FXstreet.com (Córdoba) - Price action was mainly consolidative during the European session following last week's steep rally in the wake of Fed's QE3. However, the euro managed to print a fresh 4-month high versus the dollar early American trade despite the negative tone in stocks.
US stocks gave up some of last week's gains as disappointing news about manufacturing in the New York area, weakness in Europe and China and continued protests in the Middle East left set the cautious tone in financial markets.
"Somewhat mixed messages from the Eurozone finance ministers meeting last Friday and uncertainty over a possible Spanish financial aid request are probably the main factors contributing to today's more cautious market mood", says the Wells Fargo analyst team.
The Dow Jones fell 0.2%, the S&P 500 dropped 0.1%, while the Nasdaq lost 0.3%.
In economic news, the New York Federal Reserve Bank's Empire State manufacturing index for September fell to -10.41 from -5.85 in August, missing expectations of -2.00.
Gold was roughly flat around $1,771 an ounce, while crude oil futures gained 0.4% to $99.36 a barrel.
Eurogroup meeting on Friday was largely uneventful
European markets also lost ground, with the Stoxx Europe 600 down 0.3% after reaching a 15-month high on Friday as newsflow in Europe has turned less positive.
"Spanish bonds, sold off on Friday after Spain's Economy Minister de Guindos noted that the government will put forward a 'new set of reforms to boost growth' - indicating that Spain wants to convince the EU leaders that it does not need a bailout program", notes the UBS team.
The Eurogroup meeting on Friday was largely uneventful but headlines over the weekend showed finance ministers remained divided over the issue of a banking union and over the timing of the implementation of a pan-European regulatory framework. "Considering that a single supervisor is a necessary condition before the ESM could start recapitalizing Eurozone banks, a continued deadlock could help put a stop to the recent euro rally", says UBS.
Euro reaches fresh 4-month high, but lacks momentum
The euro rose to a fresh 4-month high of 1.3171 versus the dollar at the beginning of the New York session, but lacked momentum to extend gains much further. It was last up 0.2% at 1.3140.
Meanwhile, the USD/JPY reached a 10-day high of 78.92 and Cable hit its highest since Apr 30 at 1.6271.
"From a technical perspective, it is also not surprising to the see the euro and other foreign currencies take a breather following the rapid gains over the past week", says the Wells Fargo team.
"Overall, we suspect that a quieter global economic calendar over the coming week could lead to less pronounced FX moves as well", says Wells Fargo. "At the same time, given the significance of the recent ECB and Federal Reserve announcements, we prefer to sell US dollar rallies and look for an ongoing improvement in global risk sentiment".
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.
