Euro Unfazed By Negative Rates Talk

Posted on

Market Drivers for November 26, 2013
Couere says negative rates discussed
Aussie fails at 9200
Nikkei -0.67% Europe -0.26%
Oil $94/bbl
Gold $1251/oz.

Europe and Asia:
JPY CSPI 0.8% vs. 0.9%

North America:
USD Building Permits 8:30
USD Consumer Confidence 10:00

It’s been a very lackluster night of trade in the currency market with majors contained to very narrow ranges with little new economic data and or news to move the markets. The only headline of the night to make a splash was the admission by ECB member Coeure that the central bank discussed the possibility of negative rates and examined both legal and technical aspects of doing so.

Although Mr. Coeure is one of several ECB members to suggest that the central bank is exploring this policy option his language clearly indicated that for now the prospect of negative interest rates in the Eurozone remains more of an academic discussion rather than a practical policy matter.

As we noted yesterday, as long as German economy continues to experience positive growth German officials are likely to strongly resist such unorthodox measures. The EUR/USD actually spiked higher on Mr. Coeure’s comments as traders realized that the move was not imminent. The pair however failed to hold the highs and drifted below the 1.3550 level by mid-morning dealing.

For the time being the EUR/USD remains well supported at the 1.3500 level as capital flows continue into the region with investors – especially those from China – allocating funds to European equities before the year end. The DAX has continued to set fresh highs keeping the pair propped up.

In Australia today the Deputy Governor Lowe gave a speech in which he appeared less dovish than Governor Stevens presenting a much more cautious stance on the issue of currency intervention. His remarks helped to push Aussie through the 9200 barrier, but the pair failed to hold the highs and sold off during the European session.

In North America today housing once again takes the center stage with Building Permits and the Case Shiller index due on the open of US session. Housing has been one of the pillars of the US recovery both from an activity and an asset point of view. However the latest housing data including yesterday’s Pending home sales has been disappointing suggesting that the sector may be seeing a slowdown in demand. That could prove troubling to dollar bulls especially if the deterioration in housing causes the Fed to delay its taper of QE.

USD/JPY which has enjoyed a strong rally over the past few days has run into stiff resistance at the 102.00 level and if today’s US housing data continues to disappoint the pair could see some significant profit taking with shorts eyeing 101.00 as the day proceeds.

Boris Schlossberg
Managing Director

Leave a Reply

Your email address will not be published. Required fields are marked *