Weak ZEW Figure Adds to Pressure on EUR, Other Risk

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The markets continue to be trading in a “risk off” mentality this morning as concerns over China growth and the bombing attacks in Boston dominated the overnight markets.

The “risk” currencies have moved lower as did US equity markets and commodity markets. After flirting with the 15,000 and 1,600 levels, the DOW and S&P have moved lower. The free fall in gold has continued as well, with the commodity falling to the $1,320 level as analysts are now calling for a move to $1,200. Gold had closed last week at $1,476 and had gotten near $1,600 in early April. Crude oil has dropped as low as $86.06 per barrel after closing last week at $90.66.

Needless to say, the currency markets have seen intense pressure on the “risk” currencies as well, with traders moving back to the “safe” haven currencies of the JPY and the USD.

Security measures have been ramped up all over the world after yesterday’s terrorist attack in Boston left over 100 people injured and at least 3 people dead. There are reports out of London that security has been ramped up ahead of the Margaret Thatcher funeral and the London Marathon that is scheduled to be run this weekend. Security in major cities in the United States and Canada will be noticeably higher today as well. Japan has also stepped up security measures after yesterday’s bombings.

As for the currency markets, EUR, GBP, CAD and AUD are all lower this morning as traders sell off their positions. EUR tested the 1.3050 support level overnight, falling to a low of 1.3030, before bouncing back to the 1.3050 area. GBP has moved below the 1.5300 level. AUD and CAD moved lower as well, with the Aussie Dollar falling towards the 1.0300 level before moving back to the 1.0340-50 area, while USD/CAD has breached resistance at 1.0230, testing resistance at 1.0250.

The JPY and the USD have been the beneficiaries of this risk selloff. After being ever so close to the 100.00 level, USD/JPY has fallen as low as 96.60 before moving back above 97.60. JPY has strengthened against the EUR and GBP as well. The move in USD/JPY created an oversold situation which was quickly reversed. It should be noted that technical analysts are looking at this move as a near term consolidation of the move higher in the last few weeks. Traders will be focused on the G20 meeting later this week and will be looking for any comments regarding the weakness of the JPY.

Key news events today include the release of the German ZEW number early this morning in Europe, as well as US release of Industrial Production.

As for trading today, I would expect the ZEW number to influence the direction of the EUR. A poor number will keep traders “risk averse” and allow the USD and JPY to continue to strengthen.

The ZEW Economic Sentiment came out at 36.3, weaker than 41.5 that was expected and lower than 48.5 seen last month.




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Matthew Lifson is a Foreign Exchange Trader and a Market Analyst. with Cambridge Mercantile Group.

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