Mid-Day Report: Euro Mildly Lower on German Data, Markets Consolidate
The markets are relatively quiet and mixed today. Euro is mildly weaker after weak German production data but loss is so far limited. Sterling attempted to strengthen, in particular in crosses, today on rate views but there isn’t follow through buying yet. Dollar is facing some mild pressure on rising commodities as copper hits another record high today. No important event is scheduled for the US today and we’d probably see the greenback consolidations further. Nevertheless, attention should be paid to US treasury yield, which could trigger some dollar strength in case yields extend Friday’s jump.
Data from Germany saw factory orders dropped more than expected by -3.4% mom in December. Annual rate was down to 18.70%. Though, Eurozone Sentix investor confidence rose strongly from 10.6 to 16.7 in February. French Finance Minister Lagarde said Euro is a victim of weak US dollar and Chinese yuan and urged reform in “international monetary system so that the euro is not caught in the middle”. Meanwhile Lagarde also urged convergence of economies in the euro zone as “It’s not sufficient to have the same currency, we need concordant, coherent policies that lead us to a more competitive Europe.” Regarding the talk of expanding the European Financial Stability Facility, Lagarde echoed Germany’s line last week and said that Everyone has to play the game. It’s the principle of conditionality: We help you, but you have to make efforts yourself too.”
The British Chambers of Commerce warned that “positive news should not lull us into a misguided sense of complacency”, and urged BoE to resist from the pressure to raise rate. BCC chief economist David Kern said that the it’s inevitable for CPI to jump towards 4.5% but the MPC should “hold its nerve” and keep rates unchanged until at least middle of the year. He said that “the UK economy is still fragile. A premature increase in rates risks derailing the recovery and could be damaging.”
Australian retail sales data was disappointing, rising 0.2% only in December. It’s believed that last year’s rate hike is taking an effect on consumers. And as RBA noted in the quarterly policy statement released last week, “the modest rate of increase in household indebtedness suggests that household behavior remains cautious.” However, as RBA pointed out that recovery in household net work and improvements in the job market will suggest that growth in household spending to be “unlikely to remain as low as over the past couple of years.”
AUD/JPY is set to take out recent high of 83.65 soon to resume the choppy rebound from 71.86. The broader outlook remains unchanged that rise from 71.86 should be a correction to fall from 88.04. As current rise extends, we’d expect strong resistance from upper channel (now at 84.73) to bring another fall. On the downside, break of 80.96 will be the first sign that such correction has completed and will turn outlook bearish for 71.86 key support level again.
Daily Pivots: (S1) 1.3523; (P) 1.3601 (R1) 1.3658; More.
With 1.3675 minor resistance intact, intraday bias in EUR/USD remains on the downside. PUll back from 1.3860 is still in progress and should target 38% retracement of 1.2873 to 1.3860 at 1.3483 and possibly lower. But after all, there is no change in the cautiously bullish outlook yet. Fall from 1.4281 should have completed with three waves down to 1.2873. Hence, downside of the current pull back should be contained by 1.3253 cluster support (61.8% retracement at 1.3250) and bring another rise. On the upside, above 1.3675 minor resistance will turn bias back to the upside for retesting 1.3860 first.
In the bigger picture, main question remains on whether medium term correction from 1.6039 has finished with three waves down to 1.1875. The firm break above 1.35 psychological level again affirm the case that fall from 1.4281 was merely a correction only and whole rise from 1.1875 is still in progress. Also, note that break of 1.4281 will revive the case that medium term correction from 1.6039 was completed with three waves down to 1.1875 and the long term up trend might be resuming. On the downside, though, below 1.2873 will turn focus back to 1.1875 low.
00:30 AUD Retail Sales M/M Dec 0.20% 0.50% 0.30% 0.40% 05:00 JPY Leading Index Dec P 101.4 101.4 100.6 09:30 EUR Eurozone Sentix Investor Confidence Feb 16.7 14 10.6 11:00 EUR German Factory Orders M/M Dec -3.40% -1.50% 5.20% 11:00 EUR German Factory Orders Y/Y Dec 19.70% 21.30% 20.60% 13:30 CAD Building Permits M/M Dec 2.40% 2.00% -11.20%
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