Market Drivers April 7, 2015

Dollar busts out
RBA keeps rates on hold, UK ISM Services improves
Nikkei 1.25% Europe 1.02%
Oil $51/bbl
Gold $1209/oz.

Europe and Asia:
AUD AU Retail Sales 0.7% vs. 0.4%
RBA keeps rates at 2.25%
GBP UK PMI Services 58.9 vs. 57.1

North America:

USD Economic Optimism 10:00

Its been an active night in the currency market as the European and Asian player returned back to their desks after a long holiday weekend and proceeded to buy the dollar with abandon despite decent economic data from both regions.

The EUR/USD dropped like a rock falling to a low of 1.0833 nearly 100 points lower that it started the night as European traders extended the dollar’s rally that began yesterday late afternoon in the US session. The pro dollar move was led by a turnaround in US yields with 10 years climbing to 1.91%. They still remain well below the 2% mark and the rally in US fixed income may have been more a function of short covering rather than any indication that the market believes that the Fed will normalize rate any time in the near future, yet the turn in trade was good enough to catch many dollar bears flat footed and today’s action suggests that many short term specs were forced out of their positions.

On the economic front the news out of Eurozone was actually encouraging with both Spanish and Italian PMI reading showing an improvement to 57.3 from 56.5 and 51.6 form 51.1 respectively. In addition. EZ PPI climbed to 0.5% from 0.1% the month prior suggesting that deflationary pressures are starting to recede. Yet the EUR/USD remains under pressure as yield differentials between US and EZ are likely to expand. Over the past few weeks the pair has tried to rally above the 1.1000 figure several times and has failed on all occasions suggesting that it remains a key point of resistance for the unit.

In Australia today, the RBA kept its benchmark rate unchanged at 2.25% against a relatively steady economic backdrop. With business lending expanding and with housing sector still a potential bubble the Australian monetary authorities decided to stay still despite the fact that iron ore prices continued to decline. The strong state of the consumer also provided the RBA with some reason to keep rates stationary as Retail Sales increased to 0.7% versus 0.4% eyed.

The Aussie which has been selling off for more than a week in anticipation of a possible rate cut popped towards .7700 while AUD/NZD pulled away from parity to 1.0200 which must have been a relief to both RBA and RBNZ and may have been part of the reason the central bank remained neutral this month.

In North America today the calendar is nearly barren so price action will likely be driven by equity and fixed income markets. USD/JPY has stalled at the 120.00 mark but the pair shows little inclination to correct. If US yields continues to climb towards the 2% mark as the day proceeds the dollar rally is sure to follow.

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