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We seem to speak on a daily basis of “risk on”, “risk off”, and this morning, it seems as though the markets have shifted focus away from the “risk on” currencies as the EUR, AUD and CAD are weaker against the USD and the JPY.  Are traders fleeing to the safe haven of the United States and Japan?  

Probably not.  What I think we are seeing is a normal retracing of the currencies that have been overbought.  Adding to the “flight” from risk was the announcement that China’s PMI number remained below the magic number of 50, improving from 47.6 to 47.8 in September.  This is the 11th straight month below 50, which is the longest contraction streak in history.  A number below 50 indicates a contraction in the economy, a number above indicates an expansion.

Guest post by  Matthew Lifson, Foreign Exchange Trader,  Market Analyst of  Cambridge Mercantile Group.

As we begin the North American trading day, the EUR is being pressured by releases of PMI data throughout the Eurozone.  To this point, the French September manufacturing and services PMI fell to 42.6 and 46.1 respectfully, which was below forecasts and down from the August numbers.  Germany and the EMU PMI as well as economic releases from Italy and Spain are also expected today.  Spain had a 10 year bond auction today and sold EUR 4.8 billion, which is the most they have sold since January.  The cost of borrowing was lower as there is expectation that Spain will ask the ECB to buy their debt.  The target for the sale was EUR 4.5 billion, and the average price was 5.666%, which was the lowest rate since January.  The last time that Spain sold these 10 year bonds the rate was 6.647%.

At the moment, 5:00 am, the EUR has fallen more than one cent from its high of 1.3058, currently trading at 1.3245.  There is support for the currency at 1.2935, then 1.2905. Resistance on the EUR is at 1.3060.

The AUD moved lower overnight after the release of the Chinese PMI number.   As I have mentioned before, China is Australia’s largest trading partner and any fall in their economy always affect the Aussie.  I would expect to see the AUD move lower towards year end as concern over the Chinese economy grows.

The CAD moved lower as the price of crude oil fell for a third day.  As a “commodity currency”, the CAD is vulnerable to moves in commodities such as oil and precious metals.  US crude oil stockpiles rose more than was forecast and the CAD being a “risk on” currency felt the negative impact.

Asian and European equity markets are lower this morning, and DOW Futures are negative, indicating a possible sell off at the opening of the US equity markets today.

EUR tone seems bearish at the moment.  Lately it seems the Asian and European markets do not see the follow through in the North American trading day.  Let’s see if today the pressure on the EUR, AUD, and CAD continues.  Their rise over the last few weeks was due for a pullback and lets see how far this pullback goes.