Talking Points:

New Zealand Dollar May Extend Overnight Gains Amid Recovery in Risk Appetite
Euro Gaps Lower After Spain’s Rajoy Loses Ruling Majority in General Election
Japanese Yen Pulls Back after Post-BOJ Rally, Canadian Dollar Corrects Higher

Gauge Trends and Spot Reversals in the Major Currencies with DailyFX SSI

The New Zealand Dollar outperformed at the start of the trading week as front-end bond yields tracked higher, pointing to ebbing RBNZ interest rate cut expectations. The Japanese Yen corrected lower having soared after the BOJ monetary policy announcement late last week. Meanwhile, the Canadian Dollar edged upward in a move retracing losses after Friday’s selloff in the wake of soft CPI figures.

The Euro gapped down at the weekly trading open after Spain’s Prime Minister Mariano Rajoy and his PP party lost parliamentary majority at a general election held over the weekend. This opens the door for coalition negotiations that may bring the eurosceptic, anti-austerity Podemos party into government as part of a broader left-leaning coalition led by the PSOE, the PP’s top rival.

Podemos is seen as analogous to Greece’s Syriza, whose firm opposition to EU/IMF-mandated austerity measures spooked investors with the possibility of a heretofore unprecedented exit of a Euro member state out of the currency bloc. A similar narrative playing out in the Eurozone’s fourth-largest economy could prove deeply destabilizing for regional and global markets. The single currency’s response has been relatively muted thus far however as traders await greater clarity.

Looking ahead, a lackluster round-up of scheduled event risk is likely to see sentiment trends taking center stage. S&P 500 futures are pointing higher, hinting that a recovery in risk appetite may be in the cards after the blood-letting in the aftermath of the Fed’s first post-QE rate hike. This may offer a bit of support to higher-yielding FX including the Aussie and Kiwi Dollars. The moves may struggle for follow-through however as markets look ahead to higher-profile data releases due later in the week.

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