The euro traded lower across the board yesterday as Italian borrowing costs increased after a sale of five-year Italian government bonds came in at the highest cost since 1997. This triggered market concern that the euro zone’s third largest economy still faces tough challenges ahead and that it could struggle to tackle the peripheral debt crisis. The EUR/USD opened at 1.3809 yesterday and gradually declined thereafter reaching lows of 1.3590 as hopes of a new Italian government, led by Mario Monti, would implement economic reforms and austerity measures quickly faded. Investor confidence diminished for a second consecutive day as the EUR/USD extended its decline opening today’s session at 1.3632 and trading at intraday lows of 1.3575. This decline could be attributed to the ZEW Economic Sentiment forecast showing German investor confidence falling to a three-year low today as the European debt crisis threatens to falter economic growth. The EUR/USD could see further volatility ahead of the economic sentiment data as well as US data with Core Retail Sales and the Producer Price Index. Ray Attrill, Head of Currency Strategy at BNP Paribas in New York, stated, “while economic data may pose some risks to the euro, developments in the European debt market will continue to steer sentiment".
GBP/USD: Opened yesterday’s session at 1.6085 to extend losses throughout the day dropping to over 200 pips to reach lows of 1.5880. The sterling sharply declined after an index of employers’ hiring signalled a slowdown in the job sector together with the market sentiment, which was dampened by lingering uncertainty in the euro zone. The pair closed the session mildly higher at 1.5907. The GBP/USD started today’s session near its previous session close to 1.5908 and has since traded lower at 1.5870. The currency pair could take further direction upon the release of the UK CPI data expected for release at 09:30 GMT.
USD/JPY: The dollar traded lower versus its yen counterpart yesterday as risk aversion heightened due to the ongoing euro zone sovereign debt problems. The currency pair opened yesterday at 77.25 and touched lows of 76.80 before closing the session marginally higher at 77.05. The USD/JPY opened in Asia at 77.05 and briefly rose to 77.40 amid speculation that the Bank of Japan will intervene in currency markets to weaken the strong yen to support its export-reliant economy. The pair has since traded lower at 76.95, but could see further volatility ahead of significant US data with the Retail Sales and Producer Price Index.
USD/CHF: Traded higher yesterday after Swiss Central Bank Vice Chairman Thomas Jordan cited that the Franc remains a “very strong currency” and policy makers are prepared to take action to sustain price stability and economic risks. The USD/CHF opened yesterday at 0.8980 and reached a brief low of 0.8960 before advancing to highs at 0.9092. The franc was briefly supported by the Producer and Import Prices which showed a decline yesterday, but dropped versus the dollar as investors turned to the perceived safe haven status of the American currency as risk aversion sentiment increased subsequent to the uncertainty surrounding the euro zone debt crisis. Market participants will also focus on European debt sales this week from Italy, Spain and France to determine the euro zone’s ability to contain its fiscal and economic problems. The USD/CHF opened in Asia today at 0.9080 and has since traded higher at 0.9140. The pair could take further direction ahead of the US data today and possible euro zone developments.
Commodities
Oil: Ended lower on Monday coming off its highest prices in more than three months as European debt concerns unsettled markets and boosted the safe haven appeal of the dollar. The commodity opened yesterday trading at 99.10 and gradually dropped to lows at 97.20. Today oil opened at 98.10 and has extended its losses once again finding support at 97.70. Traders will await macroeconomic data releases from the US and further European debt developments which could determine further volatility for the commodity.
Gold: The precious metal lost momentum yesterday; it was weighed down by a stronger dollar and lack of safe haven flows as risk aversion prompted investors to buy the dollar subsequent to the growing concern that the new Italian government could struggle to combat the European peripheral debt crisis. Gold prices opened yesterday at 1794.70 and traded on a downtrend towards an intraday low of 1773.65 before ending the session briefly higher at 1780.10. Today the gold opened the session in Asia near yesterday’s close at 1780 and has since traded lower reaching lows of 1765.90. Further direction for gold prices could be seen later today with economic data and possible EU announcements.