Market Drivers Feb. 11, 2013
Most of Asia closed for Lunar New Year, EcoGroup ahead
Aussie mortgage demand weakens
Nikkei closed Europe 0.38%
Oil $95.77/bbl
Gold $1663 oz.

Europe and Asia:
AUD Home Loans

North America:

Its been a relatively quiet session in FX with most of Asia closed for Lunar New year holiday contributing to think liquidity conditions and generally lackluster trade. Despite the lack of newsflow USD/JPY has managed to climb back above the 93.00 level on comments from Haruhiko Kuroda. Mr. Kuroda is on a short list of possible candidates for the next Governorship of the BOJ and he stated that some “additional measures may be possible” in 2013, signaling that the BOJ may increase its monetary accommodation further.

The statement from Mr. Kuroda helped lift the pair above the 93.00 level and erased much of the profit taking losses incurred in Friday. Still the pair remains below the recent highs just above the 94.00 figure and may have trouble breaking through that barrier in the near term unless Japanese officials provide some concrete policy actions to expand QE. As we’ve noted before, Japanese authorities as walking a fine line between keeping the yen weak enough to spur exports, but not so weak as to begin weighing on energy costs for the country’s manufacturing sector. Therefore, its likely that the Japanese policymakers will try to keep the pair within the 90.00-94.00 range for the time being.

Meanwhile in Australia the Aussie started the week on down note slipping through the 1.0300 figure amidst very thin liquidity and disappointing economic data. Australian home loans declined by much sharper than expected -1.5% versus 0.1% eyed while the last month’s data was revised downward to 0.7%. This was the third month in a row of declining mortgage approvals indicating that housing demand Down Under may be cooling. Central bank data show housing credit growth in December dropped to the weakest annual pace since records began in 1977.

The disappointing mortgage data numbers dovetail with the recent economic data from Australia which has shown that broad weakening in aggregate demand. As a result Aussie interest rate futures saw an increase to 54% of another RBA rate cut next month. The market is getting increasingly disillusioned with the Aussie as growth Down Under slows and prospects for further RBA cuts increase.

The Aussie has drifted to a low of 1.0265 in early European trade but so far has held above the critical 1.0250 support level. One key factor in the pair’s weakness may be the absence of PBOC which has been a regular buyer of the currency. With China out for the holiday for most of the week, the Aussie may be especially vulnerable to a selloff. A break below 1.0250 suggests a very bearish technical development and may open the path to a test of 1.0150.

With no major economic data for the rest of the day, the FX markets will focus on today’s Eurogroup meetings for any hints of concern regarding the recent rise in EUR/USD exchange rate. The Germans remain relatively sanguine about the exchange rates with Minister Roesler’s comments last week that being competitive is more important than the value of the EUR, as their consistent position. However, the Germans are becoming increasingly isolated within the Eurogroup as the French have now joined the rest of the periphery in expressing concerns regarding the rise in the EURUSD. For now the differences have been contained and if the meeting fails to produce any further rhetoric the EUR/USD may try another attempt at the 1.3400 level. However, if the market begins to hear more rumblings from Brussels as the day goes by, the pair could quickly test the key 1.3300 support as the shorts press their case.

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