Market Drivers for September 24th, 2013
IFO misses slightly, but expectations up
UK BBA mortgages 38.2K vs. 38.6K -highest since 2009
Nikkei -0.67% Europe 0.25%
Oil $103/bbl
Gold $1318/oz.

Europe and Asia:
EUR GE IFO 107.7 vs. 108.4
EUR GE IFO expectations
UK BBA mortgage 38.2K vs. 38.6K

North America:
CAD Retail Sales 8:30
USD Consumer Confidence 10:00

The EUR/USD weakened a bit today in early morning European dealing after the IFO data slightly missed expectations but still managed to show a small increase. The IFO survey came in at 107.7 – a bit worse than 108.4 eyed but still better than last month’s reading of 107.6.

The current assessment component of IFO showed a decline of 111.4 from 112.0 prior while business expectations printed at 104.2 versus 104 forecast. The mixed nature of the IFO readings suggests that the German economic recovery continues to expand albeit at a snail’s pace.

Yesterday’s dip in the PMI manufacturing showed that that sector is now starting to experience some headwinds as demand from emerging markets declines and today’s tepid IFO readings confirm the cautious landscape.

The euro dipped from a pre-news high of 1.3515 to trade as low as 1.3490 in the aftermath of the release. The pair has seen a very strong rally in the wake of last week’s announcement by the Fed to delay the taper. However its appears to have found stiff resistance just below the 1.3600 level and may now drift lower on some profit taking.

Furthermore, EZ monetary policy officials are no doubt displeased with the current exchange rate of the unit, as its recent rise hampers export growth both in core and periphery Europe. As we surmised, yesterday ECB chief Mario Draghi took the opportunity to talk the euro down by stressing the potential of further rate cuts as well as another round of LTRO. The Fed’s actions cannot be taken in a vacuum and as long as US monetary officials continue to accommodate the rest of the G-3 is likely to respond in kind.

In North America today the US calendar is very quiet with only the housing price index and consumer confidence on the docket while in Canada the market will get a look at the Retail Sales numbers. The consensus call is for a rebound of 1.0% from -0.6% the month prior. As the week progresses the focus will begin to shift away from economics to politics as US budget issues will likely dominate market sentiment. For now the session is setting up for possibly more more profit taking in high beta currencies with shorts targeting 1.3450 in EUR/USD and 1.5950 in cable as the day proceeds.

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