EUR Pegged to be Lower?

Market surprises seem to be coming in three’s this morning. EUR is still in demand and is beginning to encroach on price tipping points that has more than a few weaker shorts worried. Last night, the RBA stuck to its guns and kept rates unchanged at +4.25%, resulting in the market being flat footed and the currency spiking to print 1.0815. Despite being close to even odds of nothing doing down under, market reaction indicates the breath of Governor Stevens surprise. Finally Yen, it has weakened for the third time in four-days outright and against the EUR after government data showed Japan carried out so-called “stealth intervention” to weaken the currency in November. More rhetoric from Japans Finance Minister Azumi stating that he will not rule out any options to curb the currency’s appreciation certainly has the bears on the back foot this morning. With macro dollar bids below and a decent amount of offers near yesterdays peaks could have the ‘newer’ JPY range again lacking impetus and inspiration.

Merkel indicating that the EU would not allow a ‘destabilizing Greek bankruptcy to occur’ is providing tepid support for the single currency. Sovereign and real money offers into the upper 1.31’s are again being tested. Larger stops are placed above the figure and barriers into 1.3250. Greek headlines will again dominate intraday activity, whilst fresh failures at this upper tier will generate short term-fast money exchanges, last seen after last Friday’s stellar NFP report.

Fitch ratings has reiterated its Greek concerns this morning, believing that the Euro-zone sovereign debt crisis is likely to be “prolonged,” and that severe “contagion” is likely across Europe if bailout negotiations in Greece fail. Officials continue to struggle to make headway on austerity measures, which are detrimental in obtaining the next installment of the bailout package before next months bond maturities. Prime Minister Papademos and opposition leaders are back at the table while the country goes on general strike today. The divergence within the political arena has many observers increasing their estimates of the likelihood that Greece will eventually exit from the EUR. Creditors cannot be allowed to continue to provide further support if Greece remains non compliant to its debt program.

A disappointing headline print for German Industrial Production is bearing pressure down on the single currency. IP in Europe’s largest economy fell sharply in December (-2.9%) with all categories recording a fall. In quarterly adjusted terms IP fell by -1.9% in Q4. However, other survey indicators point to the pace of output picking up this year. For now, it’s just another excuse to sell!

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Other Links:
US Curve flatter despite a bid EUR

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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