Market Drivers for April 2, 2013
RBA leaves rates unchanged tone slightly less dovish helping AUDUSD
EU periphery PMI weakens UK also, EURUSD dips below 2850
Europe 0.47% Nikkei -1.07%
Oil $96.95/bbl
Gold $1599/oz.

Europe and Asia:
AUD RBA Rate Decision no change
JPY Labor Cash Earnings -0.7% vs. -0.1%
CHF SVME PMI 48.3 vs. 50.5
EUR Euro-Zone Unemployment Rate 12%
EUR German CPI
EUR Euro-Zone PMI Manufacturing 46.8 vs. 46.6
GBP PMI Manufacturing 48.3 vs. 48.9
GBP Mortgage Approvals 0.9 vs. 0.4

North America:
USD Factory Orders 8:00

It was back to reality for EUR/USD as the pair dropped from its session highs on the first full day of trading in Europe after a series of Manufacturing PMI from the periphery showed further deterioration in March. Both Spanish and Italian final PMI readings were lower than originally reported with Spanish data showing that jobs were being cut at the fastest pace in 3 years as the recession in the region continues unabated.

Overall the EU PMI was slightly higher at 46.8 versus 46.6 projected mainly on a slight improvement in French figures. The PMI data however remains well below the 50 boom/bust line and shows no signs of an uptick in demand which is likely to translate into lower growth projections from Mario Draghi at this week’s ECB presser. The news clearly weighed on the EURUSD which dropped off the session highs of 1.2875 to trade at 1.2835 in mid morning London dealing.

Earlier in Asia USD/JPY was also under pressure dropping to a low of 92.56 before recovering back above 93.00 in Europe. We have been noting for several days that despite the consensus bullish call on the pair USD/JPY continues to drift lower breaking through the kye 93.50 support area yesterday. The market is clearly looking for some action, not just rhetoric from Japanese officials and this week’s BOJ meeting looms very large on the horizon as currency traders focus on the scope and size of the QE program that the BOJ will undertake.

With Japanese economy still mired in a deflationary spiral, with little or no growth, Mr. Kuroda and company will need to make some dramatic moves in order to restart the rally in USD/JPY once again. Otherwise the pair could sell off on the news probing the lows of 91.50 set during the sharp one day correction in late February.

In Australia on the other hand, the outlook was far less gloomy. The RBA statement left rates unchanged and kept essentially the same language, but provided a slightly less dovish tone helping AUD/USD to clear and remain above the 1.0450 level throughout the European trade.

Although the RBA left open the possibility of further easing, it made no suggestions that such policy was needed in the near term and in addition it did not try to talk the Aussie down despite the fact that the pair continues to trade near the year to date highs. The nonchalant tone of the RBA emboldened the longs, but the pair continues to be capped ahead of the key 1.0500 barrier, although it remains the relative strength winner of the night.

In North America today the calendar is light, but with Europe back at full force trading should be livelier as markets return to their normal liquidity. With news out of Europe continuing to be glum, the downward pressure on EUR/USD may resume and the pair could once again drift towards the 1.2800 level as shorts try to press their case. Meanwhile to the upside the 1.2880 level remains a ceiling for now and this narrow range is likely to persist until currency markets get better visibility as the week proceeds.

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