Market Drivers for March 18, 2014
- RBA notes suggests that rates will remain neutral for considerable period of time
- EUR German court rules ESM legal, ZEW
- Nikkei 0.94% Europe -.44%
- Oil $98/bbl
- Gold $1360/oz.
Europe and Asia
AUD: RBA minutes show that rates stay the same
EUR: German court rules ESM is constitutional
EUR: ZEW 46.6 vs. 53
EUR: Trade Balance 09. vs. 12B
North America
USD: CPI 8:30 AM
USD: Building Permits/Housing Starts 8:30
USD: TICS 9:00
It's been a lackadaisical night of trade in the FX market with a mild risk-off tone coming in at mid-morning European session as traders steeled themselves for President Putin's speech to the Duma at 11GMT. Russia has now officially recognized Crimea and is now planning its first tranche of financial aid to the region. Meanwhile, the markets viewed Western sanctions announced yesterday as relatively tame and the consensus view so far is that the situation in Ukraine will remain contained for the time being. However, we've noted earlier, if Russia decides to expand its territorial claims to east Ukraine, the geopoltical situation will escalate exponentially.
Meanwhile on the economic front, the latest ZEW survey out of Germany missed its mark coming in at 51.3 versus 52 expected while expectations plunged to 46.6 from 52 eyed. The sharp drop in investor sentiment expectations was no doubt due to the uncertainty surrounding the Ukraine crisis and the possible impact on future German-Russian trade.
The EUR/USD dropped below the 1.3900 figure in response to the news and was driven even lower by the surprisingly weak EZ Trade Balance data which printed at 0.9B versus 12B forecast. However, the pair did not stay below 1.3900 for long as bargain hunters swooped in on the assumption that the worst is over in Ukraine and that the geopolitical tensions with Russia will ease over time.
In Australia, the RBA's release of its minutes caused a temporary spike in the AUD/USD during Asian session trade, taking the pair through the .9100 figure. The tone of the minutes was generally upbeat with the central bank noting that it sees a period of interest rate stability, assuming economy evolved as expected. The RBA noted that indicators were positive for consumption, housing, investment exports and business conditions suggesting that the recovery Down Under is well on its way.
The Aussie retraced some of its gains, but remained well bid for the rest of the night as investors continue to view the pair favorably on the assumption that its interest rate cutting cycle is over. If risk flow returns to the market, the AUD/USD could recapture the .9100 level and make a move on the .9200 figure as the week proceeds. Meanwhile .9000 appears to be solid support for the time being.
In North America today, the calendar is once again relatively subdued with only CPI and housing data on the docket. The market expects inflation at the consumer level to remain tame at 0.1% while Building permits are forecast to inch slightly higher to 0.97M units from 0.94M the period prior. Barring any unexpected geopolitical news, the tight ranges of yesterday are likely to continue for the second day in a row.