Financial Market Fundamental Review, August 17, 2012

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Yesterday the euro after opening weak and falling through the major part of the Asian session reversed and managed to rally above 1.2350. There were speculations in the market that Spain might very soon receive the first 30 billion euro tranche of the EU banking bailout.

During the US session a series of economic data flashed showing that Initial Jobless Claims barely missed expectation, Building Permits moved higher, Housing Starts were slightly lower and Philadelphia Fed Index was down along with manufacturing sales.

The number of Americans filing applications for unemployment benefits was little changed last week, bringing the average over the past month to the lowest level since late March, a sign the labor market has stabilized after employment picked up in July.  Americans this month were the most pessimistic on the economic outlook since late last year as fuel prices rose and unemployment remained elevated.

American builders took out more residential construction permits in July than at any time in the past four years, a sign the market will continue to improve.

Chancellor Angela Merkel backed the European Central Bank’s insistence on conditions for helping reduce borrowing costs in indebted countries, saying Germany is “in line” with the ECB’s approach to defending the euro.

U.K. retail sales unexpectedly rose in July as promotions helped to boost gasoline sales and food sales increased. Nonetheless, a lack of an improvement in the labor market and weak manufacturing data and statement from Angela Merkel to support euro was enough to trigger a sell-off in greenback.

The pound rose to its strongest level against the dollar in more than two weeks after U.K. retail sales in July increased more than analysts forecast and June data were revised upward.

Today’s Asian session opened on a positive note, taking cue from a strong and upbeat US session overnight. Despite of this risk on which we noticed in the European and U.S session yesterday, no major improvement has been noticed to the underlying fundamentals of these major economies. However any supportive comments from the policy makers have been enough to lift the market sentiment which is mired by pessimism.

There a number of data due to come out today in the European and US session.  Producer price Index will be released which will be released from the Europe is expected to drop against is prior figure and US consumer sentiment to remain almost unchanged.

European shares rose to within touching distance of their 2012 peaks, lifted by utility and banking stocks, propped up by persistent expectations of new stimulus measures to fight off the global economic slowdown and ease the euro zone crisis.

U.S. Stocks had their best session in nearly two weeks after German Chancellor Angela Merkel reiterated her support for the ECB’s plans to fight the euro zone crisis

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About: FX Empire Analyst - Barry Norman

Barry produces a private Daily Market Review newsletter that is distributed around the globe to over 25,000 subscribers and recently published a book on Options Trading that is available from amazon.com

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