EUR at NFPs Mercy?

The biggest fear this morning was not a rumor that China may ease their RRR or the imminent possibility of Cbank intervention in yen, nope, it was Deutche banks forex outage (it seems to have come with their profit outage)! The worlds largest currency player experienced a brief disconnect on ‘Autobahn’ forcing them to experience the old ways and provide voice broking for a full 10-minutes. This certainly highlight the importance of this institutions presence in the FX game or are investors that bored with the same recycled reasons for market movements this week? The closer we get to NFP market positioning will get more interesting.

There are reports now that the PSI deal is being held up by differences between Germany and the IMF. We can assume when the collective actions clauses are being enforced we will get to hear more from the disgruntled creditors. The various posturing by interested parties is in danger of making this the worlds longest ‘expected’ announcement! For now, little news is keeping trading ranges intact.

The overnight rumor of a RRR cut from the PBoC is nothing new, and its something that the market will have to live with until its done. The prospect of a cut was raised ahead of the Lunar New Year, however, data since supported the prospect of monetary easing. Analysts now feel that a rate cut is unlikely for a few months, but manipulating the reserve ratios is a strong alternative. With global growth under immense pressure, a reserve move gives us a shiny ‘Red Knight.’ Perception is everything. However, in this risk on environment their gesture could becomes diluted.

On the other hand, the BoJ presence is much more pressing. Comments from Japanese officials overnight will unlikely halt the yen gains anytime soon. JPY is one of the most liquid currencies in the world and is been seen as a sound alternative to the two prime reserve currencies, EUR and USD. Their stability and debt-led debasement issues are to blame. This would suggest that its only a matter of time before the BoJ appears in the markets directly. A similar storyline is being played out in Europe with the SNB.

This mornings decline in the Euro-zones December Producer Prices (-0.2%, m/m and up +4.3% on the year) will be welcome news for the ECB. Along with positive market sentiment is helping to push Euro periphery yields much lower and aid them in their refunding requirements. Spain this morning was the latest winning candidate, its yields are being pushed to a new yearly ‘floor.’ With risk, offers in the higher 1.31’s are expected to weigh on the EUR’s rebound and keep the market focused on support ahead of 1.31 directly.

Forex heatmap

Other Links:
Fed’s Near-Zero Interest Rate Policy a Failure?

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Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell