Talking Points
• Japanese Yen: falls through 107.00 as equities dive
• Euro: rebound above 1.5700 on safe haven flows
• British Pound: GDP lower but in line with expectations
• US Dollar: Durable Goods U of M on tap
EURUSD stabilized and regained its footing in early European trade retaking the 1.5700 level after falling sharply yesterday. Yesterday’s horrid IFO results drove the pair to within 20 points of the 1.5600 figure in late North American trade, but the overnight weakness in global equities and rumors of central bank buying reversed the decline, as the unit continues to attract safe haven flows.
The economic data in the EZ shows incontrovertible signs of a slowdown, but the news from the other side of the Atlantic is not much better. Yesterday’s US jobless claims climbed above the key 400K barrier while Existing homes sales slowed more than forecast. Thus the race between the euro and the dollar these days is not a measure of who is better but rather a question of which economy is performing worse. Add to that equation the recent negative correlation between the EURUSD and global equities and it is easy to see why the unit rebounded tonight’s trade as all the major stock indices fell by more than 1%.
Meanwhile cable also roared back trading above 1.9950 as UK GDP data printed in line with expectations. UK GDP fell sharply from the period prior expanding only at 1.6% annual rate, but the markets were relieved to see that the reading was not worse given the recent weakness in UK economic data. As a result, the consensus assumption that UK rates will be 5% for the rest of the year remained in place and traders pushed sterling back towards the 2.000 level.
In North America session the focus will once again turn to consumer demand as Durable Goods, U of Michigan survey and New Home Sales will be scrutinized by the market. The expectations are for lower readings across the board but the impact of FX trade may depend on the degree of the decline. With markets already so preconditioned to bad economic news from the US, the greenback may not weaken much further unless the data shows substantial deterioration from the prior month.
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