By FXEmpire.com
EUR/USD traded in the 1.32 area at the open of the Asian markets. However, soon it became clear that the new trading week was going to start with a risk-off day. The Chinese HSBC manufacturing PMI stayed below the 50 mark and there was a lot of market talk about political developments in Europe. The victory of French socialist candidate Hollande was not a big surprise, but the election result of the far-right candidate was also seen as illustrating a public rejection of the EU induced austerity policy. A similar conclusion can be made on the fall of the Dutch government as it failed to agree on new austerity measures. So, the euro was under pressure from the start of trading in Europe. The sell-off accelerated as the advance reading of the EMU April PMI came out much worse than expected. This was not only the result of a poor performance of the peripheral countries. The results from the likes of France and Germany were also much weaker than expected, illustrating that (the lack of) growth is a key issue for Europe. EUR/USD reached an interim low in the 1.3135 area after the publication of the PMI’s. From there, the pace of the decline slowed temporary.
However, European equities stayed under heavy pressure and risk-off sentiment pushed German 10yr yields toward the 1.63% historic low. A new selling wave in the markets of risk assets late in Europe pushed EUR/USD to an intraday low of 1.3105. From there, the sell-off eased. We didn’t see one specific factor, but finally the risk-off move slowed in almost all markets at the same time. EUR/USD succeeded a rebound too. The pair closed the session at 1.3153, compared to 1.3219 on Friday evening. Given the force of the move in several other markets, the losses of the single currency were not excessive at all. Uncertainty on the dollar ahead of the Wednesday’s Fed decision might be a factor to explain the relative resilience of the euro against the US dollar. On Monday, the sell-off of risky assets weighed also on the USD/JPY cross rate. A first down-leg occurred already early in Asia. A second wave kicked after the start of trading in Europe. Selling from the EUR/JPY cross rate reinforced the decline. USD/JPY reached an intraday low in the in the 81.00 area early Europe. From there the pair held a tight sideways trading range and avoided further losses even as the risk sell-off was extended early in US trading. We didn’t see any specific reason to explain the relative resilience of USD/JPY. However, investors are probably cautious to be too much long yen ahead of Friday’s BOJ meeting. A strong yen might put the Bank under pressure to take bigger steps in its anti-deflation strategy. USD/JPY to close the session at lows at 81.18, compared to 81.52 on Friday.
This morning in Asia, sentiment on risk remains fragile. Most Asian markets are in negative territory, but the losses are no exceptional given the moves in Europe and the US yesterday. USD/JPY set a correction low at 80.86 this morning, but the reaction low at 80.30 stays out of reach. Risk sentiment remains an important factor in this cross rate, but for now, we see more wait and-see behavior in the run-up the Fed meeting and Friday’s BoJ meeting However, the risk of more BOJ easing should keep the downside of USD/JPY well protected
On Monday, EUR/GBP followed the broader decline of the single currency. However, contrary to what was the case for EUR/USD, the EUR/GBP didn’t succeed a rebound as the risk sell-off slowed later in the session. There were no important eco data from the UK.
Yesterday, the intraday trading pattern of EUR/GBP was very much in line with what happened in EUR/USD. Political issues in Europe
and a poor EMU PMI weighed on the single currency, also against sterling. However, the EUR/GBP cross rate didn’t join the correction on global markets late in Europe and further out in US trading. EUR/GBP regained hardly any ground. Sterling was already in pole-position and remains an outperformer. EUR/GBP closed the session at 0.8155, compared to 0.8197 on Friday evening. Later today, the March UK public finance data will be published. They have intraday market moving potential. We don’t have a strong view on outcome of the report. Budget data are still important, but with the BoE potentially at ‘Uturn’ in its policy, we assume that activity data are more important. In this respect, we look out for tomorrow’s UK Q1 GDP. The technical picture of EUR/GBP has deteriorated and the news flow will probably remain more supportive for sterling than will be the case for the euro. We maintain a negative bias for the EUR/GBP cross rate
Click here for updated EUR/GBP News.
Originally posted here
