Global growth concerns weigh on sentiment, boost havens

The Japanese yen outperformed against G10 currencies and the U.S. dollar was much firmer as the perceived safe havens strengthened on concerns of a global growth slowdown as well as positive economic data out of Japan and the U.S. US stock markets extended losses amid fears that growth may slow more sharply than previously anticipated with unexpected declines in many European PMI’s into contractionary territory in March while China’s unofficial flash manufacturing PMI dropped to 48.1 from 49.6 fueling concerns of a hard landing – which may be overdone in our view.

In the U.S., weekly initial jobless claims fell to the lowest level in four years with a print of 348k from the prior 353k (cons. 350k) to provide further evidence in support of the pickup in the US recovery. US Treasury yields are lower across the curve as markets turn risk averse amid elevated concerns about the health of the global economy and haven demand offsets the positive effects labor data on yields. The dollar index, though higher today, remains inside of its daily cloud and approaches the pivotal 80 figure which has capped the upside thus far. Other data released showed a better than expected gain in the Feb. leading indicators with a print of +0.7% (cons. +0.6%) and an unchanged Jan. house price index (exp. +0.3%).

In Europe, the March Euro zone consumer confidence rose by slightly more than anticipated to -19.0 from the prior -20.3 (cons. -19.8). This was not enough to support EUR/USD as other factors weighed on the pair. Sovereign yield spreads over Germany continued to widen and Italian yields rose above the 5% level which put pressure on the common currency. EUR/USD is lower today and back under the 1.32 figure. Technically, it appears to be forming a right shoulder of a head & shoulders pattern with a neckline around the 1.30 big figure. A sustained break below here would be a bearish technical development and suggest a move towards the lows of 2012.

Fed speakers today included the hawkish Fisher who said that he will not support further quantitative easing as he noted “a lot of money is lying on the sidelines”. Conversely, the dovish Chicago Fed President Evans said that “clearly more accommodation would be appropriate”. The commentary provided indications of the ongoing debate within the central bank on the need for further stimulus.

U.S. equities finished to the downside with the Dow Jones Industrial Average closing lower by about -0.60% while the S&P 500 fell by around -0.72%. Commodities were broadly lower on growth worries and a stronger greenback with the precious metals gold and silver currently down by about -0.43% and -2.09% respectively. Gold test the 55-week SMA and nearly tested long term channel support that dates back to the lows of 2008.

On the data front for the upcoming Asia/Pacific session are weekly Japanese securities transactions data, St. Louis Fed President Bullard is scheduled to speak in Hong Kong and China sees the release of the Conference Board Feb. leading economic index and MNI March flash business sentiment survey.

Source: Forex.com

22.03.2012