We saw a bearish reversal in EUR/USD on Friday, but we’ve also got very little momentum as this is the seventh day in a row for the pair in the 1.3000 area. The EUR/CHF might be on the move after the SNB meeting on Thursday.
The Fitch downgrade of Italy’s credit rating late Friday had the market jumping about a little. The Euro managed to largely shrug this off, but we do see German bunds having taken back all the territory lost on the strong US payrolls report. Italian 10-year yields, meanwhile, are all of about 5 bps higher in this morning’s trade. Over the weekend, Beppe Grillo stated that he wanted his party to win a new election, and ruled out the idea of forming a government with any other party.
Interesting recent poll results suggest that the vast majority of Italians are against the reintroduction of the lira and want to remain in the EU. This suggests that as long as a bit of money printing/austerity relief is thrown Italy’s way, systemic risks can be kept at bay for awhile – but if the core doesn’t give in on this front, we can expect a deepening of anti-EU feeling in Italy and the periphery
Chart: EUR/USD
A bearish reversal on Friday for the EUR/USD, but these reversals at the bottom of a range are tricky creatures, so let’s see if we head lower right away here or risk a rally of consolidation in the nearest term first. There’s no momentum at the moment, as this is the seventh trading day in the 1.3000 area. If we trade back above 1.3075 or so, the risk rise of a break above 1.3135/1.3150 and perhaps test of the 1.3250/1.3300 area. The bearish might wait for 1.2950 for confirmation that fresh downside is in the cards now rather than later.
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Looking ahead at this week.
We have the BoJ minutes out in Tuesday’s Asian session – it will be interesting to look for the degree of dissent on the BoJ’s future plans, although market-place consensus is that the new leadership will get its way. There are some important points to bear in mind, most broadly that this move may be entirely conditional on a complacent outlook for risk. Overnight, new governor nominee Kuroda made noises about using derivatives as a possible instrument for the BoJ to transmit policy. I’m not sure I understand the power of taking this approach versus the standard bond-buying, but it is now “out there”. I’m still interested in whether we get a chunky consolidation in this JPY move either here, just before or just after the end of the Japanese financial year. In all of the last four years, the JPY saw major pivots in the March-May time frame.
USDSEK posted an interesting reversal on Friday as SEK appears to be over-performing a bit. Riksbank Governor Ingves will be out speaking late this evening. Sweden’s data has been surprising very positively lately, but those surprises nearly always tend to mean revert. EURSEK is within striking distance of those 12-year lows around 8.18.
Norges Bank is out this week on Thursday. Norway’s economic surprises have been extremely negative while those of Sweden have been positive. This and the 10-dollar/bbl sell-off in crude oil have NOKSEK near the range lows of the last many years. This is an interesting pair for those looking for mean reversion.
In other central bank news this week, we have the SNB out on Thursday. It is very interesting to see the bounce-back in EUR/CHF after the Italian elections and I’m interested to see if this meeting opens the gates for a rally that takes the pair to new highs eventually. There is a non-trivial risk that the bank points to a change of policy on the floor this week.
We also have the RBNZ out on Wednesday. It provides the odd combination of strong data surprises, but worry over forward weakness from a drought affecting northern areas of the country, threatening one of the “Saudi Arabia of milk’s” key exports. This meeting will be key for estabilishing whether the recent move higher in the AUD/NZD and amove lower in the NZD/USD will extend from here. While 2-year NZD swaps are up near 12-month highs in the 3.00% range, it is hard to imagine the RBNZ expressing too-hawkish rhetoric due to the kiwi’s notable strength this year.
The highlight of the US data calendar this week is the Retail Sales release for February out on Wednesday as we see how pay reductions from the expiry of the payroll tax cut have hit spending. PPI and CPI data for February are up Thursday and Friday, respectively.
Stay careful out there.
Economic Data Highlights
- China February CPI out at +3.2% YoY vs. +3.0% expected and +2.0% in January.
- China February . PPI out at -1.6% YoY vs. -1.5% expected and vs. -1.6% in January.
- China February Industrial Production out at +9.9% YoY vs. +10.6% expected and +10.0% in January.
- China February Retail Sales out at +12.3% YoY vs. +15.0% expected and +14.3% in January.
- China February New Yuan Loans out at 620B vs. 700B expected and 1070B in January.
- Germany January. Trade Balance out at +13.7B vs. +13.9B expected and vs. +12.1B in December.
- France January Industrial Production out at -1.2% MoM and -3.5% YoY vs. -0.2%/-2.7% expected, respectively and vs. -1.9% YoY in December.
- France January Manufacturing Production out at -1.4% MoM and -4.5% YoY vs. -0.2%/-3.3% expected, respectively and vs. -3.1% YoY in December.
- Switzerland January Retail Sales out at +1.9% YoY vs. +4.7% in December.
- Sweden Riksbank governore Ingves to speak (2300)
- Japan February Corporate Goods Price Index (2350)
- Japan BoJ Minutes (2350)
- UK February RICS House Price Balance (0001)
- Australia February NAB Business Conditions/Confidence (0030)
- Japan February Consumer Confidence (0500)