chinese financial system. On the domestic front, yesterday’s regional economic indicators offered further signs of revival in the nation’s manufacturing sector. Data revealed that manufacturing activity in the Dallas region unexpectedly moved into the expansion phase, while the Chicago region also registered an improvement for June. Against this backdrop, the Richmond manufacturing activity index due later today is expected to grab market focus. However, most of the market attention will revolve around today’s US consumer confidence and durable goods orders data for valuable insights into the nation’s economic prospects. Additionally, markets will keep a tab on new home sales and S&P/Case-Shiller home price index due today for further hints about the housing sector.

Euro – European Markets

With the US Fed officials downplaying worries surrounding an imminent end to QE3, the Euro managed to move above the 1.31 mark against the US Dollar in yesterday’s trading session. However, fears surrounding the credit crunch in China have limited the upside for the common currency in today’s trading session. Meanwhile, in a move to quell concerns over a political crisis after the Democratic Left Party withdrew its support last week, the Greek Prime Minister yesterday made sweeping changes to his cabinet including handling key posts to Greece's minority Socialist party. With no major economic releases from the Euro zone today, markets are expected to pay some attention to the ECB Chief’s Draghi’s comments later today for clarity over the central bank’s future course of action, given his earlier comments that the central bank stands ready to move into unchartered territory if the Euro region recovery falters. Additionally, in the midst of ongoing turmoil in global markets, today’s Italian bond auctions will garner market attention for gauging market appetite for riskier assets. A raft of domestic releases from the US will also have a profound influence on market sentiment in today’s session. Meanwhile, with yesterday’s German Ifo sentiment indices offering encouraging signs, Gfk consumer confidence in Germany due tomorrow is expected to grab market focus for further cues.

Other Currencies – Highlights

Although a broad selling in riskier assets amid concerns over the credit crunch in China led the Australian Dollar to nudge lower against the greenback, the currency has managed to recoup most of its losses and is trading on a firmer footing in today’s trading session. The rebound can be partly attributed to dovish comments from a few Fed policymakers. However, with China, Australia’s largest trading partner, struggling to cope up with the recent economic slowdown and liquidity woes, it remains to be seen whether the Aussie Dollar could hold on to its gains in the near term. With no major domestic economic releases apart from private sector credit and MNI business sentiment due this week, the Aussie Dollar is likely to monitor developments taking place in global markets for further cues to risk appetite. Meanwhile, manufacturing PMI due this weekend as well as retail sales, construction and services PMI data due next week will garner market attention for insights into the nation’s economic performance. The RBA monetary policy meeting also remains a significant event risk next week and any negative surprises amid weak domestic recovery could weigh on the appeal of the Aussie Dollar.