Recap
The Canadian dollar has spent most of February and March tightly correlated to the EUR. While Canadian data hasn't been overwhelming for much of the year (excluding last Friday's employment and housing data), it's far from the EUR. My guess is that this is due to 1) dollar index (DXY) buying on the back of the strong dollar trade and 2) low CAD volume. The pair hit 1.0336, its highest mark in 9 months on Wed after the Bank of Canada published slightly more dovish language on removing monetary stimulus from the economy. The retreat from this high was swift back to 1.0315 and then comfortably back below 1.0300 for the rest of the week.
Outlook
There is very little in the way of data releases from Canada this week. There appears to be significant selling interest at 1.0300, so it will be interesting to see if there is a divergence from the EUR at this level if DXY starts taking off again this week. I will watch this correlation and possibly enter short for a quick 10 or 20 pips if it breaks. I am very short this pair on a long term basis, but it may take another few good data releases before any significant reversal to the downside emerges. That said, if advances above 1.0300 are consistently resisted in the London/NY sessions, I may put some more short on for the long-term.
Sunday, March 10, 2013
EURUSD, 3/10/2013
Recap
A volatile week for the EUR, closing slightly lower at 1.3004 from the week's open at 1.3014. Longer term downtrend can be seen as still well intact. On Wednesday dropped about 65 pips to 1.3000 on widely expected contraction in EZ GDP. Then saw a 130 pip or so spike on ECB decision to hold rates. This gain was promptly wiped out less than 24 hours later with the BLS's expectation exceeding non-farm payrolls print.
The fundamental data flow continued to show contraction across the EZ core and periphery, with Germany bucking the trend specifically in its powerhouse services sector (roughly 70% of its economy). France continues its downward spiral with unemployment making new highs. Unemployment there is now its highest since approximately 2000. Price indices across the EZ remain subdued, with the exception of energy. Primary sovereign auctions were surprisingly, if not suspiciously stable with France and Spain both issuing solidly into the middle of the yield curve.
The USD fundamentals are showing growth, if anemic. The Fed's monthly beige book showed almost no contraction in any sectors of the economy (employment, real estate, retail sales, manufacturing, banking), however there were no signs of robust growth. Market sentiment was very much pro-USD and has been markedly since Feb 1, according to the DXY dollar index, primarly due to the thumping of the EUR,JPY and GBP.
Our previous week's trading strategy to fade rallies in the low 1.30s up to 1.32 proved on track..
Outlook
Mon/Tue
Monday and Tuesday are relatively light news days for both USD and EUR. I'd expect negative pressure to continue on EUR following last Friday's rout down to 1.2900 (currently quoting 1.2987 at time of writing). The Italian downgrade by Fitch, plus the IMF's (Lagarde specifically) call for an ECB rate cut should maintain the negative tone for the beginning of the week. The Italian QoQ GDP print on Monday 5am could stir up some EZ exit talk. Expectations are already quite low, but if it misses even further, consider trying to squeeze out 20-25 pips to the downside. The German CPI on Tuesday 3am could be another good low risk setup for a downside move. This print can only further rate cut speculation if it misses, and be benign if it comes inline or beats. Bottom line for the beginning of the week is that strong USD sentiment abounds in the market, and there's not much on the docket to dent that.
Wed
The first big USD data release of the week will be US retail sales at Wed 8:30am. Expectations are 0.3% increase over Jan, which was a 0.1% increase over December. This feels like a setup for disappointment to me. US consumers are getting squeezed so far this year with the payroll tax, Walmart has referred to this quarter as a "disaster" and my general gut feeling is that not much has changed in the economy at large. I plan to have all my short term speculative EURUSD shorts closed by this point, and be setting up to sell the remnants of a rally.
Also on Wed is the beginning of the European Council's monthly meeting. Surely there will be some pandering for monetary easing which can only be EUR negative. If the pair is between 1.28-1.30 this will likely be immaterial.
Thu/Fri
The ECB Monthly Report due at Thu 5am has only significant downward potential on the EUR, in its ability to allude to rate cuts for price stability.
The US has producer and consumer price indices due out on Thu 8:30am and Fri 8:30am respectively. Both are expected to be higher. This should play nicely into everyone's strong dollar story, where the Fed's inflation/unemployment targets are closer to getting hit. Watch for continuation of any negative EUR move on these. If either of these miss, consider the magnitude of the miss. If significant enough, cover some and wait for a better short entry.
Absent any major news out of Italy, I can't see the pair trading this week outside of 1.2875 - 1.3050.
A volatile week for the EUR, closing slightly lower at 1.3004 from the week's open at 1.3014. Longer term downtrend can be seen as still well intact. On Wednesday dropped about 65 pips to 1.3000 on widely expected contraction in EZ GDP. Then saw a 130 pip or so spike on ECB decision to hold rates. This gain was promptly wiped out less than 24 hours later with the BLS's expectation exceeding non-farm payrolls print.
The fundamental data flow continued to show contraction across the EZ core and periphery, with Germany bucking the trend specifically in its powerhouse services sector (roughly 70% of its economy). France continues its downward spiral with unemployment making new highs. Unemployment there is now its highest since approximately 2000. Price indices across the EZ remain subdued, with the exception of energy. Primary sovereign auctions were surprisingly, if not suspiciously stable with France and Spain both issuing solidly into the middle of the yield curve.
The USD fundamentals are showing growth, if anemic. The Fed's monthly beige book showed almost no contraction in any sectors of the economy (employment, real estate, retail sales, manufacturing, banking), however there were no signs of robust growth. Market sentiment was very much pro-USD and has been markedly since Feb 1, according to the DXY dollar index, primarly due to the thumping of the EUR,JPY and GBP.
Our previous week's trading strategy to fade rallies in the low 1.30s up to 1.32 proved on track..
Outlook
Mon/Tue
Monday and Tuesday are relatively light news days for both USD and EUR. I'd expect negative pressure to continue on EUR following last Friday's rout down to 1.2900 (currently quoting 1.2987 at time of writing). The Italian downgrade by Fitch, plus the IMF's (Lagarde specifically) call for an ECB rate cut should maintain the negative tone for the beginning of the week. The Italian QoQ GDP print on Monday 5am could stir up some EZ exit talk. Expectations are already quite low, but if it misses even further, consider trying to squeeze out 20-25 pips to the downside. The German CPI on Tuesday 3am could be another good low risk setup for a downside move. This print can only further rate cut speculation if it misses, and be benign if it comes inline or beats. Bottom line for the beginning of the week is that strong USD sentiment abounds in the market, and there's not much on the docket to dent that.
Wed
The first big USD data release of the week will be US retail sales at Wed 8:30am. Expectations are 0.3% increase over Jan, which was a 0.1% increase over December. This feels like a setup for disappointment to me. US consumers are getting squeezed so far this year with the payroll tax, Walmart has referred to this quarter as a "disaster" and my general gut feeling is that not much has changed in the economy at large. I plan to have all my short term speculative EURUSD shorts closed by this point, and be setting up to sell the remnants of a rally.
Also on Wed is the beginning of the European Council's monthly meeting. Surely there will be some pandering for monetary easing which can only be EUR negative. If the pair is between 1.28-1.30 this will likely be immaterial.
Thu/Fri
The ECB Monthly Report due at Thu 5am has only significant downward potential on the EUR, in its ability to allude to rate cuts for price stability.
The US has producer and consumer price indices due out on Thu 8:30am and Fri 8:30am respectively. Both are expected to be higher. This should play nicely into everyone's strong dollar story, where the Fed's inflation/unemployment targets are closer to getting hit. Watch for continuation of any negative EUR move on these. If either of these miss, consider the magnitude of the miss. If significant enough, cover some and wait for a better short entry.
Absent any major news out of Italy, I can't see the pair trading this week outside of 1.2875 - 1.3050.
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