The market has been grasping at straws with little data to use as fodder, especially in the North American trading sessions. Risk-on, risk-off has been moving on hearsay. China may decouple the Yuan from the dollar, the GreekÃ¢â‚¬â„¢s have ObamaÃ¢â‚¬â„¢s support and equity markets rallying on Ã¢â‚¬ËœairÃ¢â‚¬â„¢ with little volume. Opposing arguments against a stronger EUR are mounting. Rating agencies are questioning the possibility of a European sovereign default. Internal EU drafts analyzing their Ã¢â‚¬Ëœbiggest budget deficitÃ¢â‚¬â„¢ and concluding that the Greek tax hikes may fail to generate the revenue their government anticipates. This will only heighten the macro-contagion concerns. Greece has until next week to convince all, and if so, then the market can move on to another speculative issue.
The US$ is stronger in the O/N trading session. Currently it is higher against 13 of the 16 most actively traded currencies in another Ã¢â‚¬ËœsubduedÃ¢â‚¬â„¢ trading range.
Surely with the EUR weakening -6% against the dollar this year and a Chinese Yuan rallying +6.2% benefits the European economy? Who is kidding whom? These are questions posed by former EU commissioner Romano Prodi. He believes the Greek problem Ã¢â‚¬Ëœis completely overÃ¢â‚¬â„¢. There are no other sovereign issues in Europe. Speculatively, everything has been blow out of proportion. One wishes that could hold true for the UK economy. Their Ã¢â‚¬ËœfragileÃ¢â‚¬â„¢ scenario remains however, especially after this mornings plummeting manufacturing production data (-0.9% vs. -0.3%). It seems that Sterling has legs for one direction and thatÃ¢â‚¬â„¢s down. ItÃ¢â‚¬â„¢s only when the EU gains momentum can the UK economy find some traction. The general election supersedes everything at the moment. Their economy will provide enough political copy for fodder in the run-in.
The USD$ is stronger against the EUR -0.23%, GBP -0.48%, CHF -0.20% and JPY -0.25%. The commodity currencies are mixed this morning, CAD -0.04% and AUD +0.24%. The loonie remains the darling of currencies. Even with commodities weakening there is an appetite to own the currency as speculators gamble on Ã¢â‚¬ËœgrowthÃ¢â‚¬â„¢ prospects. The currency continues to congest vs. its southern partner and certainly outperform on the crosses. Traders are waiting for tomorrowÃ¢â‚¬â„¢s trade numbers and FridayÃ¢â‚¬â„¢s employment report to solidify their market positioning. Technically, the currency is on course to test the USD support levels close to 1.0200. Depending on this weekÃ¢â‚¬â„¢s data, the domestic currency may have the momentum to provide another parity onslaught where it should run into strong opposition. Last week, the BOC did what was expected of them, by keeping rates on hold. It seems that they are potentially Ã¢â‚¬Ëœbehind the curveÃ¢â‚¬â„¢. Their communiquÃƒÂ© was hawkish in nature, leading to somewhat predictable rate increases for the second-half of this year. The BOC must b concerned about the looniesÃ¢â‚¬â„¢ strength of late. However, it has occurred in an orderly fashion and rapid appreciation for speculative reasons would have sent alarm bells ringing. The trend remains your friend. Expect better buying of the domestic currency on USD rallies in the medium term.
The AUD managed, at one point, in the O/N session to print a seven-week high. There is speculation that this eveningÃ¢â‚¬â„¢s Australian employment report will again provide strong evidence that the RBA will require another rate hike next-month. Robust Chinese export numbers has investors demanding higher yielding growth currencies. To top all the support variables for the currency was the RBAÃ¢â‚¬â„¢s deputy governor Lowe comments that growth will be likely at or above average for the next couple of years. Last week the RBA hiked rates by +25bp to +4%. Governor Stevens said Ã¢â‚¬Ëœrates should be closer to averageÃ¢â‚¬â„¢, which policy makers have indicated may be 75bp higher than the current +4%. Analysts believe that the Ã¢â‚¬Ëœthe biggest jobs boom in more than 3-years and a surge in business confidence suggest AustraliaÃ¢â‚¬â„¢s economy is already growing at or close to trend, after escaping recession during the global crisisÃ¢â‚¬â„¢. Reading between the lines, we should expect the RBA to hike with a Ã¢â‚¬Ëœgradual approachÃ¢â‚¬â„¢. Continue to expect better buying on deeper pull backs (0.9163).
Crude is lower in the O/N session ($81.37 down -12c). Crude was little changed yesterday, in fact another dull day of trading for the black-stuff, especially after last weekÃ¢â‚¬â„¢s late surge on the back of stronger than expected employment data. Traders are wary about this morningÃ¢â‚¬â„¢s inventory report. Analysts expect another build in stocks, a sixth consecutive rise, on the back of imports edging up and refinery utilization remaining flat. Global optimism that fuel demand will climb in the worldÃ¢â‚¬â„¢s biggest energy consuming country has helped push the commodity to its recent highs. Now that we have firmly broken the psychological $80 a barrel, some technical analysts believe this opens the way for a $90 print. OPEC meets next week and already the SaudiÃ¢â‚¬â„¢s King Abdullah has said that they target $75 as a fair price for consumers and producers. Last weekÃ¢â‚¬â„¢s EIA report showed that refinery utilization rates are at their highest since Oct., a sign that gave the bulls the green light to keep the commodityÃ¢â‚¬â„¢s prices somewhat elevated. Utilization rates increased +0.7% to +81.9%. The market is expecting the higher utilization rate to quickly Ã¢â‚¬Ëœmop up excess suppliesÃ¢â‚¬â„¢. With momentum and an investor attitude that the economic situation will not get much worse will support commodities on pull-backs. Perhaps this morning weekly reports may surprise.
For a second consecutive trading session this week the Ã¢â‚¬Ëœyellow metalÃ¢â‚¬â„¢ has struggled. It managed to print new weekly lows as the dollar strengthened vs. the EUR, thus reducing the demand for the metal as an alternative asset. Comments from China also managed to weigh on the commodity. Authorities indicated that Ã¢â‚¬Ëœbullion probably will not be the countryÃ¢â‚¬â„¢s main reserve investmentÃ¢â‚¬â„¢. Technically that means they will Ã¢â‚¬Ëœhave to hold dollarsÃ¢â‚¬â„¢. This action, by default, will weigh on all commodities. Earlier this week investors were happy to cash in on their profits that were booked using other G7 currencies. Forgetting Greece, itÃ¢â‚¬â„¢s all about the performance of the dollar. Currently, any signs of weakness and we will have buyers happily enter the market. Until then, the bulls are the unlucky investors. Last month the commodity managed to print its first monthly gain since Nov. European sovereign debt issues and a ballooning UK deficit with the potential of Ã¢â‚¬ËœhungÃ¢â‚¬â„¢ parliament after the next general election had investors seeking some sort of portfolio surety back in Feb. Will we see the same interest at lower levels ($1,125)?
The Nikkei closed at 10,563 down -4. The DAX index in Europe was at 5,895 up +10; the FTSE (UK) currently is 5,607 up +4. The early call for the open of key US indices is lower. The US 10-year eased 1bp yesterday (3.70%) and is little changed in the O/N session. There was a demand for bonds despite the plethora of product to be issued this week. The appetite was aided by the Chicago Fed Evans stating that Ã¢â‚¬Ëœlow interest rates are likely to be needed for some time, as high unemployment lingers and inflation stays below targetÃ¢â‚¬â„¢. We have contagion issues on one hand, questionable global growth and hyping policy makerÃ¢â‚¬â„¢s rhetoric providing the tug-of-war for product. Until the market gets some concrete data to chew on, one can expect various asset classes to trade in Ã¢â‚¬ËœlimboÃ¢â‚¬â„¢. YesterdayÃ¢â‚¬â„¢s 3-year auction ($30b) was well received. The bid-to-cover ratio was 3.13 compared with 2.83 in Feb. and 2.98 in Jan. The average has been 2.89 from the past 10-auctions. Today we get to bring down 10Ã¢â‚¬â„¢s ($21b) and tomorrow long-bonds ($13b).
This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.