Euro Rebounds On Upbeat German Economic Sentiment

Market Review - 17/09/2013 22:24GMT

The single currency rose against other currencies in European session on Tuesday after the release strong German ZEW economic sentiment. However, the euro pared some gains in New York session ahead of the end of 2-day FOMC meeting on Wednesday as the policymakers are expected to make a minor reduction its stimulus measures.

Earlier in Asia, despite euro's brief dip to 1.3325, the pair ratcheted higher to 1.3369 in Europe following the upbeat eurozone and Germany ZEW economic sentiments and then climbed to sessions high of 1.3370 in New York morning. However, cross selling of euro versus sterling pressured price to 1.3337 and later traded narrowly sideways for the rest of the day.

German ZEW economic sentiment and current condition indices came in at 49.6, the highest since Apr 2010, and 30.6, much better than the forecasts of 45.0 and 20.0. Euro zone ZEW economic sentiment index was 58.6, better than the expectation of 47.6. ZEW economist said 'main reason for jump in sentiment was good GDP data; inflation expectations unchanged over last month; we see a reflection of higher expectations of growth, especially for export-oriented sectors; strong surprise that Euro zone came out of recession; outlook for private consumption also improved but not as strongly for export-oriented sectors.'

Versus the Japanese yen, the greenback extended rise from Monday's low at 98.45 to 99.36 in the Asian morning. Although the pair edged lower to 99.04 in New York morning after the release of U.S. CPI (0.1% m/m and 1.5% y/y, versus the forecast of 0.2% m/m and 1.6% y/y), renewed buying interest lifted the pair to intra-day high of 99.38 due partly to the surprise U.S. net long-term TIC inflow data, which came in at $31.1 billion, versus the forecast of an outflow of $15 billions.

Although the British pound retreated from Monday's near 8-month top at 1.5963 to 1.5889 in the Asian morning on profit-taking, the pair then rebounded in tandem with euro to 1.5936 in Europe but then quickly fell to 1.5886 after the release of tepid U.K. inflation data. Month-on-month core CPI came in at 0.4% m/m, the slowest monthly increase since 2009, and 2.7% y/y, versus the expectation of 0.5% and 2.7% respectively. The Cable traded narrowly in New York session above said intra-day low and closed at 1.5904.

On the data front, U.K. RPI came in at 0.5% m/m and 3.3% y/y, versus the forecast of 0.4% m/m and 3.2% y/y whilst ONS house price was at 3.3% y/y, vs the forecast of 3.4%. U.S. NAHB housing mrkt index (Sep) came in at 58, same as the forecast.

In other news, Reserve Bank of Australia minutes stated 'board agreed to keep open possibility of further rate cuts; neither was the board signaling an imminent intention to reduce rates; Australian dollar still high, some further decline would help compensate for drop in mining investment; outlook for non-mining investment still subdued business reluctant to take on risk; strong growth in commodity exports expected to continue for some years.' U.S. Treasury Secretary Lew said 'congress should raise debt ceiling as soon as possible, could be "very dangerous" to try to time a last minute increase; would be "unworkable" to try to prioritize payment obligations if U.S. government ran out of cash; president Obama will not negotiate over debt ceiling, will not accept measures to tie debt limit increase to defunding or delaying Obamacare.'

Data to be released on Wednesday :

Australia leading index, U.K. BOE MPC minutes, Swiss Zew index, U.S. housing starts, building permits and FOMC rate decision and policy announcement.