Euro Whipsaws on Technical Factors

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Market Drivers September 21, 2012
Euro whipsaws on first on sales by SNB and then purchases by Middle East sovereign funds
UK Public Finances better than expected but at record highs
Nikkei up 0.25% Europe up 0.69%
Oil at $93/bbl
Gold at $1773/oz.

Europe and Asia:
AUD Conference Board Leading Index 0.0% vs. 0.5%
NZD Credit Card Spending 5.4% vs. -3.3%
GBP Public Finances
GBP Public Sector Net Borrowing 12.4B vs. 13.2B

North America:
CAD CPI 8:30
CAD Bank of Canada CPI 8:30

Euro went on a wild whipsaw ride on the final trading day of the week buffeted on either side by technical flows rather than any fundamental news which was absent in today early European session. The pair first rose to 1.3000 in late Asian trade to then quickly dip to 1.2960 after reputed sales of EUR/AUD by the SNB only to recover and catapult back to 1.3047 on reports of sovereign wealth fund buying out of the Middle East.

On night when economic news was in woefully short supply the pair bounced like a pinball as traders positioned themselves ahead of the weekend. Overall, the euro continues to benefit from positive risk flows and calming of the EZ sovereign debt markets, but investor concerns over the slowdown in economic activity in the region remain just below the surface. Still today’s price action indicates that demand for the pair remains robust and the 1.3000 level appears to have become the new equilibrium.

Elsewhere in the markets, the UK Public sector net borrowing stood at a record level in August as growth in tax receipts continued to disappoint, figures from National Statistics showed Friday. Although the PSNB came in a little under the median forecast, the underlying weakness in revenue growth indicates that Chancellor of the Exchequer will be forced to revise up his full-year
borrowing forecasts in the Autumn Statement later this year.

Public Sector Net Borrowing excluding financial sector interventions stood a 14.41 billion GBP in August, compared with 14.365 billion GBP in the same month a year earlier. This was the highest August borrowing on record, albeit slightly less than analysts’ expectation 15.5 billion GBP figure. Sterling rose above the 1.6300 level on the broad risk rally at the start of European trade, but has since receded a bit to 1.6280. The PSNB figures, though hardly exemplary are unlikely to have much impact on the currency trade with the pound continuing to follow the broader risk trends in the market which could take it back through the 1.6300 figure if risk flows remain positive in North American session.

The eco calendar in North American trade today is as quiet as it is in Europe with only Canadian CPI and Wholesale sales on the docket. For the EURUSD the 1.3050-1.3065 area remains key resistance and markets will be watching carefully if it can clear that zone later in the session. With no fresh news on the wires, the pair is likely to be susceptible to further technical flows as it continues to consolidate the gains of the recent rally

Boris Schlossberg
Managing Director

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