The euro and yen are extending their gains, casting a pall over the US dollar. The euro is extending its advance into a sixth consecutive session, which is the longest streak since May. It is approaching last month’s highs in the $1.1860-$1.1880 area. As was the case yesterday, a consolidative tone in Asia was followed by strong buying in the European morning. There does not appear to be a fresh fundamental driver.
The dollar has slumped against the yen and is trading at its lowest level since October 20. It was sold to JPY113.00 in Asia and took another leg down toward JPY112.65 in Europe before steadying. The further drop in US yields, with the 10-year now off seven basis points this week, and the continued pullback in equities, are taking a toll.
The slump in equities accelerated today. The MSCI Asia Pacific Index fell 0.85%, which is not only the largest decline in this four-day swoon, but it is the biggest drop in five months. Japanese markets led the decline with the Nikkei off 1.6% and the Topix off nearly 2%. One of the few markets that were higher was Korea’s KOSDAQ. It rallied 1.5% and is up 6.3% this week. It was the sixth consecutive advance. MSCI Emerging Markets Index is off for the fifth session, which is its longest swoon in two months.
The retreat in European equities is continuing for the seventh straight session. The sell-off in commodities is taking a toll on the energy and materials sector, but information technology and financials are also down more than the market as a whole.Of note, the DAX gapped lower and is testing the 38.2% retracement objective of the nearly 14% rally since late August (found near 12892). France’s CAC is through a similar retracement level and has approached the 50% retracement (~5266).
The US S&P 500 has fared considerably better. It did fall nearly 0.25% yesterday, its third decline in four sessions. However, it closed near session highs, and once again, despite intraday violation, managed to close back above its 20-day moving average. It has not closed below that moving average for 2.5 months. It is found today near 2576.65.
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