Market Drivers for July 07 2014

German IP declines sharply

EU Sentix Investor confidence rises

Nikkei -0.37% Europe -0.37%

Oil $103/bbl

Gold $1315/oz.

Europe and Asia:

AUD AIG Construction Index 51.8 vs. 46.7

EUR German Industrial Production -1.8% vs. 0.0%

EUR Sentix 10.1 vs. 7.5

North America:

CAD Building Permits 8:30 AM

CAD Ivey 10:00 AM

It’s been a typically quiet night of trade on the first day of a new week as currency markets were just coming back from a long holiday weekend in US with little new data on the economic calendar. The dollar however was surprisingly weak, giving up the 102.00 figure against the yen while EUR/USD rose through 1.3600 in morning London dealing.

There was little fresh news in the market and the moves in USD/JPY appeared to be driven more by profit taking and a slight risk off tone in European equity markets. However the fact that the pair is unable to definitively trade above the 102.00 level despite the blockbuster NFP results on Thursday and a better bid tone in the US 10 year bonds suggests that the currency markets remain highly sceptical about any Fed policy action in the foreseeable future.

That having been said, some analysts, including Goldman Sachs are starting to revise their forecasts for a Fed hike from 2016 to later part of 2015, as US data continues to show steady growth. We have noted over the past several weeks that USD/JPY appears to have established a very deep base at the 101.00 figure with the consolidation range now running for more than five months. Typically such patterns – when they hold – lead to large upside breakouts and USD/JPY may indeed be biding its time as sentiment slowly begins to shift towards the greenback.

In the near term however, the buck is under mild pressure tonight with EUR/USD gathering steam towards the 1.3600 level. Earlier in the session euro came under saw some selling in the wake of weak German Industrial Production data. German IP for May declined by -1.8% versus 0.0% eyed with construction falling sharply by -4.7%. The declines were attributed to the timing of public holiday and possibly the flare up of geopolitical tensions in Ukraine. However German economic ministry noted that it expects momentum to rebound in Q2 and investors eventually shrugged off the news, aided by better than expected Sentix sentiment numbers which rose 10.1 from 7.5 the month prior.

The North American calendar is very quiet today as well with only Canadian data on the docket as the market will get a glimpse at Building permits and Ivey PMI. The loonie has been exceedingly strong over the past several weeks as the pair has benefited from a rebound in Canadian data. It today’s reports prove better than expected USD/CAD could make a run towards the key 1.0600 level. The pair has been probing the yearly lows for several days and a break of the figure would suggest that the market continues to remain bullish the loonie ahead of this week’s key Canadian abor report.

As to the greenback, it may be another day of consolidation for the buck, with directional cues coming from equity and bond markets. If US rates show no further traction to the upside, USD/JPY could remain mired below the 102.00 level for now.

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