The risk trade has been dominant with the AUD and the NZD both posting significant gains this morning in line with rallying stock markets both in Asia and in Europe and the push higher in oil and metals prices. Cable is also pushing higher with sterling's momentum vs both the USD and the EUR supported by a better than expected 0.3% m/m gain in April industrial production. EUR/USD pushed higher in early European hours but failed to hold above EUR/USD1.4140 and has subsequently moved back towards last night's closing levels.
Increased optimism about the recovery in China boosted sentiment overnight, with reports that Chinese industrial production grew 8.9% y/y in May compounding the impact from remarks from the Chinese government that sales and investment are accelerating. This news translated into a boost for currencies such as the KRW and the AUD, with the latter also finding buyers on the jump in the June Westpac consumer confidence indicator to 12.7% (from -4.3% in May), and from the rise in metals prices.
The yen has declined significantly on the crosses in line with the greater risk appetite. USD/JPY also probed higher but has failed to hold above the top of the cloud at 98.10.
Overnight news from Japan brought a worse than expected -5.4%m/m decline in machine orders.
Yesterday's news that ten US banks will pay back $68 bln TARP funds continues to be digested. Sceptics maintain that the banks are not through the woods yet, but arguably more interestingly is that increased attention is being paid to the possible problems facing Eurozone banks, specifically German. While firm action on the banks may not be taken ahead of this year's German general election, more bad news on this front can be expected in the months ahead since projections of a contraction in GDP in the order of -6% this year and the coincident deterioration in the labour market are set to increase the difficulties associated with bad loans. Such concerns could limit the potential for the EUR to extend its gains vs the USD going forward.
The Beige Book with be the highlight of today's session and could give new direction to EUR/USD. Ahead of this US and Canadian trade data are due.
