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FOREX: Currency Markets at a Standstill Pending EU Summit Outcome

FOREX: Currency Markets at a Standstill Pending EU Summit Outcome

2011-03-25 07:32:00
Ilya Spivak, Sr. Currency Strategist
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Overnight Headlines

  • Euro Range-Bound, Markets Waiting for EU Leaders’ Summit Outcome
  • NZ Dollar Outperforms as RBNZ’s Bollard Talks Up Growth Outlook

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.4047

1.4240

GBPUSD

1.5958

1.6206

The Euro was little changed in overnight trade, with prices consolidating in a narrow range below 1.42 to the US Dollar. Likewise, the British Pound was at near-standstill, oscillating within 30 pips above 1.61 to the greenback. We have booked profits on our NZDUSD short position and are looking to enter short EURUSD.

Asia Session: What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

23:30

JPY

Tokyo Consumer Price Index (YoY) (MAR)

-0.3%

-0.1%

-0.1%

23:30

JPY

Tokyo CPI Ex-Fresh Food (YoY) (MAR)

-0.3%

-0.3%

-0.4%

23:30

JPY

Tokyo CPI Ex Food (YoY) (MAR)

-0.3%

-0.3%

-0.3%

23:30

JPY

National Consumer Price Index (YoY) (FEB)

0.0%

0.0%

0.0%

23:30

JPY

National CPI Ex-Fresh Food (YoY) (FEB)

-0.3%

-0.3%

-0.2%

23:30

JPY

National CPI Ex Food (FEB)

-0.6%

-0.6%

-0.6%

23:50

JPY

Corporate Service Price (YoY) (FEB)

-1.0%

-1.2%

-1.1%

1:35

CNY

MNI Business Condition Survey (MAR)

69.33

-

58.21

5:30

JPY

National Department Store Sales (YoY) (FEB)

0.7%

-

-1.1%

5:30

JPY

Tokyo Department Store Sales (YoY) (FEB)

1.7%

-

1.4%

Currency markets were locked in tight consolidation in overnight trade, with traders seemingly refusing to commit to a directional bias until the outcome of the EU leaders’ summit – an event with regional as well as market-wide implications – is revealed at a press conference at 12:00 GMT (see below).

The New Zealand Dollar narrowly outperformed, rising 0.5 percent on average against its major counterparts, after RBNZ Governor Alan Bollard said the rebuilding effort in the aftermath of the Christchurch earthquake may add as much as 2.5 percent to overall growth next year. Bollard added that the reconstruction will present a challenge – presumably for monetary policy – hinting that he expects the central bank to be forced to aggressively raise interest rates in 2012.

Euro Session: What to Expect

GMT

CCY

EVENT

EXP

PREV

IMPACT

-

EUR

EU Summit Continues in Brussels

-

-

High

6:30

EUR

French Gross Domestic Product (QoQ) (4Q F)

0.3%

0.3%

Low

6:30

EUR

French Gross Domestic Product (YoY) (4Q F)

1.50%

1.5%

Low

7:00

EUR

Germany Import Price Index (MoM) (FEB)

0.90%

1.5%

Low

7:00

EUR

Germany Import Price Index (YoY) (FEB)

11.6%

11.8%

Low

7:45

EUR

French Consumer Confidence Indicator (MAR)

-

85

Low

9:00

EUR

Italian Retail Sales (MoM) (JAN)

-0.1%

0.2%

Low

9:00

EUR

Italian Retail Sales (YoY) (JAN)

0.7%

0.4%

Low

9:00

EUR

Euro-Zone M3 s.a. (3M) (FEB)

1.6%

1.7%

Low

9:00

EUR

Euro-Zone M3 s.a. (YoY) (FEB)

1.7%

1.5%

Low

9:00

EUR

German IFO – Business Climate (MAR)

110.5

111.2

Medium

9:00

EUR

German IFO – Current Assessment (MAR)

114.6

114.7

Medium

9:00

EUR

German IFO – Expectations (MAR)

106.8

107.9

Medium

10:30

CHF

KOF Institute Economic Forecast (MAR)

-

-

Low

The outcome of the EU leaders’ summit in Brussels continues to loom large over the currency markets, with traders loathe to commit to a direction despite the damning news flow over the past 24 hours. As we discussed in detail yesterday, the most elemental problem facing policymakers is that although the outlines of the forthcoming “grand bargain” envision giving theEuropean Financial Stability Facility (EFSF) access to its full capital base of €440 billion, that seems hardly enough to bail out the larger of the debt-strapped member states. Indeed, EURUSD now shows a near-perfect 0.9 inverse correlation with 5-year Spanish CDS spreads, suggesting the single currency’s fate is almost entirely pinned upon the perceived likelihood of a sovereign default beyond the scope of the bailout fund.

The threat of such a crisis became clear overnight after Moody’s issued a mass downgrade of 30 Spanish banks. The announcement comes just several weeks before the country prepares to refinance €7.3 billion in maturing debt. The funds had been borrowed at an average yield of 0.89 percent butcomparable rates now stand at 1.95 percent and will most probably climb higher as the reality of what the downgrade means begins to filter into financial markets. Curiously, a look at Spanish bond yields reveals this has not materialized so far, with the lag a likely reflection of the same lack of conviction seen in EURUSD spot itself as traders wait for the summit outcome to cross the wires.

On the data front, Germany’s IFO Survey of business confidence headlines the calendar, with expectations calling for sentiment to sour for the first in five months in March. The pullback would match softer readings on German (and region-wide) Purchasing Manager Index figures published yesterday, although their ability to materially affect the Euro seems negligible until a clear reading on the near-term evolution of the periphery debt fiasco is revealed.

For real time news and analysis, please visit http://www.dailyfx.com/real_time_news

To receive future articles by email, please contact Ilya at ispivak@dailyfx.com

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