Dollar recovers sharply on weaker equity markets as Euro suffers most

It is business as usual in forex markets as an about turn in equity markets sparked a well earned rebound for the US Currency. The Dow fell over 3 % during the week as a combination of Fed announcements in Quantative Easing and economic outlook set the ball rolling together with a batch of weak data. Certainly equity markets seem to have had a reality check and technically look vulnerable at this point.
The Euro suffered most not just because of its long rally but also the release of 2nd Quarter GDP figures. These figures at plus 1 % overall were overshadowed by the individual breakdown. Germany had an amazing +2.2 % quarterlery growth compared to predictions of around 1.3 % while at the other end of the scale Greece -1.5% ,Spain +0.2 % and Italy 0.4% demonstrated the fragility of their economies.
This gap is something that will add to tensions within the Euro group and frankly what we know will continue.This could indeed be the prelude to a period of larger diversification of growth as austerity measures continue to dog the weaker countries. Last week I mentioned the bogey man waiting to appear in Europe and this could be the beginning. Another bout of credit market nerves could again be brewing and should be watched carefully.
Elsewhere the Yen hit a new 15 year low against the dollar and despite a late bounce on intervention fears the Japanese look to be in between a rock and a hard place as far as their currency is concerned.Intervention if it does occur will need to be concerted and this looks unlikely at this time.Concern amongst Japanese companies will possible exert more pressure on the Government and Bank of Japan.
in the UK improved 2nd quarter growth of 1.1% was considered to be influence by technical reasons and the Bank of England´s quarterly report downgraded growth and inflation targets.

Going forward I think we can expect more of the same with currency markets continuing in possibly well defined ranges as equity markets do likewise. Economic recovery remains pretty anemic in many areas with differences no better demonstrated than the Euro zone.