EUR Knocked Off Its Pedestal

Here’s the latest update and analysis of the foreign exchange market, provided by the Danish Saxo Bank’s expert Andrew Robinson who points out that market participants attention shifted slightly away from the greenback overnight as weak EU data served to remind the market that the US might not be alone in fighting a slowing economy.

“Did they or didn’t they? Debate rages whether Japanese authorities were behind a spike in USD/JPY in Asia.”

Andrew T. Robinson


MAJOR HEADLINES – PREVIOUS SESSION

  • US Weekly Initial Jobless Claims out at 465k vs. 450k expected and revised 453k prior
  • US Continuing Claims out at 4489k vs. 4473k expected and revised 4537k prior
  • US Aug. Existing Home Sales out at +7.6% m/m vs. 7.1% expected and revised -27.0% prior
  • US Aug. Leading Indicators out at 0.3% m/m vs. 0.1% expected and 0.1% prior
  • China Sep. Business Condition Survey out at 69.54 vs. 62.16 prior
  • SI Aug. Industrial Production out at +8.1% y/y vs. 11.7% expected and 9.9% prior

Attention shifted slightly away from the greenback overnight as weak EU data served to remind the market that the US might not be alone in fighting a slowing economy.

Flash EU and German PMI readings were way below expectations on all fronts, with the sharpest fall in German manufacturing (the powerhouse of Europe recently) to 55.3 from 58.2 (though I am sure optimists will at least point out that it is still in expansionary territory!).

Ireland’s Q2 GDP missed the mark, registering a 1.2% decline versus a small positive expected and as a result the EUR retreated from 5-month highs above 1.34. CHF was the favoured safe haven with the JPY less so given the markets concerns of further BOJ intervention. GBP had a better day amid reported commercial demand but the commodity-bloc was in retreat with AUD dipping back below 0.95.

The US data flow was mixed with weekly initial jobless claims edging back up to 465k from an upwardly-revised 453k but existing home sales were better than expected with a 7.6% m/m increase rather than the 7.1% expected and a sharp rebound from the -27.0% seen in July as the home-buyer tax credits expired.

August leading indicators were also above forecast (+0.3% m/m versus +0.1% expected) but nevertheless, Wall St was not impressed and we saw the third straight day of declines on the various indices.

Chinese premier Wen met with US President Obama last night and reports from the US administration saying the Yuan was the “most important issue” and that the US had stressed the need for more “rapid and significant Yuan appreciation” in the months to come.

After the meeting the only comments from the Chinese delegation were that the meeting had a “positive tone” so maybe Premier Wen eased off from yesterday’s hard-line stance that there was no basis for a “drastic appreciation”.

Monday’s Chinese open could be interesting (the first since the FOMC meeting last Tuesday) ahead of the full House vote on the “China Bill” later in the week.

It was another relatively slow data day in Asia and, even though Hong Kong, Japan and South Korea returned from yesterday’s holiday, markets were mostly range-bound.

A sign of market nerves was seen in USD/JPY with an 80 point spike during the lunch period.

No official confirmation of intervention with a firm “no comment” from the MOF (Are the China currency manipulation discussions influencing the comments?).

There is still some discussion still in Asia whether it was “official” buying or a large corporate order. In other currencies, an early stop hunt in EUR saw EUR/USD down below 1.33 but saw a healthy rebound from 1.3288.

Asia traders noted an FT article which showed Greece had signed a memorandum of understanding with Qatar to secure more that $7 bln worth of investment in real estate, energy and tourism.

The same action was noted in other currency pairs so the downside held intact at the first attempt.

As we head into Europe, on the data front we can expect German import prices and IFO surveys and Sweden PPI while the US session sees durable goods orders and new home sales with Fed speakers Duke, Cumming and Alvarez also on tap with Lacker, Plosser and Bernanke a little later on.

Have a great weekend!

TO WATCH – UPCOMING WEEK:

(All Times GMT)

  • GE Import Price Index (0600)
  • Sweden PPI (0730)
  • GE IFO Surveys (0800)
  • Swiss SNB Quarterly Bulletin (0900)
  • US Durable Goods Orders (1230)
  • US Fed’s Duke to speak (1300)
  • US Fed’s Cumming to speak (1315)
  • US Fed’s Alvarez to testify (1400)
  • US New Home Sales (1400)

Andrew T. Robinson

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Analysis by :
Andrew Timothy Robinson
FX-specialist, Market Strategist

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