Market Drivers February 5, 2015
EU sees higher growth in 2015
AU Retail Sales in line
Nikkei -.48% Europe -.98%
Europe and Asia:
AUD Retail Sales 0.2% vs. 0.3%
EUR Retail PMI 46.6 vs. 47.6
GBP BoE Announcement
USD Weekly Jobless 8:30
CAD Trade 08:30
The euro staged a short squeeze rally recovering all of its losses from late US session dive as traders shrugged of the latest standoff between the ECB and Greece and focused on better economic forecasts for the region.
Yesterday the euro took a tumble in end of day US session trade after the ECB announced that it will no longer accept Greek sovereign bonds as collateral. The pair pushed to 1.1300 but found support ahead of the figure and rebounded throughout the night as EU winter forecasts suggested that growth may improve.
The EU raised its GDP estimate to 1.3% from 1.1% for 2015 and to 2.1% from 1.9% for 2016. It also lowered the the unemployment rate estimate modestly to 11.2% from 11.3%. Overall, the more upbeat forecasts are a reflection of the much lower euro exchange rate that is likely to have positive impact on export growth as the year progresses.
The euro was also lifted by reputed buying from the Swiss National Bank. The SNB may have switched tactics and is no longer supporting the EUR/CHF floor but may be trying to weaken the franc against a basket of currencies. As such, the SNB may have been buying the EUR/USD directly which caused the pair to skyrocket to 1.1450 in mid-morning EU trade.
The pair appears to have stabilized in the 1.1300 region with the drama in Greece now only a sideshow as currency markets focus much more on the fundamentals in the region. Unless US data improves markedly – reigniting expectations that the Fed could normalize in June, the dollar rally appears to have stalled for the time being. Therefore if the macro data from EZ begins to show a modicum of improvement, the EUR/USD rally could extend much further than the consensus view and could catch the late shorts in a surprisingly vicious squeeze over the near term horizon.