Just like our cup of java, we have got our jolt. A mixed bag of global overnight data finally has this currency market on the move. This morning, we are getting our wake up call to global growth risk concerns. Touted by many, recent economic outlook was supposed to be on the up. In the post LTRO2 world, risk markets and bond yields were indicating that the â€˜tail-riskâ€™ was trying to be priced out, not that we are capable of negating risk, but severely reducing it. This scenario has taken a step backwards as a Chinese flash PMIâ€™s again indicate that the downside risks to global growth remain. Much worse German and French manufacturing PMIâ€™s is allowing the relatively safe haven USD to benefit from a decline in risk appetite.
Asia-Pacific currencies are suffering in response to a weaker Chinese PMI print. The HSBC flash China PMI fell -1.5pts to 48.1 in March, and noted by many as being much larger than the usual -0.5 point seasonal fall. The weak PMI print is likely to increase concerns over China’s slowing and has many focusing on what type of landing to expect from them, hard or soft? Regional risk currencies, specifically with economies with the largest trading ties, like the Aussie, are now trading back to their old January levels outright. There are even reports that China is beginning to cut regional bank reserve requirements to boost credit. The market will surely begin factoring in further easing by the PBoC. It’s not the whole story for the Kiwi. That currency is underperforming after a weaker than expected Q4 GDP that should encourage rates to remain on hold.
The positive surprise award for overnight activity goes to Japan who managed to print a positive trade surplus of +JPY32.9b in February, much better than the consensus forecast for a-JPY120b deficit. Exports fell -2.7%, y/y, while imports rose a more-than-estimated +9.2%. Expect the yen to be back on the BoJ radar as demand for risk averse trading strategies and natural domestic year end demand will have the currency again out performing most of its larger trading partners.
Is the Euro-zone walking towards a fiscal austerity based recession? This morningâ€™s flash PMI (the service sector is holding up a tad better) and the fact that Europeâ€™s backbone, Germanys own manufacturing activity slumped back into contraction in March, is weighing heavily on investor sentiment, both for the EURâ€™s value and regional risk appetite. Expect Spain and Portugal to be thrust to fore of â€˜thisâ€™ crisis again now that Greece is no longer, temporarily at least, providing the same sort of volatility.
Technically, long trades remain in play with Russian money supposedly supporting the EUR outright at 1.3150 for now. Analysts will tell you that the graphs are overbought, recent bid action on EUR dips this week support this. However, in North America, if not before, may see dealers rolling over on this trade to the downside supporting the longer term EUR bears who continue to focus on a stronger dollar by year end like PIMCO.
Greek Debt Woes Far From Solved 
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