Rise in Risk Sentiment Premature

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Uneventful Week Expected

This week’s economic calendar promises to be relatively uneventful and traders expect currency exchange rates to be affected by stock market performance. French and Italian production figures are due this week and could affect the euro to dollar exchange rate. The production figures are expected to show the fourth consecutive month of double digit declines in both Euro Zone countries. Exports account for 40% of the Euro Zone’s economy and negative production figures are expected to pressure the euro.

Bernanke Expected to Speak

On Monday Federal Reserve Chairman Ben Bernanke is expected to speak about the results of US bank stress tests and Bernanke’s comments tend to affect markets and currency exchange rates. A return to risk aversion on Monday has bolstered the US dollar and the Japanese Yen as investors take their cue from equities markets.

European Shares Fall

On Monday European shares fell and US stock futures pointed to a lower open for US stock markets. This has bolstered the dollar as forex investors pull back from last week’s rise in risk appetite. The euro to dollar exchange rate has fallen 0.5% to $1.3580 after hitting a seven week high of $1.3670. The euro to yen exchange rate fell 1.4% to 132.33 after reaching a one month high of 134.81.

Risk Appetite Unsustainable

Some experts are saying that last week’s rise in risk sentiment was premature and that there are few near term events to sustain risk appetite.  Many traders expect currency exchange markets to follow stock market trends this week in the absence of significant economic data. The fading risk rally sent the Aussie dollar 0.8% lower to $0.7630 and the Kiwi dollar was down 0.3% to $0.6018 after climbing to a six month high of $0.6100.

No Significant Data Expected

Aside from Bernanke’s remarks there are no economic reports of significance due this week. Currency exchange rates and risk sentiment are most likely to be affected by stock market performance.

Source by Jeffrey Craig Davis

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