Risk FX Rebounds, Can EUR/USD Clear 1.3150?

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Market Drivers for May 8, 2013
RBNZ Wheeler confirms intervention sending kiwi lower by 1 cent
CNY Trade balance beats
Nikkei 0.75% Europe -0.03%
Oil 95.75/bbl
Gold 1453/oz.

Europe and Asia:
CNY Trade Balance 18.2B vs 15.5B eyed
CHF CPI 0.0%
EUR German Industrial Production n/a

North America:
CAD Housing Starts 8:15

A very quiet session in FX today with little event risk on the docket, but most high beta currencies improved as the night wore on boosted by better than expected trade data out of China as well as a small rally in equities.

The EUR/USD tested yesterday’s highs in morning European trade as it rose steadily throughout the session on reported reserve diversification demand from Asian central banks. The pair has been trapped in a very narrow range for the past few days as it has cycled between 1.3050 and 1.3125. As we noted earlier it being pulled in opposite directions, as shorts bet on the prospect of a possible negative deposit rate while longs speculate that the economic contraction in the region has reached a bottom.

Yesterday’s sharp rise in German Factory orders surprised the market and provided some support to the bulls, before risk aversion flows in North American session sent the pair lower. Today’s German Industrial Production which also beat expectations rising 1.2% versus -0.1% pushed EUR/USD to 1.3140 in mid-morning trade.

Meanwhile, the only real volatility in today’s trade came out of New Zealand where the RBNZ Governor Graeme Wheeler confirmed that the central bank intervened in the exchange rate to “take the top off the rallies”. The kiwi tumbled more than a cent on the news dropping to a low of .8360 before recovering back towards the 8400 level. Mr. Wheeler’s comments echo yesterday’s RBA concerns about the valuation of the Aussie and suggest that both central banks in the region will keep a close eye on exchange rates going forward.

The Aussie tested the lows near the 1,0155 level once again in Asian session trade but managed to bounce after better than expected Chinese Trade data which printed at 18.2B versus 15.5B. There was however some scepticism about the numbers as some analysts claimed that Chinese companies may have exaggerated the numbers to avoid capital controls.

Lastly USD/JPY continues to meander just underneath the 99.00 level but the failure of the pair to break through and hold 99.50 especially after strong US NFPs last week should be of concern to the bulls. US data is very sparse this week and perhaps the market will need to see further evidence of improvement before making another concerted run at the 100.00 level but for now it remains out of touch.

Boris Schlossberg
Managing Director

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