Market Drivers for April 30, 2013
German Retail Sales miss driving EUR/USD off session highs
USD/JPY fails to hold 98.00 despite better Japanese data
Nikkei -0.17% Europe 0.03%
Oil $94.47/bbl
Gold %1473/oz.

Europe and Asia:
AUD Private Sector Credit 0.2% vs. 0.3%
JPY Retail Trade -0.3% vs. 0.5%
JPY Household Spending 5.2% vs. 1.8%
JPY Industrial Production 0.2% vs. 0.4%
NZD NBNZ Business Confidence 32.3 vs. 34.6
EUR German Unemployment Change 4K vs. 2K
EUR German Unemployment Rate 6.9%
EUR Euro-Zone Unemployment Rate n/a
EUR German GfK Consumer Confidence Survey 6.2 vs. 5.9
EUR German Retail Sales -0.3% -0.2%
GBP Net Consumer Credit -0.9% vs.0.4%

North America:
USD Chicago Purchasing Manager 9:45
USD Consumer Confidence 10:00
CAD GDP 8:30

The EUR/USD rally once again fizzled at the key 1.3125 mark in Asian and early European trade as weaker than expected German data put a cap on the pair despite generally positive investment sentiment that saw equities rally strongly.

German Retail Sales fell for their second consecutive month declining by -0.3%. Worse, the sales from February were revised lower by -0.6% suggesting that consumer demand is clearly starting to slow. Overall Retail Sales have contracted by -2.8% from a year earlier. The lackluster sales numbers may have been further aggravated by the extremely cold weather which affected other parts of the economy as well.

On the labor front German unemployment increased by 4K versus 2K eyed – slightly worse than expected but markedly better than last month’s jump of 14K. Overall, the German rate of unemployment remained at 6.9%.

The news out of Germany shows a clear slowdown in economic activity as the contraction from the periphery is slowly starting to seep into the EZ core economies. The key question that remains unclear for now is whether the data is bad enough to prompt the ECB to act at this month’s policy meeting.

The market is generally convinced that the central bank will lower the benchmark rate by 25bp – but such a move alone while a welcome dose of stimulus is unlikely to have much of an impact on EZ growth. As Mr. Draghi himself admitted the policy transmission mechanism in Europe is failing as credit conditions in the periphery remain very tight. One possible positive driver is the rapid decline in periphery sovereign yields which may in turn translate in lower funding costs in that region of the Eurozone. Indeed, EZ banks have reported their best results in years suggesting that the banking sector may finally be healing.

For now the EUR/USD remains rangebound in the 1.3050-1.3125 region as markets await the ECB. Trading is likely to contain itself to those regions for the time being.

Meanwhile in Japan, the market may have seen the first positive signs of Abenomics as the data from the land of the Rising Sun surprised to the upside on all fronts. PMI Manufacturing rose to 51.1 from 50.4 the month prior moving steadily further into expansionary territory. The unemployment rate declined to 4.1% from 4.2% as well. However, perhaps the most encouraging sign for Japanese policymakers was the fact that Household Spending rose 5.2% from 1.8% eyed. As Japan tries to reflate demand this number will be key to further activity and growth.

USD/JPY peaked through the 98.00 figure in Asian session trade but backed off that level as Europe came on board. The pair continues to correct its massive rally after failing to take out the 100.00 level. As we noted earlier USD/JPY needs to see an improvement in US data in order to resume its uptrend. Yesterday’s Pending Home Sales was the first positive US data point in weeks and today’s Chicago PMI report may be key driver of trade later in the day. If the release prints above the 52.5 projected it could help push the pair above the 98.00 figure once again.

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