Commodity Dollars Lead the Way

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Market Drivers Feb. 28, 2013
Commdollars outperfrom
German unemployment continues to improve, no progress in Italy
Nikkei 2.17% Europe 0.22%
Oil $92.48/bbl
Gold $1590/oz.

Europe and Asia:
AUD HIA New Home Sales 4.2% vs. 6.2%
AUD Private Capital Expenditure -1.2% vs 1.1%
AUD Private Sector Credit 0.2% vs. 0.3%
JPY Nomura/JMMA Manufacturing Purchasing Manager Index
CHF GDP 0.2% vs. 0.0%
EUR German Unemployment Rate -3K vs. -5K
EUR Euro-zone CPI 2.0%
GBP Gfk Consumer Confidence Survey -26 vs. -26

North America:
USD GDP 8:30
USD Personal Consumption 8:30
USD Core Personal Consumption Expenditure 8:30
USD Initial Jobless Claims 8:30

A slow grinding night of trade in Europe as markets continued to consolidate with little fresh news out of Italy and a relatively sparse economic calendar on deck. The EUR/USD drifted lower to test the 1.3100 level but commodity dollars, especially Aussie and kiwi outperformed putting in strong gains in Asia and maintaining them during the morning European dealing.

In Australia the Private Capex numbers printed worse than expected coming in at -1.2% versus 1.1% eyed, but the market looked past the headline and focused on future expenditure outlook which was stronger than expected. That made the prospect of any immediate cuts by the RBA unlikely and put the bid back in Aussie.

The kiwi also enjoyed a strong rally as the pair broke above the 8300 level once again. New Zealand business confidence saw a massive jump to 39.4 from 22.7 and provided the market with a reason to buy. The kiwi has been battered in the recent risk selloff which no doubt cleared many of the long term buyers, so today’s rebound faced little selling from trapped longs. The outlook for New Zealand remains positive and as long as the NZD/USD can hold above the 8200 level it will likely maintain its uptrend.

In Europe German unemployment showed further signs of improvement as Europe’s largest economy was able to reduce the rolls by another -3K in March. This was slightly less than the -5K figure the market was expecting but continued the positive trend that has been in place for the past two months.

The gradual improvement in the German labor conditions has been the primary reason why sentiment readings from both the business and the consumer sector have remained relatively buoyant despite the recessionary background elsewhere on the continent. Indeed French consumer spending figures were woeful printing at -0.8% versus -.0.1% eyed.

It’s becoming increasingly doubtful if Germany alone can pull the Eurozone out of the recession, despite its impressive employment demand which should help to turn growth positive in Q1 of this year. With political situation in Italy still unclear as various parties have not begun negotiations, the markets remain wary and the EUR/USD sold off on the news after a dip in EZ equity indices revived risk aversion flows.

Still the pair remains above the 1.3100 level and has been able to maintain 1.3050 support for the past several days. If the political situation in Italy shows some prospect of resolution the pair could resume its relief rally as the economic data at least in Germany remains relatively supportive.

The North American session carries weekly jobless claims Chicago PMI data and GDP figures which are unlikely to have much of an impact on trade unless they vary widely from the 0.5% forecast. The market may also be distorted by end of the month flows with some analysts predicting that there may be some demand for the EUR/USD. The skews were already evident in European trade where the EUR/GBP cross traveled more than 50 points since the start of trade on no major newsflow.

If there is no progress in Italy we may be in for a tight consolidate session for the rest of the day with FX taking most of its cues from equities as risk currencies continue to hover just above their support levels.

Boris Schlossberg
Managing Director

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