EUR/USD
The Euro was unable to make any significant headway ahead of the US payroll data on Friday with markets inevitably taking a cautious tone. There was only limited reaction to the Greek PSI deal finally being completed with some degree of caution ahead of the ISDA announcement on whether a credit event would be declared.
There was a 227,000 increase in US employment for February and there was a significant upward revision to January’s data to 284,000 which resulted in the third consecutive monthly increase of more than 200,000. The unemployment rate was unchanged at 8.3% as there was an increase in the participation rate. There were some concerns over the number of low-paid jobs, but there was still a firm underlying trend.
The mood of greater market confidence in the US outlook was sustained and there were reduced expectations that the Federal Reserve would look to announce any further quantitative easing which underpinned the dollar on yield grounds.
There was a higher than expected trade deficit of US$52.6bn from a revised US$50.4bn previously, the highest deficit for three years and the US currency will remain sensitive to energy-price moves. Yield trends tended to dominate and the Euro weakened to lows just below 1.31 before a small corrective recovery.
Late in the US session, the ISDA announced that a Greek credit event had taken place resulting in the triggering of CDS payments. There was only limited reaction, but markets will be on alert given the uncertain implications within the banking sector. There were further concerns surrounding the underlying Euro-zone situation with political pressures continuing to mount and the Euro edged slightly lower in Asian trading on Monday.
Source: VantagePoint Intermarket Analysis Software
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Yen
The dollar held steady ahead of the US payroll data with an upward bias and the currency advanced strongly following the US data. A much stronger than expected employment release helped support the US currency on yield grounds and also maintained a degree of optimism surrounding the US economic trends with the dollar rising to 10-month highs near 82.65.
The wider than expected trade deficit for China had an impact in undermining risk appetite, although the impact was offset by strong import demand.
The monthly increase in Japan’s machinery orders was lower than expected at 3.4% and there were comments from the Bank of Japan and Finance Ministry that the yen was still overvalued which maintained caution ahead of the Tuesday monetary-policy meeting with the dollar edging slightly weaker.
Sterling
Sterling initially found support below 1.5750 against the dollar on Friday and moved back to the 1.58 region, but it was unable to sustain the advance and it dipped sharply to lows below 1.57 during the US session which was a fresh 3-week low for the UK currency.
The industrial production data was weaker than expected with production falling 0.4% reversing the gain seen the previous month, although there was a marginal increase in the manufacturing sector. The producer prices data was stronger than expected and the net impact will tend to stifle demand for the UK currency as it increases Bank of England policy complications. The NIESR reported 0.1% growth in the three months to January which provided some degree of relief.
Sterling tended to be dominated by risk considerations and there was some speculation that an easing of immediate Euro-zone fears could lead to a reduction in defensive demand for the UK currency. The Euro was still unable to move above the 0.84 level.
Swiss franc
The dollar found some support below the 0.91 level against the franc on Friday and pushed sharply higher following the US payroll data as European currencies were subjected to wider selling pressure. The Euro was unable to make headway and remained trapped in narrow ranges just above 1.2050.
The National Bank quarterly monetary policy meeting will be held this week and there will be strong expectations that the minimum 1.20 Euro level against the Swiss currency will continue to be defended strongly. In this environment, there is likely to be a reduced willingness to attack the minimum level over the next few days.
Source: VantagePoint Intermarket Analysis Software
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Australian dollar
The Australian dollar retreated to below 1.06 against the dollar following the US employment data release and, although there was a limited recovery on an improvement in risk appetite, the currency was subjected to further selling pressure late in the US session.
The Chinese trade deficit and a decision by the PBOC to set the yuan sharply weaker had an impact in curbing Asian currency support on Monday and had a negative impact on the Australian currency.
There were further doubts surrounding the Australian growth outlook following the run of weaker than expected data which helped curb demand for the local currency and it retreated to lows around 1.0525.
