Week in FX Europe – Contagion, contagion, contagion!

It been awhile since we have used this word, however, capital market seems to have decided they want to dust it off and bring it back. Expect this word to be used more in defense of last weeks late market meltdown. Many have been hesitant to use the word to describe both Thursday’s and Friday’s market moves. Why? The word typically refers to a financial shock in a vulnerable country that spills over into previously healthy economy. And that is what is happening – almost all emerging market currencies are falling against the dollar – and investors are worried about the domino effect. If the sell off escalates, similar to last August and September in Asia, then the compounding effect will be similar – the masses will run hard to the exits.

All of this is occurring only one day after the International Monetary Fund (IMF) released its revised global growth forecasts. IMF chief, Christine Lagarde, and her crew raised growth estimates for Japan, Europe, and the U.S., but reduced them for Latin America and Russia. Growth in the developed world is stabilizing, but not so in emerging markets. It seems that the gears of the global economy are shifting, and they are increasingly shifting toward instability in the developing economies.

Investors have taken cash from emerging Asian stock and bond funds for the eighth consecutive week as of January 22 according to EPFA data. A total of $1.4-billion left funds, more than twice the $671-million of the previous week.

WEEK AHEAD

* GBP Gross Domestic Product
* USD Durable Goods Orders
* USD Consumer Confidence
* USD Fed QE3 Pace
* USD FOMC Rate Decision
* NZD Reserve Bank of New Zealand Rate Decision
* EUR German Unemployment Rate
* EUR German Consumer Price Index
* USD Gross Domestic Product
* USD Personal Consumption
* JPY National Consumer Price Index
* EUR Euro-Zone Consumer Price Index
* CAD Gross Domestic Product
* CNY Manufacturing PMI

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell