Risk FX Rallies Ahead of US Open Post Sandy

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Market Drivers October 31, 2012
Risk Flows turn supportive as AU, German data boosts
GE Retail Sales rise 1.5% vs. 0.4%
Nikkei 0.98%, Europe up 0.54%
Oil $86/bbl
Gold $1719/oz.

Europe and Asia:
AUD Building Approvals 7.8% vs. 1.1%
JPY Nomura/JMMA Manufacturing PMI 46.9 vs. 48.0
EUR German Sales 1.5% vs. 0.4%
EUR Eurozone Unemployment Rate 11.6% vs. 11.4%
EUR Eurozone CPI Estimate 2.5% vs. 2.5%
GBP GfK Consumer Confidence Survey n/a

North America:
CAD GDP 8:30
USD Chicago PMI 9:45

Risk FX rallied in overnight trade boosted by better than expected economic data from Australia and Germany that helped to buoy investor sentiment on the last trading day of the month. In Australia the much bigger than expected rise in building approvals numbers helped to push Aussie towards the key 1.0400 level.

Building approvals rose by an impressive 7.8% versus 1.1% eyed as demand for housing rebounded.In the year to September, the number of dwellings approved in Australia rose 12.4 percent. Dwelling approvals increased in New South Wales, Victoria and Queensland in September but fell in Tasmania, Western Australia and South Australia in the month.

Housing is one of the key drivers of growth in Eastern Australia and today’s data suggests that activity in that sector remains robust. Furthermore with pick up in housing demand the RBA is far less likely to lower rates before the end of the year providing yet another lift for the Aussie.

The pair continued to struggle with the 1.0400 level in European trade which remains a key resistance point this months. However if risk flows improve as the day proceeds its is very likely the pair could take out that barrier with conviction as investor sentiment grows more confident.

In Germany Retail Sales surprised to the upside printing at 1.5% versus 0.4% sending EURUSD through the 1.3000 level in early morning European trade. This was the second consecutive monthly increase for the report suggesting that the German consumer remains healthy despite the general weakness in the broader Eurozone.

The news shows that confidence amongst Germany’s consumers is translating into spending. Last week the GFK consumer confidence report recorded its highest reading since 2007. The news also suggests that German economy may be transitioning from export led growth to growth driven by internal demand and as such is allaying investor fears that EZ largest economy may succumb to recession much like the rest of the region.

In North America today all eyes will be on the open of the markets which have been shuttered for 2 days due to Hurricane Sandy which wreaked havoc on the Eastern seaboard. If trading goes without a hitch, investors may breathe a sigh of relief and help lift stocks higher on the final day of the month. The only major economic release is the Chicago PMI number which is expected to rise above 50 boom/bust mark to 51 and may provide further fuel to the rally. If risk flows pick up in North America the EUR/USD may make a move through 1.3050 level as the day progresses.

Boris Schlossberg
Managing Director

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