GBP/EUR 1.1938 (0.8377)
The data calendar thus far this week has lacked any major volatility inducing releases and as such major fx pairs have been subject to larger dominant risk trends. The situation in Crimea continues to simmer away in the background, while markets are certainly cautious of the situation we have yet to see an all out run from risk like we did last Monday. In fact in yesterday’s afternoon session market appetite picked up helping to lift US equities from early declines to close flat.
The positive tone carried through into the overnight session from Asia where a 25 bps increase in the RBNZ benchmark interest rate to 2.75% helped lift NZD and its neighbouring AUD. The signal of tightening from the RBNZ and a bumper jobs report from Australia providing indications the slowdown in the region may have bottomed out. Australia added some 47,300 jobs in February; the largest monthly increase in 2 years, there was a 80,500 surge in full time employment, the largest increase since 1991.
Data from Australia has tended to be to the upside lately, however its exposure to China and concerns about its growth may still provide barriers for AUD going forward. Chinese data continues to miss expectations, last night’s miss in industrial production and retail sales both missed considerably lower printing 8.6% and 11.8% respectively versus 9.5% and 13.5% expected.
Not surprisingly with the positive tone in the market our safe haven currencies, the USD and JPY, faced declines as risk appetite recovered. The EUR was another notable strong performer yesterday reversing Tuesday’s gains pushing EURUSD to fresh 2.5 year highs. We warned yesterday that in the face of light data ECB speakers had the ability to drive the currency however conflicting comments to Tuesday’s dovish tone has seen traders scale back expectations of ECB action. EURGBP broke through the 2014 high, looking to trade back towards .8400.
The European calendar remains extremely thin on the data front, the ECB will publish their monthly report but this is unlikely to hold any surprises from last week’s ECB meeting and what has already been said by ECB speakers this week.
This will bring our focus to the US market and Feb retail sales figures, due to show growth of .2%, from declines of .4% in January. There will also be weekly jobless claims data printed although these are expected to have ticked up marginally from last week. The fact the USD can only strengthen in times of global stress is slightly concerning as the Fed appear to have convinced markets that tapering is not tightening, we would have expected to see USD continue to firm with each taper but the USD index is now back to October levels and not far off key support.
The Fed’s Fisher will be in front of the Senate today although his statement was released yesterday and conformed to recent Fed rhetoric. Fisher was formally Governor of the Bank of Israel and a top official at the IMF and World bank, he has been a vocal supporter of policy normalisation in the US. If we get strong retail sales and a positive Fisher the USD has scope to rally.