Euro strengthens in quiet days trading as market now focuses on EU GDP figures

Tom Tong14/Aug/2012Currency Updates

EUR

The Euro was swept higher yesterday by a wave of short covering overnight in a move exaggerated by thin market conditions. Risk on trading was cited as one of the main causes, with the Euro one of the most ‘at risk’ currencies today following data releases. Traders said there was no particular trigger, although persistent hopes for European Central Bank action next month and recent weak economic data out of China prompted an unwinding of short Euro/aussie, Euro/kiwi positions. There was better than expected Q2 GDP data out from Greece yesterday.

However, it is hard to mount a complete surge on confirmation that the Greece economy shrank by 6.2%. The Euro’s new found strength may be tested later today when eurozone growth data is released. Expected figures show the region’s economy is likely to have contracted by 0.2 percent on the quarter, following a flat first quarter.

Then again, the weaker the data the more chance there could be signs of aggressive action from the ECB.

USD

On an extremely quiet day in the markets yesterday, there was consequently very little movement from the Greenback. The dollar lost ground against the Euro yesterday while trading relatively flat against sterling. EUR/USD has always been exposed to the currents of sentiment due to the Greenback’s safe-haven status and with traders taking a punt on Euro movement today, the Greenback lost ground. It did however claw back losses from Friday’s session against sterling. Worth keeping tabs on are the national retail sales report and the NFIB small business sentiment survey, both for July, considering consumer spending accounts for approximately three-quarters of US GDP (not to mention the dependency many other countries have on exporting their way to growth). Meanwhile, the constant hope or fear of more stimulus will be a hot topic if there are any implications from drastic Euro GDP figures.

GBP

With the Olympic hype over, London especially was getting back to hustle and bustle of everyday life. Sterling lost out on Friday’s gains versus the Greenback by around 0.2%, and also lost ground against the single currency.

BoE Governor King reminded us of what the greatest fundamental threat to the UK is in an article over the weekend (the eurozone crisis), so we will look on with the central bank at the upcoming European growth figures. In terms of news for the pound, we have retail sales and CPI numbers for July out later on today.

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Written by Tom Tong

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