Currency Market in a Profit Taking Mood Overnight

Today's market exhibited some profit taking behaviour as we saw stocks and higher yielding currencies pare some of their big gains from the past week.

European stocks fell from a 2-month high, US futures dropped, metals slid with copper off 2.1%, and the cost of insuring against default on European government bonds rose.

Investors are likely to want to re-asses where things stand as we have some positive developments in Europe - which is bringing hope that the sovereign debt crisis can come closer to resolution - there's still plenty of concerns about the slow pace of growth in the advanced economies and the prospects for global growth as you move through the rest of the year.

Chinese Trade Data Shows Drop-Off in Exports

We were reminded of that overnight as we had trade data for September from China which disappointed economists forecasts. the thing to keep an eye on is the drop in exports which means that global trade took a step back as we wound through the summer.

width=270From Bloomberg: Exports rose a less-than-forecast 17.1 percent in September from a year earlier, the bureau's data showed in Beijing. The trade surplus was $14.51 billion, the smallest since May. Growth in shipments to Europe, China's biggest export market, slumped to 9.8 percent, from 22 percent, amid the sovereign-debt crisis in euro-region nations.

Export growth compared with a median forecast of 20.5 percent and a rise of 24.5 percent in August. China's imports advanced 20.9 percent in September, less than analysts' 24.2 percent median estimate and a 30 percent gain in August.

A slowdown in China would mean that it no longer counteracts the slow recoveries in Europe and the US in terms of the global growth picture. Even if the banks situation in Europe shows improvement, the attention will turn to growth rates and the macro data to see the damage on the real economy from the financial turmoil we saw during the summer and September.

ECB Weighs in on Question of Larger Write-Downs on Greek Debt

This week the attention in the euro zone has turned to a bigger involvement of the private sector in expanding the second bailout for Greece. Today, the ECB said that enforcing investor losses would have direct negative effects on banks, which may dampen the momentum behind that approach. The ECB's position runs counter to Germany's demands of larger write-downs by banks and other holders of Greek debt, but disagreement between the ECB and Germany is nothing new at this point so we have to monitor how that situation develops.

Any disagreements between Germany and others will knock back the positive risk sentiment currently associated with hopes that the debt crisis may be nearing a resolution. Any renewed instability would weigh on the euro.

Nick Nasad is the Chief Market Analyst at FXTimes - provider of Forex News, AnalysisEducationVideosCharts, and other trading resources.