August is coming to a close and it hasn’t been a pretty go of things for risk-seeking investors. As it stands, the S&P 500 is on pace to have lost around -2.8% since the start of the month, despite setting a new all-time nominal high in the first week just short of 1710.
Indeed, it was a bad month for global equity investors especially, considering that several emerging market stock exchanges lost upwards of -6%. If there was one region of the world that was relatively unaffected by global turmoil, it was Europe.
In fact, Europe became a bit of a safe haven during August, with the British Pound emerging as the top global performer. These capital inflows are purely a function of the near-term economic upswing the entire European continent has seen in recent weeks; and as long as data remains on the firm side, we should expect to see the European currencies remain supported against their high yielding counterparts going forward.
It remains a mystery, then, why the Euro has failed to gain traction against the US Dollar in recent weeks. Today would be a prime example: data emerges that Unemployment Rates are holding or starting to drop (especially in Italy, down -0.2% to 12.0%) yet the Euro can’t rally. Psychologically, the Euro’s luck may be running out of especially if data turns lower in September – and a QE3 taper (‘Septaper’) could exacerbate recently calm credit markets.
Taking a look at European credit, improved data out of the broader region as well as Italy and Spain have yields holding relatively steady on Friday. The Italian 2-year note yield has decreased to 1.953% (-0.1-bps) while the Spanish 2-year note yield has increased to 1.817% (+1.4-bps). Similarly, the Italian 10-year note yield has increased to 4.382% (+1.6-bps) while the Spanish 10-year note yield has increased to 4.523% (+0.5-bps); higher yields imply lower prices.
EURUSD 5-minute Chart: August 30, 2013 Intraday
ECONOMIC CALENDAR – UPCOMING NORTH AMERICAN SESSION
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— Written by Christopher Vecchio, Currency Analyst