The euro strengthened against the dollar yesterday as it opened in Asia at 1.3488, initially dipped to 1.3468 before surging up to 1.3568. The 100 pip gain was due to news of the IMFs plan to reintroduce short-term lending. Investors’ optimism was soon dashed by the possibility that Portugal would need another bailout amounting to €20-25 billion, as well as the higher cost of borrowing that Spain has to pay its lenders from the recent bill auction. Moreover, Belgium and Austria’s cost of borrowing also increased yesterday adding further pressure to the euro zone debt crisis. EUR/USD was able to increase slightly in the New York session and opened in Asia early this morning at 1.3504. It continued to track higher up to 1.3530 due to investors’ short covering, but the move didn’t last long before the euro lost 85 pips down to 1.3445 as a result of heavy dollar buying from risk aversion. The dollar began to strengthen across the board as the FED announced at the close of the US session that they plan to conduct a surprise stress test for banks. The test will apply a hypothetical 8% drop in GDP, a 13% unemployment rate and a 52% fall in the stock markets to see how banks would be able to cope with such conditions. The last time the FED conducted a stress test was in 2009 requiring banks to raise extra capital as a result. Equity markets closed lower due to the announcement sending investors in search of a safer investment and sinking their teeth into the safe haven dollar. China also announced a lower Flash PMI figure yesterday which weakened the markets. The euro was dragged down also by the news that the Dexia bailout deal may need some adjustments and as a result France may lose their AAA credit rating. Today will be a heavy day as far as fundamental data is concerned. Investors will be waiting to hear the figures for France, Germany and EU Flash PMI data as well as US Durable Goods Orders and Unemployment claims. EUR/USD is currently trading at 1.3470 and Trading Central expects the currency pair to remain under pressure.
GBP/USD: The sterling traded a rather choppy session yesterday as it opened early in Asia at 1.5640 and initially traded sideways before reaching a high of 1.5690 for the day prior to the announcement of positive Public Sector Net Borrowing data. The actual data itself had little impact as the sterling then dropped against the dollar down to 1.5582 as investors began to question the solidity of the Dexia deal. Investors’ concerns for the euro zone debt crisis worsened as Spain’s, Belgium’s and Austria’s cost of borrowing increased. In the New York session, the sterling was able to regain some bullish momentum as it came back to the open of the day and opened in Asia this morning at 1.5632. As with the euro, it initially traded higher at 1.5655, before dropping to 1.5599 on the announcement of the FEDs decision to conduct a surprise stress test for US banks. It is currently trading at 1.5623 and is also expected to remain under pressure, depending on the EU and US data announcements today.
USD/JPY: The “risk-off” market sentiment was also seen in the USD/JPY yesterday as markets opened at 76.87 and rallied up to 77.30 early in the Asian session. Half way through the European session it dropped below the open down to 76.82 as the announcement of the IMF to reintroduce short term lending boosted markets confidence regarding the euro zone debt crisis. Volatility saw it recover back up to 77.12 as dollar buying was brought on by the weak US GDP revision data. As the US session ended and the FED announced their plan to hold another stress test hit the markets, the USD/JPY took another tumble dropping down to 76.93. The weak Chinese Flash PMI data also added pressure to the currency pair dragging it lower. Markets are closed in Japan today due to a Bank Holiday and as a result markets seemed rather quiet. USD/JPY opened at 76.95 this morning and was trading slightly above the open at 77.05 despite the news of the FEDs surprise stress test. It briefly dropped back to the open and is currently trading at 77.00. The US unemployment claims as well as the US durable goods data will both be announced later today at 13:00 GMT and will most likely impact the currency pair.
USD/CHF: Opened yesterday at 0.9171. The pair rose during the Asian session to find resistance at 0.9184. It lost ground during London’s session and dropped by 75 pips as the Swiss trade surplus improved to 2.15 billion francs from 1.85 billion francs in September. This 75 pip drop was accentuated by a weaker dollar as risk appetite, fuelled by disappointing US data, provided the pair with a bearish momentum. The pair recovered some of its losses as the attention shifted toward some of the European region’s highly indebted countries. Indeed, rising yields in Spain’s last short-term bonds auction put pressure on the euro and provided the pair with a bullish momentum. USD/CHF closed with an overall 30 pips loss. The pair opened today at 0.9140 and is currently trading at the open level. No Swiss data is scheduled for release today. Therefore, traders will focus on Europe and US fundamentals for any impact on risk sentiment.
Commodities
Oil: Crude oil opened yesterday at 97.00. It reached the day’s low at 96.53 during the Asian session before rising steadily during London’s session following the news that the IMF plans to extend its credit line to Europe. It followed a choppy US session where crude oil traded within a 200 pips range, reaching highs at 98.68 and lows at 96.65. The reason for such price volatility came from S&P and Moody’s confirmation that they won’t downgrade the credit rating of US debt. This bullish momentum was limited by a lower than expected US GDP figure, where the US economy expanded in the third quarter by 2.0% down from the prior estimate of 2.5%. Nevertheless, the commodity closed the day with an 86 pips rise. Crude oil opened today at 97.84 and is currently trading 120 pips below the opening price. Today’s calendar is full of US and European reports, so traders will be checking the Europe PMI’s between 8:00 and 9:00 GMT. Additionally, the US Core Durable Goods Orders and Unemployment claims released at 13:30 GMT may have an effect on crude oil price action. Last but not least, the 15:30 GMT US Crude Oil Inventories, which is expected to show that crude oil inventories increased by 1.5 million barrels, could also impact the oil prices.
Gold: Gold opened yesterday at 1677 and steadily rose within a 100 pips channel to close the day with a 220 pips gain. This uptrend was supported by the latest drop in gold prices as bargain hunters stepped in to buy the safe haven, which provided it with a strong bullish momentum. This upswing was reinforced by the disappointing US growth data as these figures could raise speculations over another round of quantitative easing. Finally, the IMF plan to increase its credit line to some European countries had little impact on gold prices, largely because of the conditions attached to the proposal. Gold opened today at 1698 and is following yesterday’s uptrend, trading 70 pips higher to the opening price. Gold prices are likely to remain under pressure over the coming period as the US dollar, trading near a six week high, will continue to put pressure on the bullion prices.