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Euro falls below key support levels damaging the technical picture
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European bonds gain further ground following Thursday’s less hawkish ECB press conference
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Commodities extend losses, oil below 115 USD/barrel
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US equities end week on a strong note. Asian stocks mainly higher this morning, except in China
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Australia’s central bank sees scope for lower rates, Aussie dollar remains under pressure
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Thin calendar today, apart from the UK where the PPI and trade balance are scheduled for release
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Impact of conflict between Georgia and Russia still limited for now
Markets
On Friday, the dollar surged higher across the board and took out some important technical resistance levels, which if confirmed this week would improve the technical picture for the greenback. EUR/USD fell below its previous sideways range below the 1.50 mark, while USD/JPY took out the 110 level. The dollar gains weren’t immediately related to a specific data release, but should be placed against the background of a deteriorating outlook for the global economy.
On Thursday, ECB’s president Trichet sounded notably less optimistic on the European economy, as he said that the ‘downside risks were materializing’. This morning, the Australian central bank indicated that ‘demand was slowing to an extent that could be expected to bring about a significant reduction in inflation over time’. In response to Thursday’s less hawkish than expected ECB press conference, investors scaled back their expectations for another rate hike in the second half of the year. As a result, there was a bullish steepening of the European yield curve and European yields have fallen more compared to US yields over the past weeks.
At the same time, commodities continued their downward correction, which should ease current inflationary pressures. On Friday, oil dropped below the 115 USD/barrel, which fuelled the US equity markets higher. The escalating conflict between Georgia and Russia doesn’t appear to have that much of an impact (yet?).
Rise of dollar…
… pushes euro below the 1.50 mark.
German 2-year yields extend decline following Thursday’s less hawkish than expected ECB’s press conference and …
… leads to a narrowing of the spread between German and US 2-year yields.
Drop in oil price …
… fuels US equity markets.
