Coming Up Today (all times GMT)
- USD Net Foreign Purchases of Long-Term U.S. Securities (13:00)
After July's strong earnings season, pessimism has made a comeback on the markets, pushing investors to flee from equities for the safe-heaven of treasury bonds. This switch has occurred after the Federal Reserve renewed easing, suggesting that the US recovery might be more fragile than anticipated.
Better than expected growth figures were reported during the second quarter in Germany and in the Euro-Zone, showing expansion at respectively +2.2% and +1.7%. However, this didn't provide a boost to the euro, which retreated towards $1.2750 before bouncing back to $1.2770.
Investors remain concerned by the divergence in growth potential between European locomotives (Germany and France) and weaker members (Portugal, Greece, Ireland and Spain). Most notably, Ireland came recently under pressure on the sovereign bond market, following announcement that the Irish government was planning to inject additional capital to shore up its banking system.
In this context, debt worries could re-emerge and weight negatively on the euro. As such, Forex traders are expected to remain cautious, eying the result Tuesday of the €1.5 billion bond auction issued by the Irish Treasury Agency.
Overnight, Japan released GDP figures for the second quarter that came below forecast. After growing at an annualised pace of 4.4% in the first quarter, Japan reported annualised growth of only 0.4% during the second quarter. The data showed that export growth and public demand were moderating, while domestic demand remained sluggish. This could add pressure on the Bank of Japan to take new quantitative easing measures. and prevent a rise in the yen.