Market Midday Drivers March 13, 2013
Dollar drives higher as US Retail Sales beat
EURUSD hits fresh yearly lows
Dow 0.12% Europe -0.18% Nikkei -0.61%
Oil $92/bbl
Gold $1586/oz.

Europe and Asia:
AUD Westpac Consumer Confidence 2.0% vs. 7.7%
AUD Home Loans -1.5% vs. 0.2%
EUR French Payrolls -0.3% vs. -0.2%
EUR Euro-zone Industrial Production -0.4% vs. -0.1%

North America:
USD Advance Retail Sales 1.1% vs. 0.5%
USD Business Inventories 0.5% vs. 0.1%

Dollar gained across the board in midday North American trade as better than expected US Retail Sales pushed the Dollar index to a fresh 7 month high while EUR/USD fell to new year to date lows hitting 1.2922 in morning US dealing. US Retail Sales surprised to the upside rising to 1.1% versus 0.5% eyed and on a core basis they increased by 0.45 versus 0.2% forecast.

Although some of the lift in Retail Sales was due to rising gasoline prices, the increase in the core reading suggests that US consumer demand remains remarkably resilient in the face of myriad headwinds which this month included the hike in payroll taxes, the delay in IRS refunds and the uncertainty surrounding the sequester.

The retail sales beat is the just the latest in a series of positive US economic surprises and it has now led several analysts to increase their projections of US GDP growth this year. The growing dichotomy between the ever improving US economic picture and the moribund conditions in the Eurozone have finally pushed the EUR/USD through the 1.2950 key support level.

As the divergence between the world’s two biggest economies continues to expand, the selloff in the EUR/USD is likely to accelerate as investment flows shift to this side of the Atlantic. The EUR/USD could now drift towards the 1.2750 level as bargain hunters abandon their positions amidst no signs of recovery in the region.

The one currency that did not weaken materially versus the buck was the yen. USD/JPY rose to a high of 96.26 in the aftermath of the release, but then drifted back towards the 96.00 level. The upside in the pair is contained by concerns over the Iwata nomination. Prime Minister Abe is close, but still does not have the necessary support to receive a confirmation from Japan’s Upper House, where DPJ made no bones about its opposition to his candidacy. A rejection of Mr. Iwata may not only be barrier to Mr. Abe’s plans for a more expansionary monetary policy but may also be viewed as a political failure and could put further downside pressure on USD/JPY.

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