Currency Update – 5/18/2010
After falling 6% against the dollar since the beginning of May, the euro stabilized this week and was recently trading above $1.23 after falling below that level on Monday. The euro hit a session high of $1.2445.
While U.S. stocks opened higher, they later turned negative. However, the big swings that characterized trading for many sessions over the past two weeks were absent. The Dow Jones Industrial Average was steady at around 10,622.
“With the euro holding on and stocks trading higher, you’re seeing a little bit more appetite for risk,” said Charles Nedoss, senior market strategist with Olympus Futures in Chicago.
Commodities such as oil, copper and sugar were big beneficiaries of this renewed appetite. Gold, which hit record highs amid the recent market turmoil, was 0.8% lower at $1217.90 an ounce.
The calmer mood in currency markets also initially took some wind out of the Treasury market, with yields on shorter-dated maturities initially rising and prices slipping, although that move was reversing by midday as the euro resumed its downtrend.
With little in the way of fresh news on cash-strapped Greece, Spain and Portugal, investors had the opportunity to re-evaluate what the potential fallout of the $1 trillion bailout, announced more than a week ago, would be.
“Given the relatively small size of the Greek market and the amount of Greek debt outstanding, people are realizing there’s a way to work through it,” said Frank Germack, director of the investment department at Rehmann Financial. “There are resolutions, and the whole region will not go down as result of the changes.”
The euro’s plunge has been the driving force behind declines in commodities markets but price movements reversed Tuesday.
Oil has bounced from its $70-a-barrel support level and was recently off the day’s highs, up 1.6% at $71.18 a barrel. Copper crossed back above the $3 level and was recently up 3.9%, but also off highs. These industrial commodities — used up and down the world’s manufacturing and distribution chain — have slid sharply from multi-month highs reached before the crisis in Europe reached fever pitch. Investors worried that the debt woes would sharply curtail economic growth, not only on the Continent but elsewhere.
China’s attempts to rein in its economy by tightening credit available to the construction and real estate sectors have also served as a drag.