Mid Day North American Market Drivers for March 4, 2013
Aussie recovers off lows rises above 1.0150
Cable rebound of 1.5000 extends to 1.5090
Europe recovers 0.12% Dow down slightly -0.28%
Oil slips below $90.00/bbl
Gold $1573/oz.

Europe and Asia:
AUD Building Approvals -2.4% vs. 2.8%
EUR Euro-zone Sentix Investor Confidence -10.6 vs. 4.5
EUR Euro-zone PPI n/a
GBP PMI Construction 46.8 vs. 49.2

North America:

It’s been a quiet lackluster day of trade in North American session with currencies trapped in very tight consolidative ranges as newsflow has dried up to trickle and the economic is barren. Both cable and Aussie which were noticeably weaker in Asian and European morning trade have rebounded off their lows.

Aussie faces a slew of data in early Asian trade later today with Retail Sales and Current Account on deck first followed by the RBA statement at 330GMT. Almost no one in the market expects the RBA to ease from the current 3.00% level. Australian monetary officials have gone out of their way to signal to the market that they are relatively satisfied with the economic conditions and that they believe that the stimulus from the prior rate cuts has yet to fully make its way through the system.

However, a weak showing on the retail front could quickly erase RBA’s complacent attitude. If retail sales contract for the third month in a row such a trend would have ominous implications for consumer demand and overall growth Down Under. There is no doubt that growth in Australia is slowing as investment in the mining sector eases and the housing boom loses steam as evidenced by today’s disappointing figures. The key question is just how bad is the slowdown? If the data misses the mark expectations of an RBA rate hike will rise significantly and shorts will begin targeting parity in AUD/USD irrespective of whatever message the RBA puts out.

Meanwhile in UK the data continues to signal a deepening recession as the PMI Construction, much like the PMI Manufacturing report last week missed its mark printing at 46.8 versus 49.2. This was the lowest reading since October 2009 destroying any expectations of a rebound in the housing sector.

Cable has also enjoyed a very nice rebound as it quickly recovered from day’s lows near the 1.5000 mark. Part of the gain was due to some bargain hunting, but the pair received a fair amount of strength from EURGBP flows as the unit is once again enjoying a bit of a safe harbor bid. amidst the growing chaos in Italy that appears to have no resolution in sight.

Still despite the bounce, tomorrow’s UK PMI Services report looms even larger than usual as it remains the last bastion of hope for the bulls. Services represents more than 70% of UK economic activity and the forecast is for a reading of 51.5. However if the data misses – or worse – dips below the 50 boom/bust line then sterling is very likely to give up the 1.5000 level for good.

The two currencies therefore face a major moment of truth over the next 12 hours. If the data holds up, they may have put in a near term bottom for the time being. If however, the eco calendar produces yet more disappointment fresh lows could be in the offing.

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