Sentiment is shifting to “risk off” this morning as a series of events are weighing on the currency and equity markets. Firstly, Chinese manufacturing shrank for the third month. This is the longest contraction since 2009 and represents a threat to the global economy, putting pressure on commodity-linked currencies.
News that German retail sales fell and European inflation unexpectedly rose at its fastest pace in almost three years is helping to pressure the Euro. The drop in retail sales is a strong indication that the economy is beginning to slowdown. Fear continues to mount that the European sovereign debt crisis will continue to spread.
Over the last week, traders were looking for the European Central Bank to cut its benchmark interest rate by 25 to 50 basis points when it meets on October 6. Now that inflation has been reported higher than expected, traders are backing off from this assessment, instead calling for a cut by the end of the year rather than at the next meeting.
Despite the approval of a plan to beef up the European rescue fund, traders are now concerned that Euro Zone officials may have acted too slowly to avoid a serious banking problem in Euro.
Traders will be focusing on this morning’s U.S. consumer spending report. Early estimates are for a gain of 0.2 percent in August after a 0.8 percent increase in July.
Technically, the main trend is down in the December Euro. A new swing top has been formed at 1.3684. A trade through this price will turn the main trend to up. The main bottom is 1.3357.
The December Canadian Dollar resumed its downtrend on the daily chart. Pressure from lower crude oil and a general decline in commodities is hurting the currency. There is no solid support at this time. The main top is 1.0204 so the downtrend is likely to remain intact for a while.
The December Japanese Yen is trading sideways with a slight bias to the upside. 1.2860 is the main bottom. A trade through this level will turn the main trend to down. 1.3180 remains the main top. Look for increased volatility to draw the attention of the Bank of Japan.
The main trend in the December Swiss Franc is down. A new main top has been formed at 1.1235. A move through this level will turn the main trend higher. 1.0916 is the main bottom.
The short-covering rally in the December British Pound is stalling. A new swing top could be forming at 1.5706. A trade through 1.5532 could trigger an acceleration to the downside.
Overall, it looks like traders are favoring the U.S. Dollar today as sentiment is shifting back to “risk off”. Too many fears and concerns continue to weigh on investor appetite for risk.
