Currencies rebound


Although the markets turned positive in late London trading, which may bode well for the more risk-sensitive currencies over the North American session, the USD and JPY were the outperformers overnight due to problems out of Europe. All the majors kept to their ranges, however, with the dollar only moving up between 0,1 and 0,5%. Although Europe is a concern and this may continue to contain the common currency under resistance levels, the US economy is once again being viewed negatively, which hurts the flight to safety bid.
Euro/USD bounced around in an 80% range (more recently a 40% range) and the AUD, after losing steam in APAC and early UK, has bounced back nicely, close to yesterday’s closing level. The Loonie has fallen out of favour of late, but is consolidating after USDCAD rejected the 1.0680 level in interbank trade yesterday. It has touched off that level a few times over the last week, which does signal that the next move could be down in USDCAD (up for the CAD), but the currency is trading with a slight offered tone and is very sensitive to the overall risk atmosphere.
As markets returned from the North American long weekend yesterday, markets were buoyed by tempered optimism due in part to China announcing infrastructure plans to spend more than 100 billion USD over the next year. Still, these plans do not necessarily signal new stimulus, as most funds have been budgeted for; it appears that this was little more than rhetoric to support the Western Development Conference, which ended yesterday. The Dow moved up by a 0,59% increment and the S&P gained 0,54%.
Overnight, however, the bid tone diminished as earnings came into question. CRH Plc., the world’s second largest maker of building materials, fell 8,4% in London trading. The move was due to CRH’s first half earnings and sales dropping more than forecast, which is certainly viewed as an indicator for global growth due to CRH’s world position. Further, Marks & Spencer slipped 2,3% early in the UK session as they are “cautious” on the outlook due to UK measures to cut their budget and the resulting effect on consumer confidence and demand. Europe is also back in the spotlight yesterday. We hadn’t heard a lot of bad news over the last few days, as the market seemed to have decided that the situation there was contained; however, as is the case with major debt problems, they persist! Spain has announced that the cost of recapitalising and reorganising their savings banks will represent 1,5% of the economy. This is a large figure, and one which puts further strain on their already fragile economy.
We are not surprised to hear such announcements, but it is concerning just the same. –