Tuesday July 8, 2008 - 10:52:36 GMT
Share This Story
FXCM - www.dailyfx.com
Forex Research - Euro Recovers After Volatile Night - The New Safe Haven Bid?
very volatile night of trade in the currency market that produced lots
of heat but little light with EURUSD trading essentially unchanged
â€¢ Japanese Yen: breaks below 106.50 as all equities deep in the red
â€¢ Euro: Back to breakeven after volatile night
â€¢ British Pound: Shows relative strength as fears of cut fade
â€¢ US Dollar: Pending Homes on tap
Euro Recovers After Volatile Night â€“ The New Safe Haven Bid?
A very volatile night of trade in the currency market that produced
lots of heat but little light with EURUSD trading essentially unchanged
after dropping more than 70 points in early European trade. With
global equity markets registering triple digit losses, on fears of
further problems in the financial sector, the euro initially sold off
but quickly recovered its footing despite lower stocks.
Over the past several days the currency market has seen a complete
shift in trading psychology. The EURUSD used to be positively
correlated with rising stocks markets, as expanding risk appetite
generally favored the carry trade in EURJPY lifting the EURUSD in the
process. Yesterday however the dynamic completely changed. Stocks
dropped like a stone, yet the euro rallied strongly. Why?
One possible explanation is that the euro is now seen by many investors
as the safe haven currency replacing greenbackâ€™s long held claim to
that title. Although the EZ economy shows signs of a slowdown, on a
relative basis growth in the EZ remains much better than in the US with
Q1 GDP more than double the US rate. Furthermore with its 4.25% yield
the unit stands as an attractive alternative to plummeting equities and
certainly a superior choice to the greenbackâ€™s paltry 2% yield. This
change in correlation therefore bears watching. If this is indeed the
new trading theme in FX, further declines in equities may lead to more
gains for the EURUSD as investors the world over seek the safety of its
balance sheet and the attractiveness of its yield.
Meanwhile, the one unit that has shown remarkable resiliency over the
last two days has been the pound. After being battered relentlessly by
series of negative economic news, cable was able to recover most of its
losses and bounced back to 1.9800 level. One piece of news that helped
was the better than excepted reading in DCLG House prices which printed
at 3.7% versus 3.3% forecast. The report is likely to keep the
pressure on the BoE to keep rates steady for the time being and
therefore alleviate some of the selling pressure on sterling.
Finally in US the calendar remains sparse with only Pending Home Sales
and Wholesale inventories on tap. Trade may continue to be volatile in
North American session but likely driven by continued turbulence in
equities rather than any fundamental economic news.
Will EUR/USD Trade Back to 1.60? Join us in EURUSD Forum
Forex Trading News
Daily Forex Market News
Forex news reports can be found on the forex research
headlines page below. Here you will find real-time forex market news reports
provided by respected contributors of currency trading information. Daily forex
market news, weekly forex research and monthly forex news features can be found
Real-time forex market news reports and features providing
other currency trading information can be accessed by clicking on any of the
headlines below. At the top of the forex blog page you will find the latest
forex trading information. Scroll down the page if you are looking for less
recent currency trading information. Scroll to the bottom of fx blog headlines
and click on the link for past reports on forex. Currency world news reports
from previous years can be found on the left sidebar under "FX Archives."