Battered and bruised

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EUR: Just German industrial production as the scheduled event today.  The market looks for a 0.3% gain in MoM terms.  The data can be volatile, but a gain over and above 1.0% could give some added fuel to the single currency after the gains seen on Friday.

Idea of the Day

Two things to take on board from Friday’s price action in FX. Firstly, the relatively strong dollar reaction to the weaker than expected US jobs report.  This was consistent with our observation that the dollar has moved to show a much stronger (positive) correlation to data surprises in recent weeks.

Secondly, that the initial reaction held in place. More often than not the initial reaction can be unwound in the subsequent afternoon trading.  This suggests the market was comfortable being short dollars into the weekend, especially in light of the recent run of disappointing US data.  The other issue is the euro, with many having taken bearish positions in light of events in Cyprus having been stopped out as the dollar weakened and even more so the yen.  We start the week with a more cautious and also bruised FX market.

Latest FX News

  • GBP:  Cable gained last week against the backdrop of a weaker dollar, but could not keep up against the single currency.  For now, the market has shifted from outright sterling bearishness to relative bearishness against the euro.
  • JPY:  What was remarkable on Friday was how USDJPY was able to build on the gains seen from Thursday during the course of Friday, helped by further gains in equities.  Key channel support comes in at 95.53 on USDJPY.
  • EUR: The move above the 1.30 level on Friday has no doubt once again scuppered a load of euro bears in the wake of recent events in Cyprus. Never forget that there are 2 sides to any exchange rate!
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