JPY and USD Strengthen on the Back of Disappointing Chinese Trade Data

Japan YenDisappointing Chinese trade data saw Asian stocks declining and the US Dollar and Japanese Yen gain ground as traders turned to these safe haven currencies. The Chinese report showed that imports grew by only 6.3 percent in June, compared to May’s figures of 12.7 percent and the 11 percent analysts had forecasted. This is disappointing and places a question mark on Asian growth as many of the economies in the area rely on China as their main source of demand.

Thus, overnight Forex tsraders saw the USD gain ground while the AUD (Australian Dollar) and NZD (New Zealand dollar) slipped. Clearly, many online traders opted to mitigate risk and buy up the greenback and Yen.

US Dollar May Lose Gains Once FOMC Minutes Are Released

The markets are waiting anxiously for the release of the minutes from June’s FOMC meeting to determine the likelihood of another stimulus effort. While the Fed opted against introducing QE3 last month, it is likely that the Forex markets will become incredibly volatile if the minutes reveal the Fed is unwilling to consider another stimulus package under any shape or form. However, some analysts question the utility of QE3, especially since US Treasury yields are rock bottom. They feel that pushing the rates even lower will little encourage those who aren’t borrowing to start doing so.

With trader sentiment closely connected to the possibility of QE3, it is unlikely that anything concrete was discussed at the meeting either way. The Fed in all likelihood doesn’t want to risk increased volatility and will likely keep the possibility of another stimulus package on the table. Thus, we will probably see the US Dollar start trading lower as trading appetite for risk increases, which will affect Treasury yields.

Euro Still Trading Low against the US Dollar

Despite optimistic trader sentiment last week regarding the EU Summit, the Euro is still trading relatively low against the greenback, seemingly unable to break through a resistance level of 1.2320. Unfortunately, the ECB’s President Mario Draghi announced a 25pb rate cut, which wiped out any confidence the market may have had.

Euro flagEven with the meeting of the EU Finance Ministers in Brussels yesterday, where it was agreed to lend Spain 30bn Euros this month as the first installment of a 100bn Euro bank bailout, doesn’t seem to have improved trader sentiment regarding the Eurozone. Thus, it is unlikely the Euro will see any gains, especially since some northern European countries are not fully on board with the establishment of a sole European banking supervisor, which is scheduled for next year.

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