A new week started with a rather mixed sentiment. Investors are reassessing last week's slump after the surprising slump in US confidence and underestimate earnings, sparking the concerns over the recovery prospects for the US economy.
The latter half of the second quarter was all fixated on the euro area and Europe in general and the unfolding debt crisis, yet surprisingly with the start of the third quarter; seemingly the cards have turned and the gloominess is haunting the US economy instead.
Investors were too optimistic on the US and downbeat data now are taking a toll on the dollar, while they were overly negative on the euro area's conditions that now the euro is bouncing back to its $1.30. Growth concerns remain the most sensitive and the US recovery is at a rough patch with abysmal fundamentals released.
The dollar surrendered most of Friday's gains, where the dollar index declined today to record the lowest so far at 82.27 after recording the high of 82.80 and currently hovering around 82.49 below opening areas around 82.62.
Surely the recovery from the worst crisis since the Great Depression was not going to be easy, but the euphoria of good fundamentals in the beginning of the year mislead markets into a stronger recovery, while now some are questioning the withdrawal of stimulus measures reversing earlier expectations of a year-end monetary tightening by the feds!
As for the euro area, the debt crisis fears are confined gradually with investors insured by the readiness of the EU to stand behind the euro. The successful bonds auctions have been capable of restoring confidence and the fears concentrating on the US outlook have enabled the euro to take advantage of the dollar weakness and continue rising.
The euro offset the effect of the credit downgrade by Moody's for Ireland's credit rating, where the nation preserving the highest debt in the EU was bound eventually to be under downgrade pressure as the government losses its financial credibility despite its better positioning from other indebted nations like Greece, Portugal, Spain and Italy.
The euro is trading bullishly with the start of the week, recording so far a high of 1.2991 and a low of 1.2869, heading towards Friday's recorded peak around 1.3006 resistance areas once more, where breaching it will extend the upside move.
As for sterling the royal currency remains under pressure and failed in surpassing the resistance areas around 1.5350 where it set its high and reversed lower towards opening areas, currently hovering around 1.5275 off lows at 1.5257.
Meanwhile, the Japanese yen surrendered its gains to the dollar, especially with the absence of Japanese markets today. With stocks rebounding in Europe and US futures signaling a rebound from Friday's slump the yen weakened versus the dollar on eased fears over earnings prospects.
The pair is trading with an upside bias midway into the European session, recording so far the low of 86.46 and rebounding higher to set the high so far at 87.21 and trading around those areas now at 87.00.