NEWS / Foreign Exchange

Waiting for data pays off

• US Treasuries cautiously higher on poor data
• Spanish housing market crashing?
• Waiting for data pays off
• More doubts on the US economy

The EUR/USD pair yesterday really was going nowhere and was taking its time to do so, as prices were virtually unchanged and the session seemed to go in slow motion without any news to push things even intraday.

The first release of the day of any interest was the Belgian business confidence, which rebounded to 3.8 from 1.4 the prior month, which is a good omen for the whole of the euro zone. (Today??™s German IFO has to confirm this of course).

Then the US data came and let??™s not beat around the bush: these disappointed clearly. The S&P/Case Schiller home price index showed an acceleration in the decline of house prices. Sales of existing homes dropped by 8.4% M/M and US consumer confidence dropped from a downwardly revised 108.2 to 104. To top it off, the Richmond Fed survey couldn??™t even rebound after several soft showings and instead deteriorated from ??“10 to ??“11. This set off a new sell-off wave in the USD across the board. EUR/USD rose sharply from the 1.3580 zone to the 1.3630area.

Still, this is not a break above the 1.3660 zone record highs yet, but the trend is obvious as the market players are drawn to this level to go for at least a test.

Recent price action in EUR/USD has been one of buying on dips into the euro. The downticks in this EUR/USD pair never have lasted long over the past weeks. The upmove since early March from the 1.31 zone to the 1.36 area has even been impressive and without much counter movements. The pressure remains to the upside apparently.

USD/JPY went nowhere yesterday, as the day started in the proximity of the mid 118??™s and closed in that area as well.

But what about the US data I hear the reader asking?! Indeed, as explained in some detail above (and in greater detail in the news part of this report), in the afternoon, the US data came out below consensus and this gave a fresh bout of dollar selling. This was also the case in USD/JPY, but this pair had gone up beforehand to the 119 area and so the dollar selling only brought down the pair to the morning??™s levels at the mid 118??™s??¦

This morning, some attempts to more yen strength were seen, as the Japanese trade data were very strong. Especially eye catching is the fact that China became nr.1 export country (overtaking the US!), as the Japanese profit from a yuan strengthening against the dollar while the yen has weakened over the past years against the same dollar, doubling the impact??¦

The highlight of the week remains Friday morning??™s Japanese BOJ meeting and its new forecasts, especially for inflation. As we see a risk for a downgrade on that front, so would any rate hike expectation be definitely frozen during the spring and summer. That would be yen negative. The dollar is in no place to really fight back, but that should then translate into more sideways oriented trading between the 122 and 115 zones in this pair.

The EUR/GBP pair ticked up again yesterday, as the euro was in good shape. The pair moved above the 0.68 mark.

Yesterday, the UK CBI industrial trends report however showed that recent interest rate increases and the strength in GBP/USD are not yet affecting demand, as the growth in new orders is strong and businesses are able to restore profit margins. Such good news however (again) isn??™t able to help sterling.

As a consequence of this inability to gain on good news (and there was so many recently...), we already turned more neutral on this pair. We now first want some signals that things are cooling down in the EMU/euro momentum and to be honest, the EUR/USD pair hasn??™t shown much inclination to go downward, but for small periods of one to two sessions lately??¦Today??™s IFO in that respect will be interesting to see if the EMU growth momentum is maintained.

As the market also sees more and more chance of an ECB continuing to hike beyond June, the euro finds itself well supported. As long as that is the view, there is little chance of the sterling making a sustained comeback, especially as we fear that the Bank of England could be closer to the end of its cycle for now than many in the market anticipate??¦