Risk aversion drags markets, once again

EUR: The single currency started off last week in a downwards trend, slipping from 1.3083 on October 22 to close the week at 1.2934. The single currency was dragged lower by the concerns regarding when Spain will make a formal request to the EU for assistance, in order for it to stabilize its financial system. Yet that was not the only factor weighing on the Euro, as comments from the German Finance Minister Schaeuble who rejected the proposal to restructure Greek debt also left its toll on the European currency.

Last week the index of consumer confidence in the euro zone improved to -25.6 in October, compared to -25.9 previously. The preliminary euro-zone PMIs for the month of October have mostly disappointed expectations but the services sector index surprised positively in that it rose to 46.2, but overall remained below 50. Analysts believe that the most liquid currency pair in the forex market, the EUR/USD should continue to trade between 1.2800 and 1.3150 while Spain remains undecided.

Last Monday the prevailing sentiment was that of risk aversion, mostly caused by an uncertain global economic growth and the persistence of some disappointing economic indicators. This week, a report on Spain should continue to point towards further contraction, and the unemployment rate in Germany is expected to increase for the first time in three years.

In all probability, Hurricane Sandy should also paralyze the US East Coast, including the cities of New York and Washington. US markets were expected to remain closed throughout Monday and Tuesday if the threat continues. On the other hand, consensus figures are expected to show a rise in the United States' payroll data for the month of October. The data is due next Friday.

USD: US markets have also closed the week in the red with the S&P500 at 1,403 .28 (-0.07%) after touching seven week lows throughout the previous week, also weighed by a Fed that still sees moderate growth despite positive US New home sales figures.

New home sales in the US rose 5.7% in September against the previous month's -0.3. There were no surprises from the FOMC meeting last week, were the Federal Reserve kept its interest rate unchanged despite that the US economy begins to show some signs of economic recovery. The economic data indicates that the largest global economy has experienced 2% growth throughout Q3 compared to the original 1.8% previously forecast. Investors will carefully be eyeing official payroll figures on Friday to confirm the recovering trend. If the US economy stabilizes and Spain formally requests assistance from the EU, this could help boost risk appetite.

GBP: The preliminary estimate for Q3 GDP in the UK economy has surprised the financial markets,data released last week showed that the British economy grew 1% in the third quarter against -0.4% in the previous quarter and well above forecasts for a 0.6% for the mentioned period. UK GDP growth stood out as the largest increase for these past 5 years, this growth is mainly attributable to the effect of the Olympic Games. The GBP/USD has moved up sharply with highs of 1.6144 while the EUR/GBP fell to 2 week lows at 0.8019 following the data announcements.

JPY: The JPY has been the focus of investors' attention throughout last week. Indeed, the currency has been oversold in anticipation of a decision by the Bank of Japan in favour of an additional 20,000 billion yen-buying program. Expectations continued to be fuelled as Japanese Prime Minister Maehara  insisted that the BoJ should continue "aggressive monetary policy." On Monday the Yen erased the losses made throughout last week supported by demand for safe-haven assets. The BoJ is expected to announce new monetary easing measures and to continue within this route in order to achieve an inflation target of 1%. USD/JPY fell to 79.50 last Friday from 4 month highs at 80.38 and traded at 79.63 on Monday. EUR/JPY also fell to 102.80 after hitting five-week highs of 104.59.

AUD: The AUD's performance last week was marked by the stronger reading for the  Chinese flash HSBC Manufacturing PMI for October that came out at 49.1 against the previous  47.9. Furthermore, Chinese exports have increased while industrial production was rising. Despite this, very few Asian stock markets reacted positively to this news. Indeed, the Nikkei ended the week down to 8'909.37 (-0.04%). As for currencies linked to commodities, AUD has managed to consolidate its gains against the majors thanks to a higher than expected inflation for the Australian economy, hence reducing expectations for a rate cut from the RBA . In addition, AUD/USD reached highs of 1.0317 and in the process erased four consecutive days of losses. On the other hand, the kiwi traded at 2-week highs at 0.8243 against the USD after the RBNZ decided to keep its key rate to 2.50%.