Coming Up Today (all times GMT)
- USD Unemployment Claims (12:30)
- USD Natural Gas Storage (14:30)
- NZD Retail Sales m/m (22:45)
The Fed decision to inject new monetary stimulus into the ailing US economy led market participants to revise down their prospects for global growth. As such, investors flew massively from stocks, commodities and risky currencies for the safety of treasury bonds, dollar and yen.
This massive deleveraging was accelerated by the release of disappointing indicators that confirmed the resurgence of downside risks. Most notably, the US Department of Commerce announced yesterday that the US trade deficit deteriorated more than expected in June, as demand for exports flattened.
Amid fears of recession, the yen was the only currency to stay firm against the dollar, as the Bank of Japan maintained its optimistic stance. During the session, the USDJPY reached a 15-year record low at 84.70, before giving up gains on talk of Japanese intervention.
Nervousness triggered the return of short positions against the euro. As equities lost ground, investors pulled out massively from Euro-denominated assets to seek the safety of US dollar treasuries. In the afternoon, the common currency tumbled from 1.3100 to as low as 1.2830, thus ending the uptrend that started early June. It remains to be seen whether European fundamentals will be able to invert bearish sentiment. As such, traders will be watching the release Friday of German GDP in the 2nd quarter.
The pound experienced strong selling pressure, losing almost 200 pips to trade back below 1,5700, as economists were disappointed by July's unemployment figures that fell less than expected. Furthermore, the pound accelerated its decline after the BoE revised its growth prevision for 2011 from 3.4% to 2.7%. Overall, there is a sentiment in the market that the ambitious austerity program implemented by the government might squeeze a still fragile UK recovery.