The Greenback has risen by around 5% from the start of the month. The driving force is a result of higher risk aversion trading and increasing uncertainties about the Eurozone periphery have provided the currency a boost, albeit with the USD effectively being the best of a bad bunch.
Poorer than expected Eurozone purchasing managers indices (PMI) added to the already delicate sentiment yesterday, with greater declines than expected, although still at levels that are high in absolute terms.
The single European currency continues to sell off at present, with a softer IFO likely to provide additional reason for markets to reduce long positions on the Euro. EUR/USD is now eyeing up a drop below the key 1.4000 level, as the 100 day moving average level of 1.3972 expected to be broken soon.
More significantly in terms of sentiment drivers the despair in the eurozone periphery especially Greece remains the major threat to the EUR. Despite work from officials in Europe and Greece, rumours of debt restructuring are rife as the market is far from persuaded, as reflected in the widening bond spreads.
The Greek PM’s effort to push through austerity measures in the Greek parliament yesterday by announcing accelerated asset sale plan and EUR 6 billion in budget cuts have done little to turn market sentiment despite the fact that at the least it shows a willingness to stick to the plan in the face of growing domestic resistance.
The US Dollar has also moved higher against the JPY so far this week in spite of a rise in risk aversion. As revealed in the latest IMM data markets have been net long JPY over the past couple of weeks, with trading well above the 3-month average, representing some scope for a liquidation of long positions. Nonetheless, the rise in USD/JPY has occurred despite 2-year US / Japan yield differentials remaining at a relatively low level suggesting that the USD may lose momentum, with USD/JPY resistance around 82.74 likely to cap gains.
Sterling has also slid suffering in the wake of a resurgent USD and unconfirmed reports that Moody’s ratings agency is expected to announce that is placing 14 out of 18 UK banks on review for a downgrade. Coupled with this news UK PSNB came in at 7.713 bln against a forecast of 5.353 bln- which is the worst April reading on record. Treasury are blaming a hit in one-off factors and the government making headway on cutting deficit
