Market Drivers July 3, 2013
EURUSD feel pressure as Portuguese rates soar
UK PMI services blows past expectations sending cable through 5200
Nikkei -0.31% Europe – 2.01%
Oil $101/bbl
Gold $1245/oz.

Europe and Asia:
AUD AiG Performance of Service Index 41.5 vs. 40.6
AUD Trade Balance 0.67B vs. 0.5B
AUD Retail Sales 0.1% vs. 0.4%
EUR Euro-Zone PMI Services 48.3 vs. 48.6
EUR Euro-Zone Retail Sales
GBP PMI Services 56.9 vs. 54.6

North America:
USD ADP Employment Change 8:15
USD Trade Balance 8:30
USD Initial Jobless Claims 8:30
USD ISM Non-Manufacturing Composite 10:00

Its been a busy night of trade in the currency market with wide ranging moves in both Asian and European sessions as dovish comments from RBA chief Glenn Stevens, concerns over the political crisis in Portugal and better economic data out UK created massive volatility in G10 FX.

In Europe, the mounting crisis in Portugal that threatens to dissolve the ruling coalition caused a spike in Portuguese yields as 10 years climbed more than 100bp to approach the 8% level. The resignation of Foreign Minister Paulo Portas rocked the country’s equity market with banking sector stocks falling by as much as 10% on fears that the coalition government could crumble and the country’s commitment to austerity measures would come under pressure.

The news sent EUR/USD tumbling through the 1.2550 level as renewed fears of sovereign debt crisis gripped the market, but the pair recovered into midday European dealing and steadied around the 1.2950 figure. Still, with pressure on the unit mounting, the market will seek some reassurance from Mario Draghi at tomorrow’s ECB press conference and if Mr. Draghi fails to allay fears, the pair could drop through the 1,2900 handle and test the yearly lows near the 1,2800 figure.

Earlier in Asia, comments by RBA Governor Glenn Stevens rocked the Aussie sending it to a low of 9050 as he reiterated his view that the country was now transitioning from a commodity boom and the Aussie would need to be lower in order for Australian businesses to compete. Interest rate futures spiked on his words with markets now pricing in a 60% chance of a rate cut at the next RBA meeting in August.

The unit wasn’t helped by weaker than expected Retail Sales numbers which printed at 0.1% versus 0.4% eyed indicating that final demand is clearly being dampened as growth slows. Over the past three months, Retail Sales have been essentially flat as consumers tightened their purse strings, With AUD/USD within striking distance of the 9000 level, the shorts are likely to try to test that barrier on any dollar strength later today.

Meanwhile in UK, the news was considerably more sanguine as UK PMI Services report printed at 56.9 versus 54.6 registering the fastest rise in activity in nearly two years. The news out of UK continues to show significant improvement in growth and is likely to result in markedly better GDP data in Q2 of this year. Cable exploded above the 1.5250 level in the aftermath of the news as it benefited both from better eco data and risk aversion flows on the EUR/GBP cross.

In North America today, the eco calendar is very busy with ISM Services and ADP data which would set the stage for Friday’s NFP report. USD/JPY did a complete turnaround in European trade dropping more than 100 points off the highs and if the US data disappoints, the pair could tumble through the 99.50 support level as the day progresses with traders tempering their expectations of an early Fed taper.

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