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USD:  The market is pretty good at shaking off errant numbers on the durable goods side, with the biggest data surprise over the past year only seeing at most 12-15 pips change in EURUSD in the subsequent half hour of trading. Market looks for partial reversal from headline gain of 5.7% in March.

EUR: The German IFO data will be a key focus for the euro today after the release of weaker PMI data for Germany yesterday.   There are real fears that Germany may contract in the first quarter and this release could further shape those expectations.

Market was looking for fall in headline from 106.7 to 106.2, but that would now be met with modest relief rally on the euro after yesterday’s data. Update: the actual result was 104.4 and the euro is falling.

Idea of the Day

There will be a strong focus on the data out of Germany today and expectations are increasing that the ECB will cut rates when it meets next week. Once again, we are seeing changing dynamics in FX markets, with the dollar’s move to a strong positive correlation to US data surprises having been falling more recently.

It seems that the weaker being seen beyond the shores of the US is having an increasing impact on dollar dynamics, as both Europe and China have a more disappointing growth outlook.   The other point to note is that we are seeing a familiar patter emerge, namely early year optimism leading to second quarter disappointment, something that has been seen for the previous two years (see “Growth and FX“ for more).   If this pattern continues, it could spell further gains for the dollar in the coming weeks.

Latest FX News

JPY: There was a fairly dramatic turn-around for the yen during Tuesday, the safe haven bid gained after the weak China data soon disappearing towards the end of the day. Once again, the market is eying up an attack of the 100 level on USDJPY.

EUR:  Another one of those days on Tuesday when the single currency was fighting against the 1.30 area vs. the USD, with the firmer French PMI data wrong-footing the market ahead of the weaker German numbers.   Decent bids were found in the interbank market around the 1.2980, a level to watch today ahead of the IFO numbers.

GBP:  Sterling starting the European session steady around the1.5250 area vs. the USD. Passing interest with the fact that the Bank of England has announced an extension to its funding for lending scheme designed to advance more loans to companies and small businesses.

AUD: The central bank’s preferred measure of inflation fell to 2.2% (from 2.3%) against expectations for a small rise. Inflation data only comes out quarterly is a big deal for markets.   At present, this data strengthens the case for the RBA being able to lower rates further later this year and the Aussie nudged modestly lower as a result, briefly pushing below 1.0240 before recovering into the European open. Further:  AUD/USD Remains in Downward Channel Following Weak CPI