Currency Updates:
U.S. Dollar Trading (USD) the market was shaken yesterday by the collapsing confidence in Spain’s ability to fund its own debt. Spanish and Italian authorities announced a short selling ban on banks to try and stem the rout but this had limited effect and it took the US session for stability and a small bounce into the close. More selling is likely as Spanish 10 yr Yields continue to soar towards 7.5%. Some Support was seen in Early Asian trade on Tuesday as FED member Ruskin stated his expectations the FED would discuss QE3 at the next meeting. Looking ahead, Fed Chairman Bernanke Speaks. July Flash Manufacturing PMI forecast at 52.1 vs. 52.5 previously.
The Euro (EUR) the crisis continued to dominate headlines out of Europe with support not seen on the EUR/USD until just above 1.2000. The big figure is a natural target for the bears and could be tested later this week if news out Greece is bad as expected. The troika will begin its inspection of the Greece finances today and may withhold aid if the reforms agreed to have not been implemented. IMF & Germany have both stated they will not be easing the conditions for Greece to receive aid so this inspection is becoming more important.
The Japanese Yen (JPY) the USD/JPY tested Y78 overnight but talk of large semi official buying helping lift the major and the crosses in the US session. The outlook is for more losses especially as the EUR/JPY continued to plumb new lows but the Japanese Officials have been more vocal in recent days and continued one way action will result in increased physical intervention risk.
The Sterling (GBP) the GBP/USD was dragged lower to 1.5500 in the risk off environment with EUR/GBP actually rallying and the Pound underperforming the rest of the market. Traders believe this was just a technical correction and that the EUR/GBP should continue as the European Debt Crisis rolls on. Looking ahead, BBA Mortgage Approvals forecast at 31.4k vs. 30.2k previously. Also EU July Flash PMI forecast at 45.3 vs. 45.1 previously. EU July Flash Services PMI is forecast at 47.3 vs. 47.1 previously.
Australian Dollar (AUD) the AUD/USD was the risk currency in play yesterday down over 200 pips from Friday as stocks collapsed and traders who had bought into the Aussie rally last week where caught wrong-footed. The risk sensitive currency will track stocks and has a chance of collapsing in a major dislocation event such as Greece leaving the EU or Spanish Debt Run. The other big risk is Chinese data with HSBC PMI today and the China slowdown story has been growing in importance for the Aussie traders lately. Looking ahead, July HSBC Flash Chinese Manufacturing PMI previously at 48.2. Also RBA Governor Stevens Speaks in Asia today.
Oil & Gold (XAU) was weak as the USD strength beat safe haven flows but support was found at $1565 overnight and we are looking to continue to range trade on the precious metal. OIL/USD Collapsed as the Spanish debt crisis took its toll on the risk sensitive commodity. The global growth outlook is growing darker in recent sessions with US/China/European all under pressure.
