After a one day respite, investors have returned to selling euros and other high yielding currencies. Yesterday's relief rally in the currency market was very suspicious ( FX: Is this Merely a Relief Rally?) especially considering the turn in equity prices, the demand for the Swiss Franc and the rise in gold prices. This morning, we have seen a new round of risk aversion that has taken the CHF to a fresh all time high against the euro. We can tell that safe haven flows are dominating trading because of the strength of the Japanese Yen, Swiss Franc and U.S. dollar. Greece's accelerated privatization plan far from resolves Europe of its sovereign troubles and concerns about populist movements in Spain and Greece have made investors nervous. Although, the Greek privatization plans increase the chance of receiving additional aid from the EU and IMF, the peripheral countries still have their own uphill battle to secure support to provide additional funding to Greece. As a result, Greece will remain a problem for the euro and the Eurozone as a whole, making it very difficult for the EUR/USD to stage a serious recovery. Even comments from ECB President Trichet's successor Draghi failed to lend support to the currency. Draghi reiterated the central bank's commitment to keeping inflation expectations well anchored and discussed the challenge that inflation could pose to global growth. He shares much of the same views as Trichet and will most likely maintain this bias early in his term to secure credibility.
Meanwhile U.S. economic data continues to surprise to the downside - illustrating just how anemic the U.S. recovery really is. Durable goods orders fell 3.6 percent in April, the most in 6 months. Excluding transportation orders, demand for items made to last at least 3 years fell 1.5 percent. Durable goods orders increased significantly in the month of March and the latest data reflects a natural pull-back. Supply chain disruptions from the Japanese earthquake also contributed to the decline in demand but at the end of the day, it is the sluggish pace of the U.S. recovery that has made consumers and businesses reluctant to spend. The U.S. dollar barely reacted to the durable goods report which suggests that investors have grown immune to weaker U.S. data.