Euro edges higher as risk appetite heals

  • Euro edged higher as investors risk appetite starts to heal. Demand for riskier assets starts to rise as tensions in Egypt ease. The euro is also supported by demand from Asian central banks pushing it as high as 1.3688 against the US dollar. Data showed Germany's Industrial Production eased in December but overall sentiment over Germany's economy is strong.  Today the euro continues its upward direction rising to 1.3662 dollars and the pair was last traded at 1.3655. Against the Swiss franc, the euro rallied to a two month high hitting 1.3159.
  • Against the Japanese Yen, the dollar ticked higher helped by a rise in US Treasury yields. The pair rose as high as 82.51 from 81.76 traded yesterday. 
  • The Australian dollar dropped after China unexpectedly increased the country's interest rates. The People's Bank of China raised the benchmark one year rates by 25 basis points on the last day of the Chinese New Year holiday. The last rate hike in China occurred in December on Christmas day. China is Australia's largest trade partner and a tight monetary policy in China can hurt the demand for Australia's commodities. After the news the Aussie fell to 1.0114 versus the dollar from 1.0188. Today the Aussie is holding above 1.0114 and trading in a tight range around 1.0130. It seems that the market is getting used to rate hikes by China in the country's effort to fight a rising inflation. As long as the rate increases do not substantially affect China's economy then the negative impact on the market will stay limited.
  • Aussie's neighbor, the Kiwi plummeted on Wednesday after the country's finance Minister Bill English said that the New Zealand may enter recession again. He said that it is possible the country's growth slowed in the fourth quarter raising the possibilities of a double dip recession. The Kiwi edged as low as 0.7704 against the dollar from 0.7786 traded yesterday.  
  • Gold rallied on Tuesday after the unexpected rate hike in China that raised demand for the safe haven metal. The precious metal rose as high as 1367.90 dollars an ounce from 1348.35.

Currency to watch out for: EURUSD & USDJPY

  • § The EURUSD pivot point is at 1.3605 with a preference to enter into Long positions at 1.3615
  • § The USDJPY pivot point is at 82.00 with a preference to enter Long positions at 82.05             

Today's calendar and market movers:

  • § Germany Trade Balance in December is forecasted to fall to 12B
  • § UK Goods Trade Balance in December is forecasted to fall to -8.6B

Equity Markets: 

US equities were positive on Tuesday with the S&P500 trading up 0.42% and the DJIA trading up 0.59%. The European bourses are also positive with the FTSE trading up 0.67%, the DAX trading up 0.54% and the CAC up 0.43%. The NIKKEI and the HSI at the time of writing are trading down 0.17% and down 0.64% respectively.

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