Risk aversion was the theme that marked most of yesterday’s sessions. Global equity markets fell more than 2%, prompting carry trades liquidation, a long-awaited move. Overnight, USD/JPY traded to a low of 118.03; AUD/USD to 0.8667 and NZD/USD to 0.7783. U.S. new home sales dropped 6.6 percent in the month of June. Clearly, the U.S. housing market is in the slumps as credit woes worsen.
Earlier, the German Ifo survey revealed a deterioration of business sentiment, dropping from 107 to 106.4 in July.
The yen’s gains this morning however were capped by the release of a negative CPI of –0.1%. Nonetheless, a further meltdown of the equity markets could ignite another round of risk aversion.
U.S. GDP is due tonight. With the recent disappointment in U.S. data, GDP could come out on the weaker side.
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