The USD has surged. The EUR, CHF, CAD, AUD and NZD have been big losers vs the greenback this morning. GBP and the JPY are also falling vs the USD but by a less substantial amount.
Falling stocks in Asia and in Europe and weaker commodity prices this morning signals that investors have been keen to take risk off the table. This is coincident with the strength of the USD, though support has also come from other quarters. Comments from Russian Finance Minister Kudrin that he has full confidence in the USD appear to reverse some of last week's inferences from Russia over the prominence of the USD as a reserve currency going forward. For now, the consensus appears to be that in terms of liquidity there is no other currency that could remove the USD's status as reserve currency, though this may change over a long period of time.
Russia this week plays host to the first official BRIC summit. Any comments alluding to this topic will be closely examined. The weekend G8 meeting brought no specific references to fx or interest rates. There was discussion about exit policies from the recent huge fiscal and monetary fiscal stimulus, though US Treasury Secretary Geithner reiterated that near-term policy focus should remain on growth.
Hopes that the US economy will enter recovery phase in the coming months is also a supportive factor for the USD particular in view of the persistence of economic gloom in the Eurozone. EU Industry Commissioner Verheugan over the weekend stated that he did not see ''any light at the end of the tunnel yet''. This theme has been extended this morning by the release of a -0.8% q/q fall in Eurozone employment, the worse fall on record, and by ongoing and interlinked fears that German banks are host to rising bad debts. On the charts EUR/USD could be forming a head and shoulders pattern. A break of EUR/USD1.3810/00 would be needed to confirm this.
Sterling continues to make headway vs the EUR, though it has been unable to keep pace vs the USD this morning. Last week's enthusiasm that the UK may be in the early stages of its recovery continues to lift the pound, although the CBI's forecasts that recovery will not be seen until Q1 2010 have dampened these hopes this morning. While EUR/GBP has the potential to continue trending lower medium-term, this week's unemployment and PSNCR data could be a test to the pound's current bull run.
This afternoon, the US empire manufacturing survey and the NAHB housing market index will be closely watched for signs of stabilisation. TIC data are also due. Canada sees the release of April manufacturing shipments data, further weakness is expected.
