Market Drivers March 13, 2013
Euro wobbles as Italian auction slightly higher than time past
USD/JPY slips to 95.50 on PBOC tightening posture, uncertainty over Iwata but rebounds towards 96.00
Europe -0.25% Nikkei -0.61%
Oil $93/bbl
Gold $1591/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 6:30
USD Business Inventories 8:00

Another quiet night of trade in the currency market with EURUSD still trapped in a 1.2950-1.3050 range and biased down a bit in midmorning European session after it saw some selling pressure on the crosses ahead of the Italian bond auction. The bond auction itself went off as well as can be expected given the persistent uncertainty regarding Italian politics.

Italy was able to sell about 3.3B of 2015 BTPs at a yield of 2.48%. This was 18 basis points higher than the period prior. It also also about 1.28B of 2017 BTPs at a yield of 2.95% versus 2.55% the time past. The modest increases in yield and a slight drop in the bid to cover ratio indicated the heightened state of risk in the Italian credit markets, but overall the auction provided neither relief nor concern for the EURUSD and the pair remained relatively steady in the aftermath of the event.

Aside from the auction the eco calendar was relatively subdued with only French Non Farm payrolls and EZ Industrial Production on the docket. Both data releases however missed their mark indicating that conditions on the ground remain challenging and a turnaround in EZ economy is yet to be seen.

Still the EUR/USD remains contained in it very tight trading range as volatility has all but collapsed over the past several days. Such tight trading conditions reflect the state of equilibrium between the bulls and the bears as currency markets tread water awaiting fresh news. Generally a break of either the bottom or the top of the range should offer the next directional signal in the pair and it will likely be driven by market perception of whether conditions in the EZ are improving or deteriorating.

Today’s key event is the US Retail Sales number due at 13:30 GMT. There is a lot of confusion regarding the report given the number of crosscurrents that could affect the result. The increase in payroll tax, the start of sequestration, the rise in gasoline prices and the delay in IRS refunds could all have an impact on today’s number. However if Retail Sales prints better than the 0.5% anticipated it will be yet another confirmation of the fact that US economy continues to perform better than consensus view.

If the Retail Sales data does surprise to the upside it could reignite the rally in USD/JPY and push the pair back through the 96.00 figure and possibly push it to a retest of the yearly highs near the 96.70 level.

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