Tension on the Korean peninsula between the South and the North Korea added more fear

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Tension on the Korean peninsula between the South and the North Korea added more fears to those about the European sovereign debt problems, so that the dollar suddenly became attractive as an anchor currency. And though later economic news brought some corrections to the market moods, the dollar did manage to keep its positions as the leading currency and closed the session with a profit. Among the most significant indices, released yesterday was the US revised GDP assessment for the third quarter, which showed the US economic growth at faster than expected rates – the GDP grew by 2.5%, when the first assessment anticipated only 2.0%. Existing home sales decreased in October after the previous two months growth. According to National Association of Realtors, the index fell by 2.2% and currently totals 4.43 million houses a year against the expected decrease by only 0.7% and after 10.0% growth in September. Richmond Fed manufacturing index, on the other hand, brought some positive news and grew from 5 to 9 in November, employment index went up from 4 to 10. One more Tuesday’s significant event – Fed’s meeting – didn’t influence the market moods, though it contained some bad news for the greenback – Fed’s top management downgraded the US economic outlook – GDP growth for 2011 is expected to grow by + 3.0%-+3.6% against previously anticipated +3.5%-+4.2%, unemployment rate is expected to remain at high levels. Today the market is getting ready for some important news to come out – initial jobless claims are expected to decrease by 4 thousand, durable goods orders should have increased by 0.1% in October after the previous +3.5%. Consumer confidence index, released by Michigan University is likely to bring some positive data - 69.8 in November after the later 69.3. Of market’s close attention will also be new home sales for October - after a decrease in existing home sales, the fact that new homes are anticipated with +2.3% growth to 314 thousand after 307 thousand in September is going to be quite a good support or the dollar. If the outlook is wrong, it may upset the market moods.

EUR


The European currency continued to decline against the dollar and reached its low of the end of September. Risk aversion had been observed during the whole Tuesday’s trading session – the market still doubts that Ireland problems are gone. Besides that, Portugal’s sovereign debt problem and shaky economic situation in Spain add negative moods to the investors. Today’s news block contains Ifo business climate data for November. This Germany’s index is likely to grow from 110.2 to110.5, business sentiment index is likely to remain 107.6, though business expectations may decrease to 104.8 against 105.1 in October. Nevertheless, this information is not going to influence the market either positively or negatively. The information that can really upset the market is likely to come from manufacturing orders on the Eurozone – the index is expected to show -3.0% m/m,+15.0% y/y after +5.3% m/m, +24.4% y/y. In other words, the euro’s outlook leaves much to be desired, though profit fixation in the pair EUR/USD is quite a possibility.


GBP


Tense political situation on Korean peninsula added negative moods towards USD/GBP pair, which had already become less attractive due to possible problems with Ireland, which by the way has close economic ties with Great Britain. The pound dropped losing almost 200 points against the greenback on yesterday’s session. There weren’t a lot of economic data coming out from the Islands – net mortgage lending volume increased month over month in October, though the outlook became worse – the number of approved mortgage credits dropped and almost reached its two years low. Mortgage lending increased by 1.7 billion pounds, but the volume turned out to be less in comparison with the last year. Approved mortgage lending decreased to 30.8 thousand after 31.1 thousand in September and 42.1 thousand, registered a year ago. Of most attention today is Britain’s GDP data for the second quarter which will most likely correspond to the previous assessment and remain at +0.8% q/q, +2.8% y/y. Though considering weak industrial production the index may be revised down to 2.6% y/y, which can add more pressures to the sterling.


JPY


The Japanese currency was influenced by the world’s political situation and strengthened together with the dollar, being one of the anchor currencies. At the beginning of the day it even grew against the dollar. Later in the day, after the US news came out, the yen went back almost to its opening positions and registered just a small profit against the dollar. Japan didn’t release any economic indices yesterday because the country celebrated a holiday. BoJ chairman made a speech that contained a dovish outlook and suggestions to proceed with economy stimulus measures, so the investors decided to start selling off the yen in the second half of the day. Today, if the political situation in Korea doesn’t get worse, the yen will be under pressure again – the reason for that are positive economic data from the US and its high-yielding government bonds.

Analysis by: Forex4you.com written by Joaquin Monfort
Forex4you analyst

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