Market Drivers for March 11, 2013
Weak Chinese and Japanese data dampens investor enthusiasm at start of week
EUR/USD holds 1.3000 despite weak data
Nikkei 0.53% Europe -0.46%
Oil $91/bbl
Gold $1578/oz

Europe and Asia:
JPY Machine Tool Orders -13.1% vs. -1.6%
JPY Tertiary Industry Index
CHF Retail Sales 1.9% vs, 3.7%
EUR German Trade Balance 13.7B vs. 13.9B

North America:

After a boisterous Friday that saw currency markets explode in the wake of much better than expected US NFP numbers, the week’s trade started on a much more muted note after Chinese and Japanese data disappointed investors. Chinese data released over the weekend showed that inflation increased while growth slowed.

Chinese CPI rose to 3.2% from 3.0% forecast while Retail Sales expanded at only a 12.9% rate versus 14.5% eyed. Industrial Production was also lower at 9.9% versus 10.4%. The drop in consumption was led primarily by the new Chinese government frugality campaign as high end restaurants in Shanghai and Beijing saw sales drop by as much as 30%-50% on less spending by government bureaucrats. Analysts also attribute some of the slowdown to seasonal factors due to the Chinese New Year in February.

Nevertheless, the broad weakness in Chinese numbers spurred some concern amongst investors and Aussie gapped lower by 30 points at the start of Asian trade dropping below the 1.0200 level before recovering into morning European trade. The Aussie has now carved out a very narrow 1.0150-1.0300 range as traders await more data from Down Under.

This Wednesday’s unemployment report is likely to be the key driver of trade. The markets are looking for similar print as last month of approximately 10K. If the data meets or beats the expectations the pair could break the upside barrier of the range as fears over additional rate cuts by the RBA will cease. However, if the number shows that jobs contracted the pair could tumble towards parity as fears over the broad economic slowdown in Asia Pacific will weigh heavily on the unit.

The EUR/USD meanwhile has managed to hang tough despite continuing weak economic data. Today’s French Industrial Production sank -1.2% versus -0.10% while Italian GDP contracted -2.8% versus -2.7% anticipated. The only bright spot on the EZ Calendar was the German Trade figure which saw the surplus rise to 13.7B from 12.1B the month prior as exports increased by 1.4%.

Yet despite all the bad news, despite the fact that Italian BTP/German Bund spread continues to widen and despite the steady uptick in Italian CDS rates, the euro refuses to go down. On Friday the pair found support at the 1.2950 level twice and today it has traded above the 1.3000 mark as it remains steady in a quiet consolidation.

One possible reason for the units strength is the assumption by the market that the worst may be over for the Eurozone. This was the key argument of Mario Draghi at last Thursday’s ECB presser. The ECB President argued that over the medium term conditions were likely to improve, noting that much of the fiscal budget cuts have already been made. Furthermore the strength and robustness of the US economy may be viewed as engine for growth for the EZ as investors hope that US demand will prop up the region’s export sector.

The EUR/USD surprising resilience may be nothing more than just a pause in downtrend, but the longer the pair remains supported the more likely we will see a counter trend rally this week as bargain hunters decide to plow in.

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