Markets stable, but wary after plunge
Markets have stabilised overnight after a broad based euro related sell off. The overnight data has been mixed with improved Australian private capital expenditure, but below estimate building approvals. Spanish Bankia bailout plans may have sparked yesterday´s sell off, but it´s the revealed in the euro´s structure that are really troubling markets. Many sensible plans have been put forward in recent days such as a euro wide bank deposit scheme, but the fractured nature of European politics means that such plans cannot be rushed through without significant delay or debate.
It should be another volatile day on financial markets with US ADP payrolls due at 13.30 and the Irish stability treaty vote taking place throughout the day. The US dollar index is pulling back from the highs, but demand is still high for the Japanese yen with the USD/JPY continuing its down trend, off by 0.44%.
The GBP/JPY continues to show relative weakness, down 0.42%, with the AUD/JPY not far behind, down 0.28%. While weak, these pairs are well off the day´s lows.
It´s a different story on the dollar pairs, with the NZD/USD managing to rally 0.31%, with the EUR/USD up 0.21%. The pound´s relative weakness can be seen in the EUR/GBP rallying 0.20% this morning.
We have a very heavy economic calendar today starting German unemployment change at 08.55. The main ticket today is US ADP Non Farm Employment Change due at 13.15. An improvement to 145k is expected. Following this we have US preliminary preliminary GDP at 13.30 with a drop to 1.9% expected. Unemployment claims are released at the same time.
The yen continues to strengthen with the USD/JPY continuing its down trend. We are now getting close to the peaks of the previous intervention spikes from the Bank of Japan. While we should be wary of these, the BoJ may not be willing to intervene just yet, especially within the current instabilities.
With the US dollar index screaming overbought, it could be a good time to bet on further USD/JPY downside.
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