- German unemployment improves less than forecast
- All eyes on ECB's 3 month tender offer
- Asia tumbles -1.96% in wake of US selloff but Europe rebounds slightly on the open
- Oil at $76.20/bbl
- Gold steady at $1244/oz.
- AUD HIA New Home Sales -6.4% vs. 6.2% last
- AUD Private Sector Credit 0.5% vs .0.4% eyed
- JPY Manufacturing PMI 53.9 vs. 54.7
- JPY Average Cash Earnings -0.2% vs 0.9%
- JPY Housing Starts -4.6% vs. 5.1%
- EUR German Unemployment Change -21K vs. -23K eyed
- EUR CPI Flash Estimate n/a
- GBP GfK Consumer Confidence -19 vs. -18 last
- GBP Nationwide HPI 0.1% vs .0.3%
Event Risk on Tap
- USD ADP Non-Farm Employment Change expected at 58K
- CAD GDP expected at 0.2%
- USD Chicago PMI expected at 59.2
- USD/JPY bounces off 88.50 as 88.25 and 88.00 option barriers slow decline
- AUD/USD recovers of .8500 to .8550 as risk improves in Europe
- GBP/USD trades around 1.5050 as eco data tempers rally
- EUR/USD recovers to 1.2230 ahead of ECN auction
Risk FX rallied off its lows in early European trade boosted by a slight rebound in equity prices, but currency markets remained cautious ahead of the 3 month ECB tender offer due later today. The ECB 1 year tender of 442 Billion euros is due to expire tomorrow and in its stead the central bank is offering fresh 3 month funds. The market expects an uptake of approximately 250-300 Billion euros with any figure below the 250 Billion level viewed as a bullish sign that demand for liquidity amongst European banks is no longer acute. One key concern is the Spanish banking sector which is expected to account for nearly 40% of the total demand.
Despite the constant drumbeat of negative newsflow the euro has been able to hold up relatively well rebounding to 1.2230 in early European trade, but the pair faces a series of risks including the results of the ECB tender offer and the possible rejection of Christian Wulff, the German governments candidate for Presidency by the Federal assembly. On the economic front the unemployment data in Germany continued to show an improvement but at a slower pace as -21K workers came off the rolls versus expectations of -25K and prior month's figures of -41K. The labor markets in EZ largest economy continue to improve most likely stoked by the well performing export sector. However, if global demand begins to slow down in H2 of 2010, German unemployment conditions will likely worsen putting additional pressure on the euro.
Meanwhile in UK a series of disappointing economic reports sent cable tumbling off its Asian session highs as traders reconsidered the prospects for growth in the country's economy in the second half of this year. UK Nationwide housing data printed weaker than expected at 0.1% versus 0.3%. On a yearly basis the housing prices rose 8.7% versus 9.0% forecast, the third monthly fall in a row and weakest reading since January of 2010. As we noted earlier, "Today's disappointing housing data along with the decline in GFK consumer confidence reading which registered a decline to -19 from -18 the month prior, confirms our view that the UK economy remains very vulnerable to the risk of double dip recession."
Cable came off more than 50 points from its Asian session highs to trade at 1.5020 by mid-morning London session and could now dip below the psychologically important 1.5000 level as markets reassess UK economic activity going forward. The pound has shown great relative strength against the euro over the past several months, but much of that rally has been driven by the assumption that UK growth will improve as the year progresses. If however, UK economic data continues to disappoint EUR/GBP should stabilize at the current levels and could stage a counter trend rally to .8400 within the next few weeks. The euro still faces the risk of sovereign debt default by its Club Med members but if those concerns start to ease the one way trade in the cross is likely over for now.
In North America today the market will get a look at several key economic metrics including the ADP report and Chicago PMI data. Traders anticipate a mild improvement in ADP numbers and a slight decline in Chicago PMI readings. A surprise to the upside would be a much welcome relief to the recovery bulls and could spur further short covering in the risk trade, pushing high beta FX higher. However, if the eco data today misses its mark, the selloff from yesterday is not only likely to resume but accelerate as traders start to price in the possibility of weak NFP numbers on Friday and consensus begins to build that the global economic recovery is quickly running out of power.
|USD||12:15||8:15||USD ADP Non-Farm Employment Change||58K||55K|
|USD||13:45||9:45||USD Chicago PMI||59.2||59.7|