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August 13, 2009

Currency Markets Trigger More Demand For Risky Assets
by Brewer Futures Group

An unexpected improvement in Euro Zone economies during the second quarter is helping to firm up the currency markets and trigger more demand for risky assets this morning.

Overnight it was reported that surprise growth in the German and French economies helped improve the Euro Zone economy. Economists had predicted a decline in the economy of 0.50% during the second quarter, but instead the region fell only 0.1%.

Appetite for risk increased on the surprise news as European stocks and the Euro rose sharply. Gains spilled over to other global equity and foreign currency markets as this news marked the first sign that the recession in the Euro Zone may be over.

The same bullishness which struck the Dollar on August 7th when it was announced that U.S. unemployment data came out better than expected could help drive foreign currency, equity and commodity prices higher all day.

The September Euro is soaring on the news of the improvement in the Euro Zone economy. Since there is now more solid evidence that the Euro Zone economy may be pulling out of the recession, traders are buying the Euro on the belief that the European Central Bank will not have to apply any more economy stimulus to the region.

The September Canadian Dollar is also posting gains this morning driven by the strength in September Crude Oil and the equity markets.

December Gold and September Silver are on the rebound because of the weaker Dollar. Some traders feel that the surprise rise in German GDP may spark an inflationary flare-up over the short-term. September Copper is gaining on the prospect of greater demand.

As the Dollar grows weaker this morning, September Crude Oil is gaining. The bulls are citing a weaker Dollar and the potential for greater demand as the key reasons behind the strength.

Renewed interest in higher risk assets is helping the U.S. equity markets to rally. So far in the pre-market the early indications are for a higher opening. Improved earnings from Wal-Mart are also a bullish factor driving equity prices higher.

Treasuries are mixed. A huge rally in the equity markets could trigger a sell-off in the September Bonds and Notes but a better than expected auction could help to limit losses.

Grain markets are trading better. Yesterday's USDA report should help November Soybean prices improve as the government is calling for smaller inventories at the end of the growing season. December Corn is also trading a little firmer despite somewhat bearish news from the USDA. Traders may focus on hot, dry conditions in the Ukraine and Russia today. The poor growing conditions are hurting the corn and wheat crops.

The weaker Dollar is expected to help demand for September Cocoa and Coffee. Cocoa can get especially bullish because of lingering crop production issues.

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Information provided in this correspondence is intended solely for informational purposes and is obtained from sources believed to be reliable. Information is in no way guaranteed. No guarantee of any kind is implied or possible where projections of future conditions are attempted.