At the start of the NY trading session, risk was being bought aggressively pushing the euro above 1.30 and sterling above 1.55. However as we got closer to the release of consumer confidence, the momentum in the market began to wane, forcing high yielding currencies to give up their gains. The euro is still struggling to sustain a rise above 1.30, having tested that level on four separate occasions this month.
Stronger than expected European economic data and good earnings from Deutsche Bank, UBS and Dupont have created a positive vibe in the financial markets. Equities opened higher while the dollar traded lower against higher yielding currencies. With the VIX index which measures the volatility in the equity markets slipping to its lowest level since May, high yielding currencies have benefitted from the decline in volatility. The Aussie in particular has climbed to a fresh 2 month high against the dollar while the New Zealand dollar reached a new 6 month high.
This earnings season has proven to be a good one for most U.S. corporations and the increase in profitability is a ray of sunshine for the market at a time when the Federal Reserve has warned that more weakness lies ahead.
House prices rose 0.47 percent in the month of May, driving the year over year gain up 4.6 percent, a much stronger rise than forecast. Of the 20 cities surveyed in the report, 19 out of the 20 cities posted monthly gains on an unadjusted basis. Prices in California have recovered the most. Yesterday's better than expected new home sales report provided hope that part of the housing market is still recovering .
Consumer confidence fell to a 5 month low of 50.4 from 54.3 in July. The sentiment of Americans continue to weaken but the number did not have as damaging of an impact on risk appetite as feared thanks to the upward revision to the June release. Yet it is important to note that Americans share the same pessimistic sentiment of the Federal Reserve and for that reason, will most likely remain very frugal with their spending.