Week starts off in a sour mood, but momentum is lacking as markets remained poised on a fulcrum. The key EU finance minister summit kicks off today and concludes tomorrow – what will it mean for EURUSD?
The risk trade is making a feeble start for the week, as commodities are off again, equity markets in Asia and Europe are weak, and the pro-cyclical currencies have consolidated lower still. The worst beating within the G-10 has been administered to CAD and NZD, the former on another 1.50 taken out of the price of crude oil, the latter perhaps on technical developments in NZDUSD. EURUSD scraped to a new recent low below 1.4100, though it found no fresh momentum down there. Meanwhile, the JPY And CHF remain resilient as Euro Bunds continue to trade near their recent highs and as the yield is approaching a psychologically significant 3.0% after finding round rejection back in mid-April precisely at the 3.50% level
Weak Aussie data (again)
Overnight we saw a couple more weak Aussie economic data points to add to the growing collection, as the rate of home loans fell again after the sharp fall in February and on a steep drop in new car sales, which dropped sharply from the previous month and have stagnated since the peak in the spring of last year. The Australian dollar was relatively resilient in some of the crosses and has so far avoided a significant break lower even as it has tested the waters below 1.0540 in the last couple of sessions. This fate was not shared by the smaller kiwi, which plunged almost a percent after breaking through the rather well defined head and shoulders neckline around 0.7825. Other Australian data this week includes the May meeting minutes from the RBA set for release tonight and Consumer Confidence on Wednesday.
Overnight we saw a couple more weak Aussie economic data points to add to the growing collection, as the rate of home loans fell again after the sharp fall in February and on a steep drop in new car sales, which dropped sharply from the previous month and have stagnated since the peak in the spring of last year. The Australian dollar was relatively resilient in some of the crosses and has so far avoided a significant break lower even as it has tested the waters below 1.0540 in the last couple of sessions. This fate was not shared by the smaller kiwi, which plunged almost a percent after breaking through the rather well defined head and shoulders neckline around 0.7825. Other Australian data this week includes the May meeting minutes from the RBA set for release tonight and Consumer Confidence on Wednesday.
Noise on Greece
While developments are few and far between in the financial market measures of EuroZone stress today, the news wires were abuzz with plenty of noise on how the EU should tackle the Greek debt situation. The ECB’s Stark said that further aid for Greece should be conditional on Greece “making more consolidation efforts”. The German Die Welt newspaper said the IMF doubts whether Greece should be provided with any further credit. German politicians were in on the act as well, with Finance Minister saying that any extension of Greek debt maturities (one of the proposals that has been bandied about) would require the involvement of private investors, while the leader of the German SPD opposition party, Steinmeier, said the a debt restructuring shouldn’t be “excluded”. How interesting is it to see a party on the left clamoring for a debt restructuring. The political maps are realigning all over Europe.
While developments are few and far between in the financial market measures of EuroZone stress today, the news wires were abuzz with plenty of noise on how the EU should tackle the Greek debt situation. The ECB’s Stark said that further aid for Greece should be conditional on Greece “making more consolidation efforts”. The German Die Welt newspaper said the IMF doubts whether Greece should be provided with any further credit. German politicians were in on the act as well, with Finance Minister saying that any extension of Greek debt maturities (one of the proposals that has been bandied about) would require the involvement of private investors, while the leader of the German SPD opposition party, Steinmeier, said the a debt restructuring shouldn’t be “excluded”. How interesting is it to see a party on the left clamoring for a debt restructuring. The political maps are realigning all over Europe.
Looking ahead
The EURUSD may eye the 1.40 area with nervousness until the results of the EU finance minister meetings early this week are known. There are hardly any new developments is risk spreads or interest rate spreads over the last couple of trading days, so the EURUSD pair will continue to eye the risk trade and commodity markets and then watch for the headline risk as the meeting’s outcome crosses the wires. It was thought that this meeting would come up with some kind of new announcement on Greece due to that country’s inability to meet deficit requirements spelled out under the previous rescue package. Now there is even more uncertainty surrounding the chances for new developments due to the bizarre situation of the IMF’s Strauss Kahn facing sexual assault charges in New York and his detention in the US as he faces charges.
The EURUSD may eye the 1.40 area with nervousness until the results of the EU finance minister meetings early this week are known. There are hardly any new developments is risk spreads or interest rate spreads over the last couple of trading days, so the EURUSD pair will continue to eye the risk trade and commodity markets and then watch for the headline risk as the meeting’s outcome crosses the wires. It was thought that this meeting would come up with some kind of new announcement on Greece due to that country’s inability to meet deficit requirements spelled out under the previous rescue package. Now there is even more uncertainty surrounding the chances for new developments due to the bizarre situation of the IMF’s Strauss Kahn facing sexual assault charges in New York and his detention in the US as he faces charges.
EURUSD outlook: With the 55-day moving average at 1.4275 as resistance, the focus may remain on a test of the 200-day moving average (below 1.3700 at present) if the markets remain in risk off mode here and as long as the EU fails to come up with any game changing news (more a sentiment test of whether the market still believes in the extend and pretend model for EuroZone sovereign debt – as there is no real upside for bailouts eventually). If the risk bulls manage to gain the upper hand in commodities and equity markets and the EU dodges a couple of near term bullets, the EURUSD could have a go at the 1.45 shoulder area first, but it’s hard to see any rally finding sustenance further out.
The calendar this week is fairly quiet. In the US, watch out for the US HAHB housing market index out very shortly – this is the best leading indicator on US housing, though there seems to be general agreement that the US housing market is and will stay moribund for some time. Meanwhile, we have a weak Empire Manufacturing data point to chew on as the day gets under way (Though this coming off a very strong April reading).
Other US data this week includes the FOMC minutes Wednesday, Weekly Jobless Claims Thursday and the Philly Fed for May out Thursday as well. That latter survey will be watched closely after the huge pop higher in March followed by a dramatic swing lower in April.
Economic Data Highlights
- New Zealand Apr. Performance of Services Index out at 52.6 vs. 51.1 in Mar.
- UK May Rightmove House Prices rose +1.3% MoM and +0.7% YoY vs. +1.7%/+0.1% in Apr.
- Japan Mar. Machine Orders rose +2.9% MoM and +6.8% YoY vs. -10%/-8.0% expected, respectively and vs. +7.6% YoY in Feb.
- Japan Apr. Domestic CGPI rose +0.9% MoM and +2.5% YoY vs. +0.4%/+2.1% expected, respectively and vs. +2.0% YoY in Mar.
- Australia Mar. Home Loans fell -1.5% MoM vs. +2.0% expected and vs. -4.7% in Feb.
- Australia Apr. New Motor Vehicle Sales fell -1.1% MoM and -8.4% YoY vs. +2.2% YoY in Mar.
- Japan Apr. Consumer Confidence fell to 33.1 vs. 36.7 expected and 38.6 in Mar.
- Norway Apr. Trade Balance out at 39.2B vs. 32.7B in Mar.
- EuroZone Apr. CPI Core out at +1.6% YoY vs. +1.5% expected and +1.3% in Mar.
- EuroZone Apr. EuroZone CPI out at +0.6% MoM and +2.8% YoY, both as expected and vs. +2.8% YoY in Mar.
- EuroZone Mar. Trade Balance out at +2.8B vs. +2.0B expected and -3.0B in Feb.
- Canada Mar. Manufacturing Sales rose +1.9% MoM vs. +1.8% expected (with Feb. revised down -0.3% to -1.8%)
- US May Empire Manufacturing out at 11.9 vs. 19.5 expected and 21.7 in Apr.
Upcoming Economic Calendar Highlights (all times GMT)
- US Mar. Total Net, and Net Long-term TIC Flows (1300)
- US Fed’s Bernanke to speak (1300)
- US May NAHB Housing Market Index (1400)
- Switzerland SNB’s Jordan to Speak (2200)
- Australia RBA May Meeting Minutes (0130)
- China Apr. Actual FDI (0200)
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