Euro Calm Ahead of ECB, Aussie Hits Fresh Lows

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Market Drivers for June 6, 2013
AUD hits new lows as 9500 given
EUR/USD clears 1.3100 ahead of ECB
Nikkei -.85% Europe 0.22%
Oil $94/bbl
Gold $1395/oz.

Europe and Asia:
AUD Trade Balance 28M vs. 215M
JPY Japan Buying Foreign Stock -191B vs. -68B
JPY Japan Buying Foreign Bonds -1.178B vs. -1,119B
CHF CPI -0.5% vs. -0.6%
EUR ECB Rate Decision
EUR ECB Deposit Facility Rate
EUR German Factory Orders
GBP BOE Rate Decision
GBP BOE Asset Purchase Target

North America:
USD Initial Jobless Claims 8:30
CAD Ivey PMI 10:00

High beta FX was well bid today ahead of the key central bank meeting with cable clearing the 1.5450 mark in morning London trade while EUR/USD broke above the 1.3100 figure as traders awaited the press conference by ECB President Mario Draghi at 12:30 GMT and the regions sovereign bond auctions went off well this morning.

In Asian session trade the Aussie saw another wave of selling with the pair breaking the key 9500 barrier as it sunk to 9435 before finally rebounding. Australian Trade Balance numbers missed their mark, but the selling was caused primarily by momentum and leveraged funds who piled into the short position once the key 9500 area support gave way.

The sentiment towards Aussie remains extremely negative as market continue to anticipate further slowdown in growth Down Under and price in more easing from the RBA. However, having now breached the 9500 level the Aussie may get a modicum of relief from some longer term investors and central bank reserve diversification flows as it tumbles to levels not seen in several years.

The Aussie has also been crushed on the crosses as it continued to decline against the euro and the yen and perhaps some profit taking later this afternoon will provide some short term relief for the pair.

Meanwhile in Europe, both euro and cable enjoyed a well bid night ahead of the CB meetings. Cable was still basking in the afterglow of three positive surprises on the PMI front indicating that the BOE will not consider any additional easing for now and GBP/USD climbed to 1.5450 as the morning session wore on.

Euro got a boost from better that expected sov debt auctions from Spain and France both of which saw demand at top of the range and yields generally declining further. All eyes will turn to today’s ECB meeting as markets await any fresh policy messages from Mario Draghi. However, Mr. Draghi may have little new to say. Given the uptick in the latest PMI data, the governing council appears to be divided about the prospect of further rate cuts and even the idea of negative deposit rates – which was such a negative shock to the EUR/USD last month – appears to be on the back burner for now.

If Mr. Draghi offers now further easing ideas and remains relatively neutral about the state of economic activity in the Eurozone, the EUR/USD could extend its rally on relief sentiment, especially if the US weekly jobless claims continue to show deterioration in the labor market. On the other hand if Mr. Draghi paints a progressively dour picture and reiterates the prospect of negative deposit rates, the EUR/USD could quickly do an about face and tumble through the key 1,3000 support. Given the latest news from the EZ, the second scenario appears less likely today.

Boris Schlossberg
Managing Director

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