Summer ……and the shorts are taken out.

On the one hand there was the usual forex market reaction to Risk aversion sales, on the other there was the stellar performance of the Euro. Yes one would assume that many Euro Shorts self included felt the pain last week. Despite weaker equity markets the Euro /USD powered over 1.30 at one point and closed around 1.2930. As commodities and gold took a hit not surprisingly the Canadian dollar faired worst losing almost 5 % against the Yen and a little less against the Euro.
Equity markets and the dollar focused on slightly weak data rather than Corporate earnings and the Euro further benefitted from better than expected bond auctions in Greece and Spain.Data from Germany remains solid  and this has helped keep a more positive Euro mood.
However, I do believe that it will only be a matter of time before lagging growth and other strains on the weaker Euro members reemerges to the detriment of the Euro. Next weeks banking stress tests could also prove a stumbling block.
All in all the picture for growth remains cloudy with signs also of a slowing in China. Thus we continue to see equity markets having good and bad weeks with the US dollar and Yen reacting accordingly in the main.
Technically the US dollar still has further to fall before perhaps events turn things positive again which might be a few weeks off yet.
 

Gloom and Doom as equity markets fall and Germany makes the Semis

Stock markets around the world once again called the shots for the forex market.
New 2010 lows for many equity markets caused the largely usual knee jerks in currency markets. The Yen and Swiss Franc were the biggest winners particularly at the expense of the commodity currencies(AUS and CAN Dollars) some 5% plus gains.
Where things did turn out a little different was the EURO and GBP which made up ground against the US Dollar the Euro closing the week at close to 1.2550. Already commentators are talking the decoupling of the Euro US dollar relationship visa vi general risk aversion. On balance though that seems a little to early to call on one weeks price action. Gold also faired unexpectedly badly closing down at just over 1200 .
All the statistics were pretty much market negative and it is difficult to see any real change next week.
It seems as if something will need to rescue the stock markets for things to stop getting worse.Technically the picture seems to be getting slowly more adverse for equity markets and while Forex markets can decouple from this it looks unlikely. The end result could see a reemergence of US Dollar strength against the Euro.
As for the World Cup , Holland Spain would be nice but would you really bet against the Germans

Forex World Cup Report

As if to prove they are kings like their currency the Swiss beat Spain in the Football World Cup (That’s soccer for our American friends). France capitulate, Germany trip up badly, Italy very very poor and England well, the usual mess and progress goes down to the wire.
This could almost be the currency report this year……….

In the forex world things were much the same. The Swiss franc certainly shone the most, the Swiss National Bank signaling a break in intervention. Elsewhere it was echoes of the previous week. Equity markets held up well and so too the Euro. Commodity currencies ( Ausie and Canadian) better, all at the expense of the Yen and dollar. That said the Euro/USD is close to reasonable resistance under 1.24. It would need continued confidence in the equity markets next week and risk generally to continue any progress.
It could prove to be an interesting week for the British Pound. The long awaited emergency budget will be introduced.The usual drip feed leaks of what is to be expected seems to point to the Chancellor Osborne trying to get all the bad news in terms of cuts in spending and taxes out all together. They may be fazed in but should get a good response from the market, all be the flip side on growth will be a negative.
On balance I feel the risk reward right now could be for a good move up in GBP/USD ( CABLE). Maybe owning some short term GBP Call Options could be a good play.

In the longer term I still think there will be another shake out in equity markets. The Euro situation while somewhat quieter is a sleeping giant of a problem. It maybe that a double dip does not occur in Europe bailed out by China and Emerging Markets. However, the austerity packages are definitely causing extreme economic pain for many countries. One fears that there will inevitably be social unrest this summer. To what degree may be the deciding factor for markets.

Elsewhere, notably gold made another high of 1263.75 against the dollar with little or no fuss. One suspects that given the excuse of some crisis we could finish the year much higher. On the other hand maybe it was just all those World Cup medals and football WAGS presents.They love their bling.

Weekly Update

Risk appetite improves on economic data and no Greek tragedy.

Generally positive Economic data encouraged equity rallies which helped arrest any further dollar rally and led to the Japanese Yen losing ground against most currencies. The Canadian Dollar and Australian Dollar led the gains against the yen as commodities rose, Crude oil closing at 81.50.
In the week ahead any continuation of this may see further declines for the Yen and US Dollar.The Euro remained unchanged against the dollar despite improved risk appetite and marginally improved sentiment for Greece, who managed to secure their Euro 5 Billion 10 year Bond auction successfully.However, it may be that this week that the Euro is able to make more headway against the dollar particularly if the equity markets continue to improve.
Sterling which began the week in free fall on the back of weekend opinion polls and rumors regarding the Prudential , AIA takeover recovered to close the week much as it had started. The sell off , however, does indicate how fragile the currency is. In the build up to the election it offers the prospect of some serious volatility and generally sentiment remains poor despite some better economic data.

I stick with the view of seeing 1.40 Euro/US Dollar before 1.30. The week ahead offers very little in the way of exiting economic data so currency markets may well take their lead from equity markets.

Finally,I have to include a comment of the week which comes from Greece.

The Greek prime minister said he will fight to ensure speculators don’t undermine his push to restore order to the country’s economy. It’s unjust and undemocratic that his efforts are being undermined “by some ‘kids’ in New York and elsewhere sitting in front of a computer,” he said yesterday.

Well George they were the same boys who helped you fudge the budget numbers to get in the Euro in the first place.