Article / 19 February 2013 at 8:09 GMT

ZEW Survey to set the tone for EURUSD

John J Hardy John J Hardy
Head of FX Strategy / Saxo Bank

The ZEW survey may not improve as much as hoped if the strong Euro has dented sentiment as it has dented European equities. The line in the sand for the moment is 1.3300.

JPY strengthening
The JPY is pulling stronger versus the market as we’re getting the first indications of Japan pulling back on some of its rhetoric in a clear attempt to bow what was likely some strong pressure to “take it easy” behind the scenes at the G20. Japanese Finance Minister Taro Aso said that there was no intention to buy foreign bonds through a special fund and the BoJ – and even said there were no immediate plans to change the BoJ law.

Some were looking for Abe to name his preferred successor to the BoJ governorship this week, but an official said that Abe’s decision on would have to wait until after a trip to the US on February 21-24.

RBA Minutes boost AUD
A small boost to AUD overnight as the RBA minutes saw the discussion of positive signs that lower rates were already starting to take effect in some areas of the economy, thus the reason for the delay in moving rates lower once again. This boosted the AUD against the likes of CAD and NZD, but the front end of the Australia yield curve hardly budged, so we can hardly talk about a watershed development here. For the likes of CAD, the weakening probably has to do with the steep plunge in oil prices by almost 3 dollars since the middle of last week. And for the kiwi, there were strange reports of China destroying New Zealand milk powder that apparently proved to be old news, but got the market excited briefly overnight.

BoE and FOMC Minutes up tomorrow
BoE minutes are up tomorrow after we have seen the recent testimony of coming governor Carney and importantly, the BoE quarterly inflation report, both of which suggest a willingness to tolerate an uncomfortable level of inflation before the bank is to even consider reining in its easing programme. Look for signs that this continues to be the case – though a lot of dovishness is already in the price and a considerable portion of GBP’s pricing in the market has been as a flipside to the Euro strength. Meanwhile, the noise in the US has mostly been from Fed officials chiming in with optimistic prognostications on the recovery in the economy to a sufficient degree to allow a reduction of the rate of balance sheet expansion as early as 2013 – even from the most dovish of doves, the Chicago Fed’s Evans. Ah – we should all rest easy as the Fed governors have proved such accurate economic forecasters, haven’t they? Still, as long as the Fed thinks everything is okay, we’re unlikely to see much on the dovish side.

GBPUSD has fallen even as EURUSD has risen and then fallen, showing that the GBP weakness has consistently outpaced USD weakness. The obvious focus now is the bottom of the long standing range down just below 1.5300, but longer term, we may be looking at a break of 1.50 and beyond as Carney takes over and we start to ponder the risks to the currency of NGDPLT experimentation. In the shortest term, there is still plenty of room for a technical bounce back toward the 1.5600/50 area if the market has gotten ahead of itself here – though EURGBP may prove a more volatile mover and compelling way to trade GBP strength in the even the currency gets a boost from tomorrow's BoE minutes (or on negative Euro developments).


Looking ahead
Look out for the Germany ZEW survey at 1000 GMT, which will set the tone for the Euro this morning and help us know whether this important 1.3300 area is going to give way in the nearest term. The January data point saw an enormous surge, but confidence in Europe has stalled out a bit since late January, mostly due to the strong Euro, which is likely to weigh on the chances of the survey pulling much higher in the nearest term.
Note that USDCAD has broken free of 1.0100 resistance – looking for momentum to build from here or for a reversal – either way, we get a signal…

If you haven’t already – please do read our chief economist’s piece on The Chicago Plan which describes where monetary policy may (will?) go next when this QE to infinity fails to do the trick.

Economic Data Highlights

  • Norway Q1 Consumer Confidence out at 27.1 vs. 26.0 in Q4
  • Japan Jan. Nationwide Department Store Sales rose +0.2% yoY vs. -1.3% yoY in Dec.

Upcoming Economic Calendar Highlights (all times GMT)

  • Sweden Jan. CPI Headline and Core (0830)
  • Sweden Jan. Unemployment Rate (0830)
  • Euro Zone Dec. Construction Output (1000)
  • Germany Feb. ZEW Survey (1000)
  • Euro zone Feb. ZEW Survey (1000)
  • US Feb. NAHB Housing Market Index (15000)
  • Switzerland SNB’s President Jordan to Speak (1715)
  • New Zealand Q4 Producer Prices (2145)
  • Japan Jan. Trade Balance (2350)
  • Japan BoJ Member Morimoto to Speak (0130)




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