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Currencies Update: Unsystematic and highly uncertain market movements reflect underlying jitters
Written by article default Wednesday, 10 November 2010 06:17
The market continues to be jittery and mixed amid the flow of new data detailing the outlook for the global economy. We can sense the evolution of a new pattern in the market now, where the diluted effect of the Feds move last week and the new European debt woes highlight the split among global fundamentals, assuring that for now we can see each region evolving on its own merits rather than a unified global conviction.Starting off from the pacific, we can see the stream of continued good fundamentals and most importantly the inflow of capital into the market. The recovery and continued pipeline pressures coupled with the divergence from other central banks attempts to support the recovery with expanding their monetary easing. There has to be a certain balance, and the tightening to the East is clearly the offset to the easing on the West!
China refueled fears of further tightening today, sending stocks lower and was only seen to the advantage of Japan! Nikkei ended with strong gains today with 1.40% advance to settle at 9,830.52.
Relative to the dollar’s movement today, greenback as gauges to a basket of currencies did not much change, and currently trading flat, especially if we compare it to the gains it acquired against the Japanese yen.
The yen declined the most versus the dollar on expectations that further easing will be seen in Japan to salvage the recovery, supported as well by good fundamentals from the Pacific which will compensate for its waning markets in the US and Europe.
The USDYEN pair inclined to record the highest of 82.23 so far and currently hovering near those areas around 82.12 after setting the earlier lows of 81.53. The pair might reverse lower after the recorded gains and depends on areas of 82.40 as stability below those levels will likely send the pair to the downside once again.
Surely, we can see the weight of the dollar and the euro in the market, where the stable dollar index was accompanied by the euro’s stability as markets await critical data from the euro area by the end of the week.
The euro is trading nearly flat around 1.3768 areas after recording the high of 1.3825 and the low of 1.3733. The debt fears continue to weigh on the euro with markets attention now focused on Ireland and see that it will be forced to ask for help to contain its budget crisis. The euro is likely to be affected by that sentiment and move lower today especially if trading prevailed below 1.38 areas.
Nonetheless, for the grand surprise of the European session, it was as expected the Bank of England. The inflation report which was anticipated to take markets by surprise and increase speculation for asset purchases increase did the exact opposite at first impact and sent sterling to rally!
The November Inflation Report was surprisingly not as negative as perceived to be and growth is seen ongoing for policy makers in the area amid heightened uncertainty for the inflation outlook. Surely, downside pressures are seen and the report highlighted the split among officials yet what it did at first impact was dilute expectations for a December decision to be taken on the APF!
Therefore, we still see that the slowdown expectations and the downside pressures to materialize in the first quarter to be bearish on sterling, yet for now the initial absorption for the report was POSITIVE. Sterling gained versus the dollar to set the strongest today at 1.6098 after the low of 1.5959 and currently hovering around 1.6070 areas.
The general sentiment in the market is jitter and the outlook is surrounded by high uncertainty and that will surely be haunting the market in the upcoming period and the dollar will be regaining some of the losses on the back of that. The uncertainty is clearly evident in the demand for haven as gold continues the strong trend setting the high today at $1410.00 and returning lower once again to hover now around $1396.50 areas and likely to continue to fluctuate heavily amid profit taking and dollar instability as that we saw yesterday.