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Currencies Update: Sluggish labor markets weigh on the recovery outlook amid renewed Greek fears
Written by article default Friday, 29 October 2010 06:32
The market starts the day with jitters and downbeat sentiment ahead of awaited GDP figures from the US economy. The market is pondering upon the unemployment crisis and believes now that the sluggishness in the recovery is likely to prevail amid subdued hiring.Unemployment data from Japan did not support the sentiment really despite the slight drop to 5.0% from 5.1% as hiring is not see as improving as much as the drop in the people seeking jobs after months of being sidelined. From the Euro Area the sentiment was echoed with unemployment in September lingering around its 12-year high of 10.1%.
Surely that was not the only pessimistic aspect, the market is still jittery regarding the prospects for quantitative easing by the feds, and as the week comes to an end, the squaring of positions is further strain with GDP on the queue still from the US ahead of next week’s central banks bonanza!
The dollar stretched the gains ahead of the expected expansion in the third quarter, where markets are eyeing downbeat sentiment as they focus on unemployment and the QE2 failure to stimulate jobs growth. Nonetheless, the GDP is expected strong at 2.0% beating 1.7% the previous quarter on improved spending, which ironically is opposed to the fears spread.
We can see the dollar index trending bullishly and trading around 77.50 recording so far the low of 77.17 and the high of 77.75. Surely the risk aversion is added power to the dollar where commodities, equities and major currencies were trending lower versus the dollar since morning in anticipation of the GDP.
The euro for instance was battered by mixed figures today; the jobless rate was intact at its highs in the area at 10.1%, while inflation ticked up to 1.9%! German retail sales were abysmal and surely triggered fears over the slowdown prospects for the engine driving growth in the area, especially as the euro’s strength once again deprives a competitive advantage surely supportive in the first half of the year.
Another downbeat vibe for the euro today was once again the debt crisis! Fears are once again surfacing over the capability of indebted nations to shrink their deficits and access capital markets without resulting to default! Today Greek 10-year bonds continued to slump for the fifth consecutive day which pushed the yield investors demand for holding the bonds versus their German counterparts to rally above 800 basis points for the first time since October 01.
The euro traded lower versus the dollar since morning striking the lowest so far at 1.3805. Nonetheless, the pair rebounded higher and currently hovering 1.3580 areas, though still below the highs at 1.3951. As far as the euro remains unable to breach and stabilize below 1.38 areas we see its possibility to reverse higher.
For sterling, the sentiment was more or less the same, as the currency declined to strike the low of 1.5875 and rebounded higher towards 1.5925 where it currently is trading below the highest set at 1.5966. The BoE’s September survey for individual lending was rather mixed, with mortgage approvals and consumer credit rising but as well matched the drop in lending secured on dwellings which is rather a good sign to me where remortgaging and again extending the credit on a weak housing market and fragile banking conditions is not the best sight to see as the market tends to stabilize.
Still, the market is expected to remain jittery and mixed awaiting the final details from the US economy this week ahead of the Feds decision as November unfolds. The end of the week, the end of the month, and already strained markets is a key for the jittery sentiment and investors flee of risk and squaring their open positions, though we see the likelihood for the GDP to give a positive uptick to the market more than the negative possibility.