Can EUR/USD Break Above 1.3100?

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Market drivers for April 29, 2013
Euro trades higher post establishment of new Italian government
EZ Retail PMI data shows consumers in deep funk
Nikkei closed Europe up 0.3%
Oil $93.21/bbl
Gold $1469/oz.

Europe and Asia:
EUR Retail PMI 44.20 vs. 43.70
EUR Euro-Zone Consumer Confidence -22 vs. -22

North America:
USD Personal Income 8:30
USD Personal Spending 8:30
USD Personal Consumption Expenditure Core 8:30
USD Pending Home Sales 10:00

EURUSD popped on the start of week’s trade today on the enthusiasm regarding the formation of new government in Italy, but the rally stalled near the 1.3100 level as fresh economic data revealed that consumer confidence and spending in the region remained near yearly lows.

The euro was lifted early in low liquidity Asian session session gapping higher and ultimately trading towards the 1.3100 level on relief that Italy finally had a government. After more than a month post Parliamentary elections Italy finally chose a Prime Minister. Enrico Letta was sworn in on Sunday as Italy’s new prime minister. Mr. Letta is a center-left politician who will share some of his power with PDL secretary Angelino Alfano who is a staunch supporter of Silvio Berlusconi. The government will therefore be relatively well balanced.

The market voiced it approval not only through FX but in fixed income as well as the latest Italian auction went off well with 5 and 10 years yields hitting their lowest levels since October 2010. Italy sold 3B of 5 year yields at 2.84% and 3B of 10 years at 3.94%.

However, the latest eco data from the region tempered some of the early enthusiasm and the rally in EUR/USD withered at the 1.3100 level. EZ Retail PMI came in at 44.2 which was a bit better than the 43.7 reading the month prior but still deep below the 50 boom/bust line. Consumer confidence remained at -22 while the Business and Consumer survey inched lower to 88.6 from 90.1 the period prior.

Overall the data from Eurozone continues to show an economy in a deep funk and one that is in sore need of some stimulus. This week’s ECB meeting will be eagerly awaited with many analysts calling on the central bank to lower rates. Meanwhile the EUR/USD continues to hold the 1.3000 level and if investors shrug of the latest eco data in North American session, the pair could clear 1,3100 figure as the day proceeds.

USD/JPY on the other hand continues to remain weak trading to a low of 97.48 in Asia before finally finding some support. The pair has been under profit taking pressure after failing to clear the 100.00 level yet again. The weakness in US economic data continues to weigh on the pair and today’s Personal Income and spending figures could provide another test. The market is looking for 0.4% versus 1.1% the month prior for income and only 0.1% versus 0.7% for spending. If data misses even those estimates the pair could break to fresh lows and target 97.00 figure as the day proceeds.

Boris Schlossberg
Managing Director

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