Stock markets have managed to reverse at least some of the losses seen over the past 3 weeks, despite the headlines regarding a possible return to recession in the Eurozone after yesterday’s disappointing GDP numbers.
Once again the focus is on the ECB, but at this point in time, to rely on further monetary stimulus to support the Eurozone economy is a very weak support and totally misses the structural issues that are adding to the weak growth outlook.
Many European markets are closed today for the Assumption day holiday, so volumes will be light. Focus will remain on growth though, with the release of UK GDP data revisions. But scope for sterling recovery remains weak, given that there are no strong reasons to expect an upward revision and the focus has shifted to the weakness in wage growth.
Overnight, we’ve seen further creeping weakness on the yen, with the Aussie gaining further. We’ve seen AUDJPY move higher nearly every day this week, reversing the sharp fall seen Friday of last week and leaving us just shy of the 96.00 level which has marked an area of tough resistance throughout the year to date.
There is some focus in Europe on the meeting of EU foreign ministers regarding events Iraq and the Ukraine, with the fears that the latter could well have a greater impact on growth numbers in the current quarter and exacerbate the weakness already seen in the Q2 data yesterday.
Overall, currency markets look set to end the week on a quieter note, but underlying risks remain, especially in relation to events in the Ukraine, meaning that the higher levels of volatility gained over recent weeks are likely to remain for now.