The Euro rebounded off its two-month low against the US Dollar that was reached yesterday, climbing up today to highs of 1.4132. The Euro was given a boost after the release of optimistic data from Germany which indicated better than expected GDP as well as a rising Ifo Business Sentiment Index. Meanwhile, the European Commission announced this evening that its sale of 4.74 million Euro bond will provide assistance for debt-laden Ireland and Portugal. Although the Euro remained above the key psychological level of 1.4000, some investors believe this will not last long since the Single Currency is still fragile and vulnerable to the Greek debt issues. Moody’s ratings agency earlier mentioned that a restructuring of debt will be considered a default, which could bring down the Euro, as contagion will spread to the other debt-ridden peripherals, Ireland, Portugal and Spain. This could lead to a mass sell-off, which could lead to Euro dropping to levels of 1.3000.
Sterling also rebounded from its five-week low against the Dollar, to extend gains form the earlier session, opening New York trading at 1.6165, the day high at the time, and continued to rise throughout the session hitting highs of 1.6208. Since Friday the Pound was battered by a strengthening Dollar. But just like the Euro, the Sterling is fragile as the British economy is still struggling to recover. As London trading opened, Moody’s announced that it is threatening to downgrade fourteen UK banks. This has led to traders covering speculative short positions, therefore some say, their buying in order to short cover has led to the Pound rising, which could be short-lived. There is a possibility that GBPUSD could fall below the key psychological level of 1.6000, based on a possible banks downgrade.
The Swiss Franc pushed higher versus the US Dollar, making gains of almost 30 pips in the US session. From highs of 0.8810, USDCHF dropped to lows of 0.8781. The Swiss Franc is considered a safe haven currency and strengthens in times of crisis. Meanwhile, against the Euro, the Swissy remained steady, although is looking more to the downside, creating an opportunity to short the EURCHF. Highs were hit at 1.2423, followed by lows of 1.2377.
The Canadian Dollar has been weakening against the greenback since Friday. After reaching new lows in the US session yesterday, the Loonie has been range bound all day on Tuesday. USDCAD remained within highs of 0.9789 and lows of 0.9755. The Canadian currency is a commodity-linked currency and usually mirrors commodity prices, especially oil, which has been affected by Europe’s debt woes. After hitting a new high since Friday at 110.07, oil dipped over $2 then recovered again.
Gold continued to rise in US trading, reaching a new three-week high at $1,527.53. Investors remain confident in the precious metal as flight to safety based on European debt worries. Reaching new highs prompted some traders to take profits, causing prices to dip to $1,520.08 before rebounding again. The Dollar slightly weakening today made it cheaper to buy the asset that is priced in USD. Meanwhile, gold can be used as a hedge against rising interest rates and inflation, and since there is increasing speculation that interest rates will rise both in Europe and in the US, investors may be beginning to hedge.