Market Drivers May 25, 2016

EZ IFO bit better
NZD Trade surprises to upside
Nikkei 1.52% Dax 1.37%
Oil $49/bbl
Gold $1221/oz.

Europe and Asia:
NZD Trade Balance 292M vs. 25M
AUD Construction Work Done -2.6% vs. -1.4%
EUR IFO 107.7 vs. 106.9

North America:
USD Trade Balance 8:30
CAD BOC Rate Announcement

The euro was mildly higher in morning European dealing today after IFO data printed slightly better than expected, but overall action in the currency market was subdued across all the major pairs.

In Germany the IFO report printed at 107.7 versus 106.9 beating expectations for 2nd month out the past three. The current assessment reading was was also better at 114.2 versus 113.3. According to IFO economist Clemens Fuest the German economy is growing at robust pace with construction sector seeing its highest morale since the reunification.

The news helped to arrest the euro decline which has been on a one way trip south ever since the FOMC minutes last week suggested that the Fed is ready to move on rates as early as June. Although the IFO news is unlikely to offer much of a long term boost to the euro it does indicate that conditions in Europe’s largest economy remain stable and will likely prompt a more neutral stance out of the ECB next week with Mr. Draghi making no further announcements of accommodation.

The pair has found support near the 1.1100 figure for now and could consolidate in that range for a few days, but if US data proves supportive for a Fed hike in June, EUR/USD will eventually head to test the key support at the 1.1000 level.

Meanwhile in Asia the FX session was very quiet with Aussie weakening a bit on soft Construction data but kiwi finding a slight bid after the Trade Balance numbers printed much better than forecast at 292M vs 25M eyed. New Zealand continues to outperform Australia on the trade front as demand for its soft commodities such as milk and wheat remains much firmer than the demand for Australia’s iron ore goods. AUD/NZD continues to drift towards the 106.00 mark and with some analysts forecasting that RBA will eventually lower its benchmark rates to 1% the prospect of AUD/NZD parity remains a very real possibility into the year end.

In North America today the US has its Trade Balance data and PMI Services report, neither of which are likely to be market moving but if they prove supportive they could add some momentum to USD/JPY and push the pair to 110.50 now that it has cleared the key 110.00 level.

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