European Morning Wrap Up; risk on

• Australia’s Treasurer Wayne Swan says romove tax on government bonds to make them more attractive
• Shanghai share index ends up 1.7%
• French August flash manufacturing PMI 50.2, up from 48.1 in July, highest read in 15 months. Services 48.9, up from 45.5. Composite 50.9, up from 47.3, highest read in 15 months
• German August flash manufacturing PMI 49.0 better than median forecast 47.0 and highest read in 12 months, services 54.1 better than median forecast 48.6 and highest read in16 months . Composite 54.2 and highest read in 15 months
• Euro zone August flash manufacturing PMI 47.9 better than median forecast 47.5 and highest read for 14 months, services 49.5 better than median forecast 46.5 and highest read for15 months, and highest read in 15 months

Risk on. Sentiment boosted by release of better than expected European PMI data.

EUR/USD having started off around 1.4215 has been as high as 1.4335 so far. There have been muttering of Asian central bank sales above 1.4300, but personally haven’t been able to confirm such. China probably won’t leave it too much longer before it makes a concerted stand to slow the rally given it’s well-touted dnt option interest. We’re presently at 1.4325.

The market will have also noted .The Nobel-prize winning economist feels the dollar’s role as a good store of value is “questionable” and feels the currency has high degree of risk.

Cable has had a good morning. Having stood around 1.6440 it’s been as high as 1.6577 so far, bolstered by better risk sentiment.

USD/JPY touch firmer, JPY weak across the board given improved risk appetite. USD/JPY at 93.85 from early 93.60. Sources note layered sell orders from 94.00 up through 94.50.

Aussie has had a very good morning, obviously bolstered by better risk appetite. But the move by the Australian government to remove interest withholding tax (IWT) on government bonds, to make them more attractive, will also have given aussie a good fillip.

AUD/USD having stood at .8235 in early Europe is presently up at .8330.

EUR/USD continues higher

EUR/USD continues to rally, presently up at 1.4325, having been as high as 1.4334.

The euro is being underpinned by the release of better than expected European PMIdata and rallying European stocks.

So far I’ve had no concrete confirmation of Asian central bank selling, although there have been vague mutterings. I still think China will not let this rally gather too much momentum given their well-touted dnt option interest.

Cable extends gains above 1.6500; sell orders noted

Cable has extended it’s gains above 1.6500, presently at 1.6535. The move comes with European stocks heading higher, risk appetite in decent shape after the release of better than expected European PMI data this morning.

Technical resistances now 1.6545/50 and 1.6580.

Talk of some sell orders now lined up at 1.6540/50, but not thought to be overly large. Will be interesting to see whether they’re enough to hold back the present rally.

Pound Climbs on Renewed European Optimism

The pound climbed today versus the yen and the dollar, as optimistic reports in Europe brought worldwide traders to bet in a hastening economic recovery in the region, damping demand for safer assets and increasing risk appetite.

The pound benefited today from a report in Germany indicating an unexpected growth of 0.3 from the first quarter, being the same figures also perceived in France, while forecasts indicated a contraction of 0.3 percent for both countries. The pound also benefited today from an improved sentiment in stock markets that pushed high-yielding currencies like the South Korean won to the highest rise in a week, making investors which were again confused by negative reports to return to riskier positions in search for higher yielding operations.

Today’s reports in both Germany and France, were highly unexpected and changed traders, investors and analysts perspectives regarding the future economic conditions in the European Union, since these countries lead a main role regarding the bloc’s financial health, and a rebound in the region must derogatorily rely on their stabilization. Despite this fact, the United Kingdom has a more delicate financial system and current situation than the Eurozone, being the credit system more similar to Eastern European countries, which may result in a longer period of recession for both regions than for the countries which adopted the euro.

Euro Continues Rally on Eurozone Members Growth

The euro gained versus the dollar and other several currencies today as countries like Germany and France indicated a unexpected growth for the previous quarter, surprising traders and analysts, raising the positive sentiment towards the Eurozone currency.

A perfect scenario for a bullish pattern in the euro-dollar chart was set today as the German and French economies grew in the second quarter, as the Federal Reserve affirmed yesterday that interest rates in the United States shall remain low for an extended period of time, forcing the dollar down versus most of the 16 main traded currencies. Today, speculations indicate that a report is likely to show an economic rebound for all the current Eurozone country members, which is also favoring the outlook for the euro, which has been bearish since last week when it reached the highest level in months.

The euro is likely to remain high during the day if the report confirms the Eurozone diminishing contraction. Risk has returned to markets, and signs coming from main economies in Europe like Germany and France helped the euro to pare half of last risk aversion wave losses in the beginning of the week, but it is hard to determine until what level it may climb, since markets remain highly volatile.

Polish Zloty Down as Rally May Halt Economic Growth

The Polish currency, which was climbing systematically during the previous two months as signs of economic recovery attracted traders to this emergent European Union economy, had a sharp decline this week as the current currency rates may affect the economic recovery in the nation.

Poland’s economy was the best performer among the 10 eastern European union members in the first quart of this year, after the national government cut taxes to stimulate the economy the zloty climbed 14 percent versus the euro, a rally which is raising concerns about the future conditions of the Polish economy. Today the zloty had the sharpest fall in two months, leading a day of declines in the currency market for eastern European countries, as pessimism brought investors back to safer markets.

Brazilian Real Declines Further on China’s Industrial Output

The Brazilian real is having its worst week since the beginning of July as pessimistic news rose risk aversion among traders, damping demand for the Brazilian currency high-yielding profile.

Today several reports in China brought equities and commodities markets down as exports and loan conditions deteriorated in the Asian country, raising concerns that one of the key-world economies may face an extended period of recession, affecting emergent market currencies like the South Korean won and the Brazilian real, which is at the lowest level since the beginning of August.