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14 May 2010

FX Update: The EUR remains unloved; Another big figure slides away

Andrew Robinson, FX Analyst, Saxo Capital Markets

FX Update: The EUR remains unloved; Another big figure slides away

GBP was the worst performer overnight

Market Comments:

What started as a “risk-on” day in Asia soon reverted to the normal slam the EUR process. The EUR remained unloved amid continuing concerns about the debt situation and proposed belt tightening measures impacting an already gloomy growth picture. The proposed spending cuts in Portugal and Greece have been overshadowed by the fear/threat of strikes and protests which would impact an already gloomy growth outlook. EUR is currently hovering above the 1.25 lvl with a reported 1.25 barrier still intact.

But the EUR was not the worst performing currency overnight. That honour was given to GBP. The UK’s trade balance showed a widening deficit to £7.5 bln versus £6.4 bln expected and £6.3 bln last, despite a generally weak pound, and this set the ball rolling. The new coalition government failed to garner any positive press and concerns lingered about its ability to implement necessary fiscal reforms given the diverse policy stances of the two parties. GBP lost 3 big figures against the USD and 4 against the JPY.

On the US data front, weekly jobless claims were more-or-less in line with expectations coming in at 444k from an upwardly revised 448k the previous week, which is the third lowest reading since the Lehmans collapse. Import prices were up 0.9% m/m following a 0.5% increase in March. In other data releases, New Zealand’s retail sales for March disappointed, managing a mere 0.5% m/m gain, much less than the markets’ 1.1% forecast. Core sales were better but still below forecast. These numbers certainly suggest the NZ economy is not firing on all cylinders with sluggish wage growth and an uncertain economic outlook are keeping households cautious. The next RBNZ meeting might not see the rate hike that was so widely talked about recently.

After a volatile week, Asia had another quiet session with no major data inputs to swing sentiment. It was certainly a reflective and consolidative mood that hung over markets, especially given how quickly the positive sentiment yesterday evaporated.

The European data calendar is empty today and we have to wait for the US session to find a slew of releases. Retail sales, industrial production, capacity utilization, Michigan confidence and business inventories round off the week and, barring any other major headlines, may dictate sentiment going into next week (for a change).

Have a great weekend.

Economic Data Highlights

* US Apr. Import Price Index out at +0.9% m/m, +11.1% y/y vs. 0.8%/11.3% expected and revised 0.5%/11.3% prior resp.

* US Weekly Initial Jobless Claims out at 444k vs. 440k expected and revised 448k prior

* US Weekly Continuing Claims out at 4627k vs. 4590k expected and revised 4615k prior

* NZ Apr. REINZ House Sales out at -16.2% y/y vs. -8.0% prior

* NZ Apr. REINZ House Price Index out at -0.4% m/m vs. 1.7% prior

* NZ Mar. Retail Sales out at +0.5% m/m vs. +1.1% expected and -0.6% prior

* NZ Mar. Retail Sales ex-Autos out at +1.1% m/m vs. 1.5% expected and -0.9% prior

* SI Mar. Retail Sales out at -2.4% y/y, -1.4% m/m vs. 1.0%/1.2% expected and revised 4.6%/-5.8% prior resp.