It’s been quite a circus in Europe lately – entertaining, all be it the edge of your seat variety! Like often is the case with markets, the currency market made up its mind on the 4th of October that the EU would reach some sort of agreement and so after touching a near 12 month low of EUR:USD 1.318 it has rallied through to today’s price of 1.3978 - a solid rise in the space of 3 weeks. The last public comment I heard from Jim Rogers was to buy the Euro if it collapsed – that’s open to interpretation -  but I’d be interested to know if he did buy it.

The EU capitalisation agreement has the potential to lead to a decent “risk on” rally. Obviously the Euro has already had a reasonable  bounce back but there could be more and likewise there could be other currencies about to experience support as a result of the EU agreement. The AUD is one that is worth a mention. It also touched a recent low on October 4 against the USD at well below parity but has since bounced back by around 10% (hope you picked it!).

There is a bit of an elephant in the room though for “commodity linked” currencies such as the AUD – China. Economic reports out of China recently have made FX Strategising in this area particularly difficult due to the conflicting data. Manufacturing and factory orders were up. Out today however were iron ore prices which have been quietly collapsing since September and are now down around 30% due to a significant drop in demand from China – not a good look for a “booming” economy! The bulls will have you believe (and this of course includes all the Aussie iron ore miners) that it’s just a little excess inventory hiccup by the Chinese steel mills – and they could be right, but then again…………..

Either way there is definitely relief on global markets over the EU deal and this relief could very well be enough to spark a relief rally. This rally could take equities, commodities and currencies higher. It can be hard to pick winners in broad based rallies and sometimes it’s better to spread your bets widely and go with the upward flow so to speak – and that’s where your careful and thoughtfully planned FX Strategy comes to the fore.

By Friday Fundamentalist, Published on 31st of October 2011
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