Close To Monday’s Euro

FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400) WORLD The RBA held the cash rate at 4.25%, in line with expectations. The rates market had 8bp of easing priced in, and AUDUSD jumped 20 pips immediately. The more dovish policy statement quickly put an end to the rally and the pair soon dropped 40 pips below its pre-announcement level. Growth was deemed to be “somewhat below trend” and “somewhat lower than earlier estimated”. This represents a significant shift from the “close to trend” language used previously. The rhetorical shift means the RBA may consider a rate cut in May if the Q1 inflation reading (due on April 24) is low enough. If a cut eventually materializes this would not do AUD any favours in our view. However, even with a policy rate at 4% AUD would still offer by far the most ...

Fundamental Analysis EUR "At this stage, our best estimate is that the region's GDP will have contracted by 0.1 percent in the first three months of the year" - Chris Williamson, chief economist at survey compiler Markit The euro zone retail sector expanded in January, compared to the previous month. Retail sales rose 0.3 per cent, after declining 0.5 per cent in December, announced the European statistical agency (Eurostat) on Monday. USD "The momentum that we’ve been generating in the economy is starting to broaden" - Robert Dye, chief economist at Comerica Inc. U.S. service sector expanded in February at a fastest pace in a year. The purchasing managers' index (PMI) advanced to 57.3 from 56.8 in January, said the Institute for Supply Management on Monday. Reading above 50.0 ...

FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400) USD China‘s unexpected weekend decision to cut the reserve ratio requirement by 50bp boosted risk appetite throughout the Asia session. The effect was magnified by the element of surprise. USDJPY scrambled higher to 79.89 but the rally was cut short when the Japanese trade deficit for January came in smaller than expected. Although China‘s stimulus measure in itself is limited in efficacy and comes amid signs of a slowdown, the PBoC’s joining of the ranks of major central banks adding to easing will help to further stabilise economic conditions. Meanwhile expectations continue to build ahead of Monday’s meeting of Eurozone Finance Ministers and the outcome of the meeting is likely to be a defining moment for how risk appetite evolves throughout ...

FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400) USD China‘s central bank governor Zhou said China would continue to invest in Eurozone sovereign bonds and would play a bigger role in solving Europe‘s crisis via both the IMF and the EFSF. As usual, the comments were short on specifics, but they helped the euro recover from yesterday’s selloff, and carried AUD and NZD higher too. Zhou also expressed his wish that the euro will become a bigger and more important reserve currency. USDJPY held onto yesterday’s gains but couldn’t make much further headway despite closing above the 200-day moving average for the first time in 10 months. EURUSD traded 1.3080-1.3185 and USDJPY 77.36-78.66 since Tuesday’s European close. There was no further news on yesterday’s developments in Europe which had ...

Fundamental News: Today's highlight; ADP Nonfarm Employment Change. (US, 13:15, GMT) ISM Manufacturing Index. (US, 15:00, GMT) Unemployment Rate. (NZ, 21:45, GMT) The EUR/USD is currently trading 1.3079 dropping from the high today of 1.3213. Greece seems to be forgotten; maybe no news is good news. As Portugal steps forward, investors remained wary as the yield on Portugal’s 10-year government bonds stayed close to Monday’s euro-era highs at 16%, fuelling concerns that Lisbon may need a debt restructuring deal similar to Greece’s. Even though the EU summit produced some good results, the fact that Greece was not resolved is hanging in everyone's mind. Reports in the US showed that manufacturing activity in the Chicago area declined unexpectedly in January. The Chicago ...

FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400) USD Risk appetite was boosted overnight by an article in the Financial Times claiming that the ECB’s next 3y LTRO (due on Feb 29) could see demand for up to EUR1 trn in cash, double the previous amount. If so, it would go a long way towards alleviating term funding concerns for Eurozone banks as their bonds fall due throughout the year. There were no major surprises out of Monday’s Eurozone summit. In French President Sarkozy’s words, the summit ‘went as planned’. Most of the decisions adopted on Monday, such as early execution of the ESM and updates on the situation inGreece,were flagged well in advance. TheCzechRepublicjoined theUKin opting out of the fiscal compact, with Sarkozy noting this was largely due to ‘constitutional reasons’. There ...

FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400) USD Financial markets remain sleepy, although data and news flow has started to pick up. Italy undertook two successful auctions on Tuesday, selling 179-day bills at 3.251% (vs 6.504% on Nov 25.) and 2013 bonds at 4.853% (vs 7.814% on Nov 2). A bigger test will come tomorrow when the treasury taps the market for EUR5-8 bn of 3-, 7- and 10-year bonds, although today’s successful auction bodes well. The Swiss KOF indicator was +0.01, much lower than consensus and a further indication of deteriorating conditions inSwitzerland. In theUS, data continues to impress, Monday’s consumer confidence print came in above consensus at 64.5. OurUS economists note that the larger-than-expected gain in confidence reflected gains in both the expectations (76.4 ...

FUNDAMENTAL OUTLOOK at 0800 GMT (EDT +0400) USD The news for the Eurozone simply refuses to improve as Belgium was downgraded late on Friday and over the weekend, Italian newspaper La Stampa reported that the IMF is preparing a EUR600 bn loan for Italy in case the situation worsens. Early on Monday the IMF denied that any discussion was underway withItalyon any form of financing, and the numbers involved lack credibility as the IMF’s totally lending capabilities are far short of that sum. Nevertheless, the news underscores the amount of nervousness in the market, especially with another major week of bond supply up ahead. Italy alone will the tap the market for up to EUR8 bn on Tuesday and with the 2-year yield already trading past 8%, clearly the costs of borrowing are reaching ...

Forex News and Events: Risk sentiment and equity markets are undoubtedly looking more buoyant today after yesterday’s central bank meetings presented the markets with a number of extra liquidity and stimulus measures to help markets cope with the subdued growth outlook. First up, the BoE unexpectedly raised the asset purchase target from GBP200bn to GBP275bn, sending sterling sharply lower and raising expectations that more easing may be on the way. What is particularly shocking about the central bank’s return to quantitative easing is the magnitude of the programme’s expansion; before today, Adam Posen had been the lone dissenter calling for additional stimulus and for the past year had been lobbying for just a 50bn increase to the asset purchase target. This increase of 75bn therefore ...