Risk Appetite Returns Along Side Appetite for the Dollar

Asian markets largely embraced risk appetite once more through the Asian session, supported by Friday’s positive end to the week in the U.S equity markets, with only the Nikkei struggling following Friday’s holiday as the Japan markets played catch up.

Weaker than forecasted July industrial production and fixed asset investment numbers out of China will have pinned back a full scale rally, with data out of China going into the 3^rd quarter softening, though perhaps not to such an extent to warrant panic, with last week’s July trade numbers also weaker, but certainly not a disaster.

It’s a heavy week on the economic calendar with plenty for the markets to consider, though it will be a quiet start, with stats through the European and U.S session limited to the Eurozone’s July industrial production figures, which are forecasted to fall, with downward pressure coming off the back of the surprise slide in Germany’s July production figures released last week.

The markets may be looking for continued upward momentum, but seasonal factors will also need to be considered and for now, with earnings results having been mostly positive, it’s onward and quite likely upwards.
A lack of stats out of the U.S this afternoon, will give the markets some time to look ahead to what’s due out for the week, with tomorrow’s U.S July retail sales figures and Wednesday’s FOMC meeting minutes expected to be the key drivers through the week, assuming that there are no outside influences from Capitol Hill or North Korea, who could embark on testing another ICBM at any time in a show of defiance.

The good news for the market bulls will be that the 2^nd quarter looks to have been a broad based growth story, with even Japan’s GDP growing by a whopping 4% year-on-year, according to 1^st estimate figures released this morning. It certainly puts the U.S economy to shame and the economies of many other developed countries and it may begin to raise questions on whether the BoJ will need to shift on monetary policy. The upbeat figures have come at just the right time, with Prime Minister Abe seeing his popularity levels at all-time lows, with even BoJ Governor Kuroda under pressure.

We will more than likely see some heavy moves in the coming days, with the Dollar, the EUR and the Pound in the limelight and, while the Dollar may seem attractive at current values, the FOMC minutes will need to reflect a sooner rather than later move by the FED to begin selling down its balance sheet, for the Dollar to have some new found support.

While the Dollar has been on the rise through the Asian session, up 0.08% at 93.165 at the time of the report, the fact that the FOMC statement had failed to indicate any timelines on the FED beginning to sell-down its balance sheet, coupled with some pretty dovish FOMC commentary, suggests that the minutes may well be Dollar negative and we could see the Dollar Spot Index fall to sub-93 levels should retail sales disappoint again tomorrow afternoon.

Across the Pond, things may well go from bad to worse for the Pound, which is currently down 0.05% at $1.3008, with tomorrow’s inflation figures, Wednesday’s employment numbers and Thursday’s retail sales stats scheduled to be released. Despite some pretty dire trade data last week, the Pound has managed to hold on to $1.30 levels in defiance, but there’s only so much of a beating the Pound can take and, if we do see another string of weak numbers this week, that should cool even the ever optimist.

For now, the Dollar will find support, more because of current levels than any particular shift in sentiment towards the U.S economy and the outlook on FED monetary policy, with the EUR in the hands of today’s production figures, which should provide added support to the Dollar Spot Index through the early part of the European session. At the time of the report, the EUR was up 0.05% at $1.1827, with the EUR likely to struggle through the session ahead of Wednesday’s GDP numbers and Thursday’s inflation figures and ECB monetary policy meeting minutes.