Friday, 17 Jul 2009

Caution Returns to Trading

Today's trading started off with a slight return to risk aversion with the USD and JPY gaining mildly against their riskier counterparts.

The EUR fell slightly against the Yen and Dollar today as traders sold the currency to lock profits ahead of the long weekend in Asian trading. Further pressure on the EUR came from the terrorist attack in Jakarta, hurting the recent rebound in risk tolerance and pushing investors to the safety of the Japanese and American currencies. Traders are also cautious ahead of today's earnings announcements from Bank of America and Citigroup which are not expected to be good.

The key to today's currency movements will be stocks. If Bank of America and Citigroup corporate earnings announcements are better than expected, the EUR is likely to gain as this will further reinforce investors' risk appetite, increasing demand for higher yielding riskier assets.

The release of the U.S Housing Starts and Building Permits data at the opening of the U.S market as 12:30 GMT today, is likely to set the tone for the Dollar's direction in today's trading. Better than expected results will likely intensify the stock market's bullishness while putting downward pressure on the Dollar. Poor results, however, are likely to intensify investors' caution ahead of the weekend and further dampen demand of riskier currencies.