Market Midday Drivers for March 12, 2013
Euro rally fizzles as pair hits technical resistance on the crosses
UK IP, MP miss sending GBPUSD below 4850 but cable rebounds to 1.4900
Dow -0.06% Europe -.25% Nikkei -.28%
Oil $92.69/bbl
Gold $1591/oz.

Europe and Asia:
AUD NAB Business Confidence 1 vs. 3
JPY Consumer Confidence 44.3 vs. 43.0
EUR German CPI 0.6% vs. 0.6%
GBP NIESR GDP Estimate -0.01%
GBP Industrial Production -1.2% vs. 0.1%
GBP Trade Balance -8.2B vs. -8.8B

North America:
USD Monthly Budget 12:00

The EUR/USD rally fizzled by midday North American trade as the pair ran into resistance at key levels on the EUR/GBP cross and reports of some EU banks seeking capital provided intra-day traders with an excuse to lock in profits.

Earlier in the session the pair rose to a high of 1.3073 on the back of strong buying in the EUR/GBP cross which hit a high 8777 before meeting stiff resistance and dropping back to 8740 by the end of European equity trade. A large investment bank reportedly put out a buy recommendation on the pair driving it to session highs.

The long EUR/GBP call was likely driven by the belief in persistent pound weakness rather than euro strength. Earlier at the start of the European session UK saw another horrid set of numbers from the manufacturing sector which sent GBP/USD to fresh yearly lows below the 1.4850 level. UK Industrial Production declined by -1.2% versus 0.1% eyed while Manufacturing Production sank -1.5% versus 0.0% forecast. This was the worst reading since August of last year and suggests that the manufacturing sector will weigh heavy on Q1 GDP as the contraction accelerates.

Today’s data shows that the massive divergence between UK’s manufacturing and service sectors continues to expand with the former contracting sharply while the later remains relatively robust. Although manufacturing is a small part of the UK economy it will nevertheless impact the overall growth and as such remains an anchor across the neck of sterling. Today’s NIESR GDP Estimate indicated that growth is likely to contract by -0.1% in Q1 of this year.

Despite the negative news, sterling found some bids underneath the 1.4850 level and stabilized in the aftermath of the release. Although the UK data is undeniably atrocious, the pair is so grossly oversold that the downside may be limited barring further bad news. With services sector and labor demand remaining relatively resilient 1.4850 could have marked a near term bottom as the pair consolidates and tries to recover towards the 1.5000 figure over the rest of the week.

As to EUR/USD, the pair remains in a very tight trading range between 1.2950 -1.3050 as market participants await the next round of economic and political developments in the region. It appears that EU policymakers are coming to the conclusion that further austerity measures in the periphery economy may be counterproductive and if this tilt towards the “relaxation of austerity” takes hold, the EUR/USD may find a stronger bid on the assumption that the EZ economy will finally begin to recover.

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