End of Month Flows Push and Pull at FX

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Market Drivers March 30, 2015

EOM Flows push and pull FX
UK Mortgage approvals in line
Nikkei 0.65% Europe 1.12%
Oil $48/bbl
Gold $1188/oz.

Europe and Asia:
JPY Preliminary IP -3.4% vs. -1.8%
GBP Mortgage Approvals 62K vs. 62K
JPY Household Spending -2.9% vs-3.1%

North America:
USD PCE 8:30

USD PS/PI 8:30

It’s been a directionless night of trade in the currency market with no meaningful economic news and most of the moves dictated by end of month flows that suggest a mild dollar bias for the time being

The EUR/USD seesawed between 1.0825 and 1.0875 most of the night while cable remained decidedly weaker falling towards the 1.4800 level before finally finding some bids. It remains unclear if the weakness in the pair is a result of end of month positioning or something far more troubling.

UK fundamental data has been consistently better than the rest of the G7 universe – yet the pair has been a relative laggard for the past month. Part of the problem may be concerns about the upcoming UK election which remains highly contested and therefore could inject a greater level of uncertainty into the investment landscape. Still the underlying strength of the UK economy and the more hawkish policy posture of the BOE vs. the ECB should provide cable with better support than it is currently showing in the market.

Next week we will get a slew of UK data including all the PMIs and if the unit is unable to rally off what is generally expected to be respectable growth numbers than it is will clearly demonstrate that market sentiment simply does not believe that UK growth is sustainable. For now the 1.4600 level remains key support, while 1.5000 continues to cap any rally.

Meanwhile in North America the only report of note will be personal income/spending data with analysts looking for a rebound in spending and another 0.3% jump in income. So far the decline in gas prices and the bump in wages growth has not translated into robust consumer demand which may be a critical factor in Fed’s decision to delay any action on monetary normalization. Therefore any upside surprise in the data set could help the dollar even further and propel USD/JPY through the 120.00 figure as the day proceeds.

Boris Schlossberg
Managing Director

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