If it really is a coincidence that the U.S. economy starts to be picking up just when President Obama needs it to then “risk-on” trades look to remain en vogue for the time being.
The sceptics among us will already be thinking that the Obama campaign really needed this injection of good news following the Presidents pretty insipid performance in the first televised debate.
The better than expected data from the U.S. has aided Japan where the JPY already the worst performer of the major currencies in 2012 has started to weaken and looks like it can test 80.00 and 105 against the dollar and Euro. This takes away to some degree the need for intervention from the BoJ.
Employment data (both NFP & Jobless claims) together with retail sales have shown improvement recently and despite the threat of QE3 to the economy and the coming “fiscal cliff” perceptions seem to be changing. This risk on scenario will mean a weaker dollar in the short term which can only add fuel to the fire.
Of course, it will soon become apparent that stronger currencies are not what is needed for those countries trying to grow their way out of recession.
In Europe for example, other than the inflation benefit a Euro above 1.35 and 110 will soon start to attract the attention of exporters although with intra-region trade increasing the effect will be somewhat muted.
Japan will be the major beneficiary of an improvement in the global economy in the short run. We have even seen over the past few days in microcosm the effect of rising Asian stock markets and a generally more risk seeking environment.
Should EU Heads of State produce a credible, workable communique this weekend then this feel good state of affairs can continue through the rest of 2012.
St. Louis Fed President James Bullard said in a speech yesterday that growth will begin to pick up early next year with a consequent fall in unemployment. Mr. Bullard becomes a voting member of the FOMC in January so is clearly stating his allegiance to the “Bernanke Brotherhood” well in advance.
In this more optimistic environment, the Euro should be able to consolidate gains above 1.30 especially with a slew of option expiries this week at that psychologically important level. A daily close above 1.3070 will see a test of the major resistance levels approaching 1.32.
Today’s ZEW report from Germany will be eagerly awaited. There are expectations that it will show some improvement in the economic climate and current conditions. The EU wide report may be a little more negative.
The EU meeting at the end of the week is becoming ever more significant.
Bears………hope for more of the usual indecision.