Tug of War on EUR/USD

April 16, 2015

Across-the-board overnight losses in the dollar masks opposing forces on the key EUR/USD relationship.

  • Relative to key European monies, the dollar on balance has lost 0.6% against sterling, 0.4% versus the euro and 0.2% relative to the Swiss franc.
  • At one point, however, the dollar had retreated as far as 1.0764 against the euro but subsequently cut its loss in half.
  • The dollar shows bigger overnight losses of 1.4% against the Aussie dollar, touching a 2-week low, and 0.7% vis-a-vis the kiw.  It also slipped 0.1% against the yen and loonie.
  • A recent bunch of weaker-than-expected U.S. economic indicators has kindled concern about how well markets will manage a federal funds hike, although such a move no later than September is still expected.
  • The euro is still vulnerable to Greece either defaulting or leaving the common currency or doing both.  Time and the patience of Greece’s creditors are running out.  S&P downgrading Greece’s credit rating further.

Group of Twenty finance ministers and central bank heads will be meeting today and tomorrow in Washington.  They are there for the semi-annual IMF meetings.

In commodity markets, West Texas Intermediate oil prices, which jumped on Wednesday, settled back 1.7% to $55.45 per barrel.  Comex gold is 0.6% higher at $1,208.00 per ounce.

Although most Asian bourses strengthened, European equities are lower.  Share prices advanced 3.0% in China, 1.2% in Taiwan and Japan, 0.9% in South Korea, and 0.7% in Australia.  Stocks fell so far by 1.5% in Germany and Spain, 1.1% in Italy, 0.8% in Greece, 0.6% in France and 0.4% in Great Britain.

In futures trading, the 10-year Treasury yield has slipped under 1.90% again.  The 10-year German bund fell another basis point to the incredibly low level of 0.10%, and the 10-year JGB is unchanged at 0.32%.  The British gilt yield is also steady.

Several Australian economic indicators were reported.  Most significantly, the labor market performed much better than expected in March for a second straight month.  The jobless rate slid to a 3-month low of 6.1% from 6.2% in February and 6.4% in January.  Employment posted back-to-back increases of 42.0K in February followed by 37.7K last month, which beat expectations of a gain closer to 15K.  Most of the employment growth in February-March involved full-time positions.  The labor participation rate of 64.8% last month was higher than assumed, too, and at an 8-month peak.  In other Aussie data, new motor vehicle sales growth accelerated to a 4.4% 12-month rate of increase in March from 4.1% in February and were 0.5% greater than the month before.  But the Westpac consumer sentiment index fell by a further 3.2% in April after a 1.2% decline in March, suggesting pessimism ahead of next month’s budget.  Expected inflation over the coming year ticked higher to 3.4% this month, dampening the likelihood of a further easing of Australian monetary policy.

In China, foreign direct investment (FDI) grew just 2.2% on year in March, the second weak result in a row.  FDI in the first quarter was 11.3% greater than a year before.  Japan has moved past China to rank as the top foreign holder of U.S. debt.

Japanese machine tool orders posted a lower 14.9% on-year advance in March versus gains of 28.9% in February, 20.4% in January, and 33.9% in December.

Japanese stock and bond transactions generated an 836 billion yen net capital inflow last week verus a JPY 4.68 trillion net inflow in the prior week.

New Zealand’s manufacturing purchasing managers index settled back to a 2-month low of 54.5 in March from 56.1 in February.  That’s still a robust reading.

A quarterly survey conducted by the ECB of economic forecasters revealed a 0.3 percentage point upward revision in projected 2015 growth to 1.4% but a downward estimate of likely CPI inflation to 0.1% from 0.3% predicted in January’s survey.

In the European Union, new car registrations, a gauge of sales, went up 10.6% on year in March and 8.6% in the first quarter.

The index of Swiss producer prices and import prices increased 0.2% on month in March, its first advance since May 2014, but was still 3.4% lower than in March 2014.  Higher energy costs were the main factor behind the month-on-month uptick.

Dutch unemployment slid to a two-year low of 7.0% last month from 7.1% in February and 7.2% in the prior two months.

Italy’s trade surplus of EUR 3.5 billion was about 30% wider in February than a year before.

The British Royal Institute of Chartered Surveyors house price balance index printed a reading of 21% in March, a six-month high following 15% in February.

South African wholesale turnover recorded a smaller on-year drop of 0.8% in February versus a decline of 4.8% in the year to January.

Besides weekly jobless insurance claims, U.S. data arriving today include the Philly Fed manufacturing index, housing starts, and building permits.  Lacker yesterday said increases in the fed funds rate would be manageable.  Fed officials speaking in public today include Fisher, Mester, Lockhart, and Rosengren.

Copyright 2015, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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