adminestimates. With the European leaders heading for a summit in Brussels and to discuss key fiscal issues and growth measures set to boost the economy the euro faced a stern test.
The key EU summit definitely undermined the euro’s next move as the euro declined against the dollar to trade at US$1,3127 and fell against the pound sterling to trade at 83,61 pence per euro from 84,05.
The euro reversed earlier gains against the yen to trade at 100,15. For a while we saw risk-on type of trade driven by hopes that global recovery is on the cards. At the moment that risk-on type of trade is still out there given the fundamentals from the Federal Reserve announcement on the January 25 2012 that brought back risk appetite on the table. The question, is this risk rally real?
Given such fundamentals certain currencies will do well especially those related to growth. In Japan, according to market analysts the yen was 2011 favourite currencies because of Japan’s trade surplus and benefited so much from global risk aversion. Despite Japanese economic woes the yen hovers near historic highs trading at 76,30 against the dollar as it continues to strengthen against the major currencies.
At the moment Japan is faced with a shrinking current account deficit that’s why most traders are piling bearish bets on the yen. Interest rate differentials between US and Japan make it difficult to trade US-yen currency pair and most traders would prefer Canadian-yen pair and could favour going long Canadian dollar and shorting yen ahead of the US jobs report due this week. The Bank of Japan looks set to sell the yen if it touches 75 against the dollar as they did on October 31 2011 a move set to weaken the currency.
The Japanese economy is sluggish and consumption is lacklustre with an ageing population that makes it all difficult to be bullish on the currency as corporate Japan seeks to invest in emerging markets. In London the pound sterling declined as internal and external shocks drove the pound lower.
The pound fell against the dollar to trade at US$1,5695 from US$1,5704 and rose against the euro to trade at 83,61 pence per euro on unresolved Greek debt concern. The Swiss franc rose against the dollar to trade at 91,23 US cents and extended gains against the euro to trade at 1,2072. The Swiss franc seems to do well when there’s financial turmoil and when the markets are jittery and a well managed debt seems to rule in their favour.
In the South Pacific the Australian dollar has been by far the best performer against 16 of its major partners as it has risen by 4 percent since last week and by 9,5 percent between December and January. The Aussie dollar reversed earlier gains on unresolved Greek debt crisis of which a default would likely dislocate the market. The Australia dollar inched lower to trade at A$1,0592 to the dollar from US$1,0651 and inched higher against the yen to trade at 77.
South African market
The twin drivers for a rand rally was a positive sentiment on the GDP figures as the economy grew by 2,5 percent and risk appetite boosting demand for high-yielding assets. The rand reversed earlier losses to trade at 7,7960 per dollar from 7,8400 and edged lower against the euro to trade at 10,3043. The rand seems to be trading in a range bound like trade between 7,75 and 7,85 as uncertainty in Europe grips the market and continues to weigh down on the rand. A rand rally is a nod for the South African bond market.
Commodity markets
Gold fell slightly as a strong dollar driven by a weak euro drove investors into dollar-denominated assets as the metal lost its safe haven appeal. The bullion was a trading at US$1 728,32 an ounce from US$1 732 an ounce.
Despite that downside movement in the bullion gold still remains a buy as uncertainty in and around Europe will definitely drive the bullion higher in the medium to long term. Gold priced in euros breached key support trend lines during the month of January as it rose by 8 percent and gold priced in dollars rose by 10,5 percent.
l Contact Prodigy Chinanga on 0772 753 594 or email on [email protected].
Online Reporter