The RBNZ recently intervened as it felt the kiwi is overvalued. The EUR/USD remains in the desperately boring 1.3050-1.3150 zone for now.
Yesterday at the debate/dialogue between the French and German finance ministers, Germany’s Schaeuble indicated a softer stance on the EU banking unions, suggesting that it wouldn’t require a treaty change to move toward a coordination of bank closure policies.
U.S. Consumer Credit data reported late yesterday was very weak relative to expectations, and was only positive due to student and car loans. Interesting to note that the revolving credit data (generally credit cards) has been flat-lining since early 2011 - a classic symptom of the non-recovery in U.S. consumer spending habits, at least credit-financed ones.
If you missed it Monday, Zero Hedge was also out with David Rosenberg’s latest piece, in which he declares his “divorce” from his 25-year marriage/love affair with government bonds and discusses the poor quality of the recovery and the “Potemkin Rally” in asset markets with possible incipient signs of inflation – a must read.. Bond markets did stage a remarkable reversal (sell-off) recently, but more is needed before we can call a trend reversal, and calling such a reversal is difficult as long as central banks remain such active buyers.
In New Zealand, the RBNZ’s Wheeler said that the central bank had sold NZD and would do so again as governor Wheeler said the currency is overvalued. The plot has most certainly thickened for kiwi traders as New Zealand tries to engage in the “currency wars”.
The AUD/USD perked up a bit overnight after the positive trade balance numbers out of China, but more likely due to the AUD/NZD buying as that pair failed to get further downside momentum after an initial sell-off attempt and after overnight developments in New Zealand.
Looking ahead
Watch NOK crosses with the Norges Bank on tap early this afternoon. I’m sympathetic with the outlook for an interest rate cut, but considering how much the EUR/NOK has moved off the lows, I wouldn’t be surprised (considering domestic housing bubble issues, etc.) if the Norges Bank feels that it can keep some of its accommodation in reserve. If they don’t cut, NOK is likely to move rather sharply in either scenario, as the market is very divided on whether they cut. 7.65 looks like a key level in the EUR/NOK, as this level was the higher in early 2012 that the market tried and failed to take out two weeks ago. To the downside, 7.5750 is important support. I generally favour a further rally, with the obvious risk of a large hiccup if the bank doesn’t cut today.
Watch out for the New Zealand employment report up tonight after the revelation that the RBNZ has been out intervening. Poor numbers could see a disorderly further decline for the near term. We’ve also got Australia employment data in the Asian session tonight.
Tomorrow we have the BoE: nothing expected there with a stronger than expected GDP report for Q1, and a couple of other strong data points.
Tactical outlook
EUR/USD: looks weak if it stays below 1.3120, but needs sub 1.3070 to get a test of the endless support zone down to 1.3000 in motion. Still want eventual downside resolution – but it’s taking its time and not sure what the catalyst will be!
GBP/USD:looking for a test of the 1.5450-1.5400 zone ahead of the BoE tomorrow – resistance at 1.5500/10
EUR/CHF: looking for a follow up move that takes out 1.2350 after deflationary CPI figures today threaten a more activist SNB. If not, we risk range-bound limbo for a while longer.
USD/JPY – coiling in a shrinking range – keep an eye on this one. Saw a new three day low overnight, but this failed to hold. Watch that Asian low at 98.65 for possible run on stops. Upside range extends to above 99.00 with 100.00 the magic figure much higher.
AUD/USD – daily pivot at just above 1.0200 so far holding – needs to stay in place to keep short term downside momentum – looking at that 1.0155 area low for next targets – especially a go at parity eventually.
NZD/USD – devastating move overnight – some room for consolidation, but momentum opening up for a go at 0.8200 with 0.8400/25 as the first resistance zone. Note trend-line in the chart as well.
Chart: NZD/USD
Note the 55-day moving average and 0.8360 area support in play, and then the 200-day moving average and ascending trend-line quickly in play on a break lower.
NZD/USD" title="NZD/USD" width="455" height="293">
Economic Data Highlights
- China Apr. Trade Balance out at +$18.16B vs. $16.15B expected and -$0.88B in Mar.
- Switzerland Apr. CPI out at 0.0% MoM and -0.6% YoY vs. +0.1%/-0.5% expected, respectively and vs. -0.6% YoY in Mar.
- Germany Mar. Industrial Production (1000)
- Norway Norges Bank announces deposit rates (1200)
- Canada Apr. Housing Starts (1215)
- US Weekly DoE Crude Oil and Product Inventories (1430)
- New Zealand Q1 Unemployment Rate and Employment Change (2245)
- China Apr. CPI and PPI (0130)
- Australia Apr. Employment Change and Unemployment Rate (0130)