Volatility in the Foreign Exchange markets has been exceptionally high over recent times with unprecedented events in the financial world significantly altering the outlook for major currency pairs.
Although the financial crisis originated in the United States, the dollar has appreciated sharply from the historical lows seen in mid July. However, in an environment of heightened risk aversion, it is the Japanese yen that has proved to be the (major) currency of choice as investors seek refuge from what is now a global financial crisis.
Where FX markets go to from here, will very much depend on whether financial market conditions begin to show real signs of improvement. However, it is likely to be some time before we seen a return to normal market functionality – with an uncertain trading environment continuing to favour defensive currencies like the yen, the US dollar and, indeed, the Swiss franc.
Despite the announcement of an array of measures from governments and central banks aimed at restoring confidence and improving liquidity, market sentiment remains extremely fragile as the focus begins to switch from the financial crisis itself, to longer term implications for the global economy. The schedule for economic data is relatively light this week, Therefore traders will continue to look towards Wall Street for direction.
In the United States, the focus this week will fall on the housing market, with existing home sales for September due for release. Weekly Jobless claims will also be noted during the build-up towards the non-farm payroll report for October.
Federal Reserve chairman, Ben Bernanke is due to testify to the House Banking Committee on Wednesday and comments will be closely watched.
In the Euro-zone, the main economic data release this week is likely to be the flash PMI readings for October, which are expected to show that both the manufacturing and services indices slipping even further below the key 50 level.
Business and consumer confidence surveys from Italy and France are also forecasted to make depressing reading. German inflationary data however, is expected to confirm an easing of price pressure after lower energy costs and a deceleration in activity impact.
A number of ECB speakers are scheduled this week and comments will be closely watched for any indication of future policy.
In the UK, the focus will be on the release of the minutes of the last BoE meeting, which saw rates reduced by 0.50% to 4.5%
The first estimate of Q3 GDP will be closely watched and is forecasted to show growth contracting by 0.2% (the first fall in activity since Q2-1992 )
UK retail sales for the month of September is also due to be released, along with CBI manufacturing orders report for October.
Data released 20th October:
07:00 GERMANY PPI (September)
09:30 U.K. PSNCR (September)
15:00 U.S. Leading indicators (September)
Witten by Hannah Wilson
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