The USD was pummeled once again on a fresh batch of positive earnings reports from US companies and suggestions that Bernanke and Co. will continue to lay low as US moves toward budget austerity. But this morning we are seeing a bit of a bounce in the greenback – just a dead cat?
Positive earnings news – most notably from Apple, which smashed earnings estimates – late in the US sent the greenback on fresh journey southward as the news encouraged the short USD/long everything else trade. Silver took out fresh milestones overnight (news of Goldman declaring the metal hard to borrow, swirling rumors about JPM’s silver derivatives book and expiration of the CME futures/options contracts on Tuesday of next week have that market squarely in the spotlight), crude oil snapped back,. Interestingly (and very jarring for the positive risk appetite elsewhere) bonds and bunds are rallying strongly again this morning, even before the still fairly weak US jobless claims number, which only served to accelerate the development. This has USDJPY through key support and challenges the technical picture in that pair, now that the sell-off has taken out key objectives.
Euro status, please
You certainly couldn’t tell it by looking at a EURUSD chart coming into today’s US session, but spreads on Portuguese and Greek debt widened precipitously today despite the recent successful Spanish debt auction and Greek authorities’ attempts to go after people accused of fomenting false rumors about a Greek default. Greek 2-year yields are at an absurd 23%. March and June 2012 Euribor contracts have rallied strongly today as the market is beginning to question the boldness of its expectations for ECB tightening. As well, the spread between German and Spanish/Italian debt also widened close to where it was at its widest levels in the immediate wake of this last weekend’s Finnish election. So, while risk appetite got the best of EURUSD from late last night, other fundamental pressures have actually eroded much of the support for the rally. We’d need to see a powerful reversal here and close below 1.4520 to start any technical discussion on the prospects for an end to the current rally, however. Elsewhere, it’s a bit easier to see the Euro-negative developments. In EURGBP, for example, the sell-off has been rejoined and the pair looks to be carving out a rather clear top for now.
You certainly couldn’t tell it by looking at a EURUSD chart coming into today’s US session, but spreads on Portuguese and Greek debt widened precipitously today despite the recent successful Spanish debt auction and Greek authorities’ attempts to go after people accused of fomenting false rumors about a Greek default. Greek 2-year yields are at an absurd 23%. March and June 2012 Euribor contracts have rallied strongly today as the market is beginning to question the boldness of its expectations for ECB tightening. As well, the spread between German and Spanish/Italian debt also widened close to where it was at its widest levels in the immediate wake of this last weekend’s Finnish election. So, while risk appetite got the best of EURUSD from late last night, other fundamental pressures have actually eroded much of the support for the rally. We’d need to see a powerful reversal here and close below 1.4520 to start any technical discussion on the prospects for an end to the current rally, however. Elsewhere, it’s a bit easier to see the Euro-negative developments. In EURGBP, for example, the sell-off has been rejoined and the pair looks to be carving out a rather clear top for now.
Chart: EURJPY
EURJPY and German Bunds have been relatively correlated (negatively) over the last week or so, once Bunds kicked off a dramatic rally that coincided with a sharp EURJPY consolidation. Now we are seeing a follow up move in Bunds higher while EURJPY seems a bit hesitant to renew the sell-off – will the two markets maintain their relationship? We’ve already crossed below key support in the key USDJPY pair.
EURJPY and German Bunds have been relatively correlated (negatively) over the last week or so, once Bunds kicked off a dramatic rally that coincided with a sharp EURJPY consolidation. Now we are seeing a follow up move in Bunds higher while EURJPY seems a bit hesitant to renew the sell-off – will the two markets maintain their relationship? We’ve already crossed below key support in the key USDJPY pair.
Odds and ends
Australia’s Kevin Rudd said that Australia won’t “manipulate” its currency and said that other countries that do would “pay a price”. This statement despite the Aussie’s incredible recent run suggests that the currency is given the green light for further gains as long as the Everything Up vs. the USD trade spiral continues.
Australia’s Kevin Rudd said that Australia won’t “manipulate” its currency and said that other countries that do would “pay a price”. This statement despite the Aussie’s incredible recent run suggests that the currency is given the green light for further gains as long as the Everything Up vs. the USD trade spiral continues.
UK Retail Sales ex Auto Fuel rose +0.9% MoM, though this was from a downward revised Feb. data point. Still, the resilience in consumption flouts generally negative expectations for the UK economy and the negative Euro news flow supported GBP strongly in the crosses, with EURGBP reversing most of yesterday’s rally and GBPUSD shooting to its highest level since late 2009.
On the headline, Canada’s Feb. Retail Sales figure was strong, but the margin of the expectations beat came matched the size of Jan’s downward revision, weather was a huge factor in Canada this winter, and why is Canada so slow to release its Retail Sales data in the first place? Shortly put – it’s tough to react to ancient history.
The German IFO is still very strong by historic standards, but has edged ever so gently lower, led by the Expectations index, which dropped to 104.7, below expectations and at the lowest level since last September. The Current Assessment index for April set another record high.
US Jobless claims dipped this week, but not enough to suggest that last week’s very poor reading is a one-off fluke. With two 400k+ readings now, the moving averages are beginning to level out, threatening the picture of an improving job market. This has not been the case in many of the other key economic surveys with employment components, however, so we still need to give the indicator a few more weeks and look around for corroborating evidence before drawing any conclusions.
Looking ahead
Thin trading days ahead with the Easter holiday tomorrow and for many European countries on Monday as well. In such market conditions, we can only look at the current melt-up and take a “wait and see” stance. The only consolation for those looking for a USD bottom here is that most USD pairs are showing some divergent momentum here (new lows in the USD while momentum indicators are not at new local lows) but in this market, one would certainly like to see a confirming reversal in place before acting.
Thin trading days ahead with the Easter holiday tomorrow and for many European countries on Monday as well. In such market conditions, we can only look at the current melt-up and take a “wait and see” stance. The only consolation for those looking for a USD bottom here is that most USD pairs are showing some divergent momentum here (new lows in the USD while momentum indicators are not at new local lows) but in this market, one would certainly like to see a confirming reversal in place before acting.
Effectively, we only have one real trading left until next Wednesday’s FOMC meeting. All eyes will be on Bernanke’s press conference after the “rate decision” and release of the new monetary policy statement. Will it reconfirm the USD downtrend or serve as a trigger for at least a respectable consolidation on a sell-the-rumor, buy the fact reaction to whatever the FOMC and Helicopter Ben have to say?
Be careful out there, and have a great holiday, those of you who are fortunate enough to be taking one here.
Economic Data Highlights
- New Zealand Apr. Consumer Confidence out at 010.4 vs. 101.4 in Mar.
- Australia Q1 NAB Business Confidence rose to 11 vs. 5 in Q4
- Australia Q1 Producer Price Index out at +1.2% QoQ and +2.9% YoY vs. +1.0%/+2.7% expected, respectively and vs. +2.7% YoY in Q4
- New Zealand Credit Card Spending out at -1.6% MoM and +1.5% YoY vs. +5.2% YoY in Feb.
- Germany Apr. IFO Business Climate out at 110.4 vs. 110.5 expected and 111.1 in Mar.
- UK Retail Sales ex Auto Fuel out at +0.2% MoM and +0.9% YoY vs. -0.4%/+0.8% expected, respectively and vs. +0.8% YoY in Feb.
- Canada Feb. Retail Sales out at +0.4% MoM and +0.7% MoM less Autos vs. +0.5%/+0.5% expected, respectively.
- US Weekly Initial Jobless Claims out at 403k vs. 390k expected and 416k last week
- US Weekly Continuing Claims out at 3695k vs. 3675k expected and 3702k last week
- US Weekly Bloomberg Consumer Comfort survey out at -42.6 vs. -43.6 expected and -43.0 last week
Upcoming Economic Calendar Highlights
- US Feb. House Price Index (1400)
- US Mar. Philadelphia Fed Survey (1400)
- Japan Mar. Corporate Service Price Index (2350)
- Japan Mar. Supermarket Sales (0500)
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