So far throughout the month of April the euro remains weaker losing ground across all of the majors. Since the beginning of April, against the USD, the euro loses 1.35 per cent. Despite the losses the 1.30 barrier has continued to provide significant support for price movements; and while investors tested this level last Monday, pushing the EUR/USD to lows of 1.2995 – and registering fresh 8 ½ week lows, it has so far proven resilient enough.
A Spanish auction held last Tuesday continued to reflect higher costs for Spain- Rudolf Muscat
Ironically only weeks after the eurozone finance ministers augmented the firepower of the total bailout facility to $1trillion (€800 billion) to act as a firewall and to avoid further contagion, we see eurozone debt concerns resurface. Spain’s announcement, that it would be missing a deficit target, announced weeks ago raised investor focus again and has translated into higher yields for the benchmark 10-year Spanish bonds that are now fetching yields of six per cent, again – levels we had last seen back at the end of November 2011.
A Spanish auction held last Tuesday continued to reflect higher costs for Spain. Spain auctioned off €3.18 billion in 12 and 18 month bills, better than the targeted €3 billion but yields nearly doubled when compared to previous similar auctions. Spain faces another bond auction today. Similarly a European Financial Stability Facility (EFSF) auction also faced higher yields and bid-to-cover ratio (measuring demand) was softer as well.
Chinese GDP released last Friday did not help overall risk sentiment either. Q1 Chinese economic growth eased but most importantly came in lower than expected figures. To make disappointment even more bitter investors had been raising hopes of better than expected figures ahead of the actual figures. On Monday Chinese authorities announced their decision to double the currency’s trading band against the US dollar from 0.5 per cent to one per cent – as the country continues its gradual move towards liberalisation.
April investor sentiment rose unexpectedly in Germany, actual figures came out at two year highs. Published by the ZEW Centre for European Economic Research, data showed investor confidence in Europe’s largest economy increased higher, suggesting the country may weather the impact of the persisting eurozone sovereign debt crisis which is crippling Europe’s periphery.
The ZEW economic sentiment index rose to 23.4 in April versus consensus for 19.5 and up from 22.3. ZEW current situations survey also increased to 40.7 from 37.6 against a forecast for 35. From the United States data for advanced retails sales throughout the month of March eased, when compared to previous figures but the actual figures were in fact higher than the expected. US retail sales rose by 0.8 per cent.
Earlier this week inflation data from the United Kingdom showed that for the month of March inflation accelerated unexpectedly, the yearly CPI figure ticked higher to 3.5 per cent from the previous and expected 3.4 per cent, similarly core levels (ex food and energy) rose to 2.5 per cent from the previous 2.4 per cent.
The EUR/GBP remains biased lower; throughout the current month the euro loses around 1.24 per cent to the British pound. To the downside, despite briefly hitting lows of 0.8210 the currency pair has overall found support at 0.8225. The inability to push above of 0.8276 in these last two weeks potentially exposes 0.8142 levels (August 2010 lows).
Early Tuesday morning the Reserve Bank of Australia released the minutes of the April 3 policy meeting; minutes continued to build a dovish case for the Australian Central Bank. The RBA said that growth remained below trend and highlighted that further easing remains in the cards. Investors will be eyeing inflation data due next week, to better gauge what the next move from the RBA could be.
After the release of the minutes the Aussie initially weakened against the USD pushing towards lows of 1.03046. Yet throughout the European session the AUD/USD managed to pare earlier losses. As expected last Tuesday the BoC kept policy rates on hold at one per cent. The Canadian Central Bank also added that tightening “may become more appropriate” given that economic growth and inflation show signs of acceleration.
The BoC expects to attain full output in the first half of 2013. The USD/CAD slipped lower by around 70 pips minutes after the release; as the Canadian dollar gathered strength vis-à-vis the US dollar.
Upcoming FX key events:
Today: Sweden Riksbank Interest Rate Decision, Spanish Bond Auction, US Existing Home Sales & US Philly Fed index.
Tomorrow: UK Retail sales & Canada CPI.
Technical key points:
EUR/USD is bearish, target 1.2500, key reversal point 1.3750.
EUR/GBP is bearish, target 0.80, key reversal point 0.8550.
USD/JPY is bullish, target 85.00, key reversal point 78.00.
GBP/USD is neutral.
USD/CHF is neutral.
AUD/USD is bearish, target 1.015, key reversal point 1.07.
NZD/USD is bearish, target 0.80, key reversal point 0.8350.
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Mr Muscat is a senior trader at RTFX Ltd.