After disappointing NFP figures last week and a quite-tone on the FOMC statement, the markets have been fairly quiet with safe haven flows the prevalent theme. News announcements were relatively thin during the week, as investors and traders alike are cautious at the beginning of Q3. The Euro continued its downward momentum on the back of last weeks ECB rate cut and issues surrounding Spain and Italy. All eyes were focused on the unemployment rate for Australia early Thursday morning. The fact it is currently still the best location in the search of yield (due to its carry) and that it acts as a strong barometer of global economic health (due to its exports to China), traders were looking for strong sentiment on risk on or risk off in an otherwise lacklustre market. The number highlighted the issues the domestic Australian economy faces as well as the slowdown in Chinese growth. This further accelerated a risk off status and the greenback rallied across its counterparts. Moody's downgrade of Italy's bond rating to Baa2 from A3 did not help any Euro bulls in the market. EURCAD broker through its all time low and triggered many black boxes to sell which weighed on the CAD pairs.
Whilst trading has been relatively cautious this week, the momentum will most likely increase with key news announcements out next week. US manufacturing (Philly Fed Index), German ZEW, BOC rate announcement and GBP MPC minutes will be looked at closely for directional basis. However, trends don't change immediately so continue to focus on price action as a leading indicator and beware of volatility spikes during news announcements.
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