Euro Hurt By Weak Data, Nowotny Comments

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Market Drivers for October 31, 2013
Nowotny hints that more liquidity is coming, pushes euro lower
Aussie rallies to 9500 on better housing data
Nikkei -1.20% Europe -0.06%
Oil $96/bbl
Gold $1333/oz.

Europe and Asia:
AUD Building Approvals 14.4% vs. 2.9%
EUR GE Retail Sales -0.4% vs. 0.5%
EUR French Spending -0.1% vs. 0.2%

North America:
USD Weekly Jobless 8:30 AM
USD Chicago PMI 9:15 PM

The EUR/USD was lower today, retesting the 1.3700 level in Asian and morning European trade today after a series of disappointing consumer spending reports and new comments the from ECB member Ewald Nowotny put pressure on the pair. In an interview with CNBC Mr. Nowotny noted that the ECB will provide more liquidity by the time the LTRO loans made in December of 2011 expire next year.

Earlier in the week Mr. Nowotny caused a stir in the market by ruling out a deposit rate cut, but his emphasis on LTRO suggests that he may be open to renewing the program and hints that this may be the ECBs favored method of monetary stimulus. The ECB certainly needs some sort of a new policy plan as growth in the region shows alarming signs of slowdown.

Today’s data revealed that German Retail sales dropped -0.4% versus 0.4% eyed while French consumer spending declined by -0.1% versus forecasts of 0.2% rise. In Germany Retail Sales have fallen last 3 out 4 months while in France consumer spending has declined for the 2nd straight month in a row. The news suggests that the consumer is clearly struggling in Europe’s two largest economies and if the core is unable to grow it is doubtful that the periphery will be able to pull itself out of a recession.

The EUR/USD saw a sharp reversal two days ago at the 1.3800 level and the pair may be due for a steeper correction especially in light of yesterday’s Fed FOMC statement which was not as dovish as the market had hoped. With the Fed taking note of the loosening conditions in the financial markets it may be finally preparing to begin a modest taper of QE despite the fact that US economic growth remains anemic. That dynamic could prove negative for the euro and the pair could correct towards in the 1.3500 level over the new few weeks.

The news was considerably brighter in Australia where the housing data suprised to the upside providing a boost for the Aussie. Building Approvals jumped by 14.4% versus 2.9% eyed indicating that demand in housing remains robust which in turn is likely to restrain the RBA from any further rate cuts for the foreseeable future. The AUD/USD rose to 9510 in London dealing as it appears to have found support at the 9500 level.

In North America today, the market will get a glimpse at the weekly jobless claims and the Chicago PMI numbers. The labor data may be skewed by residue from the government shutdown and the overall signal from the latest US economic reports shows clear signs of a slowdown, but no evidence of contraction. The steady as she goes tone therefore is likely to keep FX in relatively tight ranges for the rest of the day.

Boris Schlossberg
Managing Director

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