The euro return


EUR USD Higher February 20 2013Data/Event Risks

  • USD: The US data is second tier, so should not be a big issue for the dollar. The minutes to the Fed meeting of end January probably provides greater but still modest risk of dollar volatility.
  • GBP: Sterling becoming more sensitive to data given the perception that the Bank of England is letting go of its inflation target.  Weaker labour market data would be seen as sterling negative, whilst the Feb MPC meeting minutes will be scoured for more comments on the currency.  The Jan minutes were rare in that they made specific reference to the currency, hinting at over-valuation. Another mention along similar lines could put further pressure on sterling, but note that the Feb meeting was rare in offering a long statement along with “no change” in policy, so it could be that there is little new to offer. More: GBP/USD Continues Bearish Trend Towards 1.5000

Idea of the Day

The single currency has broken to the upside of the tight range that has held for the previous few sessions.  With the Kiwi being talked down overnight and investors taking bigger bets against the UK currency, the euro is again being squeezed higher, the preferred route against which to short less favoured currencies.  But it’s also a macro story, with Tuesday’s firmer ZEW data supporting the single currency in its own right. This underlines the point we made yesterday, namely that currencies are becoming more sensitive to data surprises (positive and negative) and less inter-twined with what’s happening on central bank balance sheets.

Latest FX News

  • EUR:  Continued to perform well during the Asia session, as was the case on Tuesday, supported by better survey data (ZEW) for the Eurozone as a whole.  EURUSD nudged above the 1.34 level, breaking out of the tight range in place for the previous 3 sessions.
  • AUD:  Nudging higher overnight, briefly above the 1.0360 level, but greater focus on the NZD. Key (50%) Fibonacci level remains at 1.0369 which is the next upside focus.
  • JPY: More cooling from PM Abe on the issue of foreign bond purchases, stating that “the need for this fund is becoming a lot less”.  Such a policy would be seen as a more direct means of pushing the currency lower, so it could be that this is in response to some pressure from the international community. USDJPY again lower overnight and holding below 93.50 into the European open.
  • NZD: Weaker on the back of comments from central bank governor Wheeler in which he said “the bank will intervene when circumstances are right”.  On one level, this may not sound that controversial, but it was a touch stronger than previous comments and knocked the NZD around 0.80% lower to 0.84 on NZDUSD.  At this level, the Kiwi remains 2% above the average of the past 6 months.

Further reading: “Currency Wars” can be placed on the shelf alongside of “Fiscal Cliff”

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