Rise in European Stocks Boosts Risk Appetite to Start the Week

GBP/JPY - Carry Trade Sentiments Rise on Rise in European Stocks, Barcalys

 

The week started with a return to risk appetite, with the Yen and Dollar falling as European markets saw a strong surge, mainly as a result of the announcement by Barclays that it does not need further capital increases. The Pound-Yen, a good barometer of carry trade and risk appetite, rose 470 pips from its intra-day low near 119.70. Just on Friday, we saw the pair hit a new record low, so today's action may just be a retracement from a technical point of view.

EUR/USD - Euro Surges on Risk Appetite in European Session

 

The Euro-Dollar surged almost 300 pips from its inter-day low near 1.2860 to reach 1.3180. That breaches the resistance levels from last week as the appeal of the US Dollar as a safe haven eased today.

EUR/USD - Long Term Resistance Broken?
 

In a more long term look, we can see that today's move also breaks an important downward sloping line of resistance that has held for the last month and a half. It remains to be seen if this means we get a more sustained Euro rally or if this is a false breakout, and a lot will depend on how stock markets around the world and investor sentiment holds up this week.

EUR/GBP - Pound Gains in European Session, But Pares Gains

The Euro-Pound fell in favor of the Pound in European trading after hitting a new high at 0.9520, which is resistance from the end of 2008. The pair then fell to test 0.9340, which was Friday's low and rebounded from there. The Euro has surged 600 pips in a rally that began on January 16th, but of late that rally is looking labored, and we may be seeing signs of a reversal ahead.

UK Mortgage Approvals Increase in December

 

In fundamental news, the UK saw its level of mortgage approvals increase to 22.1K, a solid rebound from the record low amount in November. Mortgage lending remained the same at 2.9 billion pounds. The report from the British Bankers Association also showed that consumer credit was very weak in December as people reined in their credit card spending.

US Existing Home Sales Jump 6.5% in December, as Prices Drop

 
In the US, existing home sales surprised forecasts and increased 6.5%, to an annual rate of 4.74 million. The increase in sales was a result of plunging prices, which helped get some potential buyers off the sidelines. Also mortgage rates have dropped to very low levels as a result of the low interest rate in the US and government attempts to re-stabilize the housing market.

US Leading Index Improves, Surprising Forecasts

 
The US Conference Board leading index, which measured the direction of the economy over the next three to six months, rose 0.3%, surprising expectations. It was the first increase in the index in 6 months. The main reason for the rise was a very large positive contribution from the real money supply which masked the declines in building permits, the average workweek, supplier deliveries, and initial unemployment claims.

USD/JPY - Dollar and Yen Form Consolidation Pattern

 

The Dollar-Yen pair rose today in favor of the greenback, as US stocks followed those in Europe and traded in the green for the morning, though dipped back to neutral territory in the early afternoon. Several US companies including Caterpiller, Pfizer, Sprint, and Home Depot all said they were ready to cut more jobs. The pair eased off its high after it came against resistance and is now in a triangle consolidation phase. The lines of support and resistance are coming together, so there should be a decision soon as to which direction the pair will go, though as always we could have further sideways trading as this is only a short-term pattern.

USD/CAD - Loonie Continues Gaining, Hits Key Resistance

 

In a final pair, we look at the US Dollar-Canadian Dollar which fell for the 4th straight session testing the level around 1.2140. That level is a 61.8% retracement of the run up in the greenback seen between January 9th and January 20th. The Loonie was helped by the burst of risk appetite, and a rise in crude oil to $48.50.

Upcoming Releases

 
Taking a look at upcoming releases for the next session, Japan will post its corporate service price index, and the Bank of Japan meeting minutes. Australia releases data on business confidence and producer prices.
Overnight, Switzerland will unveil its consumption indicator, Germany will post its import prices and the Ifo Business Climate index., the Euro-zone releases its current account and the UK posts a measure of the retail sector.
Tomorrow, from the US, we get data on housing prices, consumer confidence and the Richmond fed index.

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