Market Drivers
Risk remains under pressure after Moody downgrade
IFO weaker than forecast but EUR/USD sees little reaction
Nikkei down -0.29% Europe -0.79%
Oil at $78/bbl
Gold at $1568/oz.

Asia/Europe Eco Data:
JPY Supermarket Sales -1.7% vs. -1.9%
NZD Credit Card Spending 3.9% vs. 3.7%
EUR German IFO Business Climate 105.3 vs. 105.6
EUR German IFO Current Assessment 113.9 vs. 112
EUR German IFO Expectations 07.3 vs. 99.8

North America Data on Tap:
USD America Petroleum Institute Monthly Report 10:00
CAD CPI Index (MoM) 8:30
CAD Bank Canada CPI Core 8:30

Risk FX remained under pressure after taking a drubbing in yesterday’s trade, but made no further moves down in quiet European morning trade. The event risk calendar was dominated by only one report – the German IFO which unsurprisingly missed expectations, but had little impact on EUR/USD movements with the pair remaining steady at 1.2550 for most of the night.

German IFO survey of business confidence printed lower than forecast at 105.3 versus 105.6 eyed dropping to its lowest level in two years as credit crisis conditions in Europe weighed on corporate sentiment. The latest economic data from the region suggests a material slowdown in economic activity and today’s IFO results reflected the pessimism that has settled over Eurozone’s largest economy.

Yesterday the flash PMI readings for Germany showed that manufacturing contracted to 44.7 from 45.2 – its lowest reading in three years – and today the expectations component of IFO sank to 97.3, also its worst reading in three years.

The euro however saw little reaction to the news remaining within a 10 point range in the aftermath of the release. Although the data was quite weak, the market was bracing for even worse results with much of the negativity already reflected in the pair which has lost more than 150 points over the past 24 hours. With 1.2500 a key support level for the EUR/USD, the pair may stabilize at the current levels for the time being but given the overall negative tone to the data, the pressure to run the stops at that critical figure could build as the day proceeds.

In North American session today the calendar remains barren with only Canadian CPI data on tap. The flows therefore are likely to be dominated by equities which went out at the lows yesterday but may see some short covering on the open. In addition the EcoFin meeting could generate fresh headlines later in the day, but unlikely to cause much volatility as the focus turns to the EU meeting next week. Overall, it looks to be a day dominated more by technical flows rather than fundamental news with 1.2500 acting as a magnet for stop hunters as we approach the week-end.

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