25 March 2010 at 7:02 GMT
EUR suffers from firmer USD, Portugal downgrade
Market Comments:
The main over-riding theme of yesterday’s session was one of USD strength with a few minor sideshows also playing a part in currency moves. The EUR’s slide, which had begun with a break of key support levels near 1.3440 late in the Asian session, accelerated as Fitch announced a downgrade of Portugal’s credit rating to AA- with a negative outlook.
The EUR’s weaker tone coincided with a weak 5-year note auction which saw the lowest demand since July last year for the $42 bln worth of notes. As a result yields jumped with the 10-year yield hitting its highest level in two months and 2-years broaching 1.0%, helping the USD index to new 10-month highs. Newswire comments from Japanese finance minister Kan that one cannot be optimistic about the Japanese economy was the final piece to ignite the fire beneath USDJPY and the pair broke through the 200-day MA with ease, rising to a 2-1/2 month high.
With all the chatter surrounding the UK budget, the event was a relative non-event. GBP eased off in the wake of the dollar’s rise as UK growth projections were scaled back but gilt markets were smashed as it was announced the DMO was to sell £185.4 bln of debt in fiscal 2010/11. Plans to cut the budget deficit in half by 2014 were viewed as being heavily reliant on some optimistic growth forecasts. Nevertheless, GBP remained one of the better performing currencies overnight versus the resurgent greenback.
Elsewhere, the Norwegian central bank left rates unchanged at 1.75% with an accompanying statement that contained a more dovish tilt than the market liked resulting in a bashing for the NOK. US data releases were widely ignored (as were the stronger PMI data from France and Germany and a healthy IFO number) though durable goods orders rebounded ex-transportation and upward revision giving the series a more positive bias. New home sales on the other hand were a disappointing -2.2% m/m though likely impacted by the weather conditions.
The currency pairs breaking new ground, Asia was anticipating a busier session but sadly it was not to be. Currencies caught their breath in tight ranges and looks like the next indication of direction will come from Europe. The AUD received some support from RBA’s Lowe with hawkish comments suggesting rates will continue to rise in Australia regardless of the present global uncertainty and waiting for this uncertainty to resolve would risk moving rates back to more normal levels too late. He saw the AUD maintaining its firm tone, remaining above the average for the past decade. AUD had a quick 30 point rally on this and then stayed there.
Notwithstanding the EU summit that starts today, data releases in Europe focus on Sweden’s PPI and household lending. Euro-zone money supply, Norway unemployment and UK retail sales are also on tap while we head into to US session with only weekly jobless claims on the calendar. Note the final US auction of the week, $32 bln worth of 7-year notes, which may attract more attention than usual tonight given yesterday’s poor result and the renewed focus on US yields.
Economic Data Highlights
- US Feb. Durable Goods Orders out at +0.5% vs. +0.6% expected and revised +3.9% prior
- US Feb. Durable Goods ex-Transportation out at +0.9% vs. +0.6% expected and -0.6% prior
- Norway Norges Bank leaves rates unchanged at 1.75%
- US Feb. New Home Sales out at -2.2% m/m vs. +1.9% expected and -8.7% prior
- NZ Q4 GDP out at +0.8% q/q, +0.4% y/y, both as expected, vs. revised +0.3%/-1.4% prior resp.
- JP Feb. Corp Service Price out at -1.3% y/y vs. -1.2% expected and revised -1.2% prior
Upcoming Economic Calendar Highlights
(All times GMT)
- EU EU Summit (through till Friday)
- GE GfK Consumer Confidence (0500)
- HK Trade Data (0830)
- Sweden PPI (0830)
- Sweden Household Lending (0830)
- EU ECB’s Gonzalez-Paramo to speak (0830)
- EU Euro-zone M3 Money Supply (0900)
- Norway Unemployment (0900)
- UK Retail Sales (0930)
- EU ECB’s Trichet to speak (1130)
- US Initial Jobless Claims (1230)
- US Fed’s Pianalto to speak (1310)
- US Fed’s Bernanke to testify on exit strategy (1400)