Macro morning: Europe sours

See the latest Australian dollar analysis here:

Australian dollar drops as RBA talks it down

The euro and the Aussie came under some pressure overnight as the former continues to be buffeted not just by Cyprus but also the Italian political impasse and weak European data while the latter continues to do well on the crosses but just couldn’t hold the up trend under the weight of negativity thatis just enough to stop the buying for the moment.

Looking first at Europe there was no denying the mess with the Italian bond auction going relatively poorly and the spread of Italian bonds over German bonds at its highest this year. The trouble stemmed from the honesty of the man who hopes to lead the Italian parliament Pier Luigi Bersani saying that there is little chance of a broad coalition being formed. This means that at some point the Italian president is going to have to ask for another election and the polls suggest that Beppe Grillo and his team will come out of the next election further enhanced and thus more likely to be Eurozone negative.

Adding to this political tone and the inevitable Italian election that it suggests was the data out across the zone. German Gfk consumer survey was unchanged at 5.9 but French GDP for Q4 slipped to -3% from 0.1% last, Spanish retail sales are still down 8% YoY and Italian Industrial orders fell another 1.4% in January after December’s 0.5%. UK GDP for Q4 2012 was down 0.3% as expected and Bloomberg reports that the BoE said that British banks have a £25 Billion Capital Short Fall.

Not to mention the looming opening of the Cypriot banking system and the capital controls that comes with nor the weakness displayed in the Eurozone Business climate, consumer confidence economic sentiment, industrial confidence and services sentiment that were also released last night and paint a picture of a zone that is in dire economic straights.

So as you can see in the chart above the euro remains under pressure trading down to a low of 1.2750 from the days high at 1.2867. It sits at 1.2771 at the moment. As you can see in the chart above there is nothing in this technical outlook that suggests the euro is not going to trade down toward our target of 1.2650.

This put European equity markets under pressure and even though the entry of the US markets and their rally from the opening lows helped rescue Europe from the worst of its price action at the close European markets were universally weaker. The FTSE fell 0.18%, the DAX was 1.15% lower, the CAC dropped 0.98% and Spain and Italy were under pressure once again falling 0.92% and 1.13% respectively. US stock markets they opened weaker on the lead from Europe but recovered with Dow ending down 0.34%, the S&P 500 lost just 0.05% while the Nasdaq managed to rally 0.14%.

Turning back to FX markets, the Aussie dollar was a little lower slipping down through the up trend line it had been trading on since the lows around 1.0110ish recently.

The Aussie made a low of 1.0415 before rebounding to 1.0442 with the recovery in North American stock markets late in the day. We’ll see how the Aussie goes over the course of the last 24 hours of trade before Easter but players may be reluctant to sell aggressive (at least to get short anyway) as it is an expensive carry over the Easter break as Australian banks aren’t back until next Tuesday.

Based on our usual indicators it does look like the Aussie is biased lower. Last night’s low was just above the 61.8% retracement of the post employment rally and a break down through there would call for a full retracement back to the start of the rally at 1.0360ish and a usual pullback of 38.2% of the larger rally from the lows at 1.0110ish offers 1.0340ish as support. So that is both our target and support zone for the moment.

Turning to USDJPY this continues to intrigue US with the persistence of strength but the  slow breakdown in the up trend. I am targeting a move back toward this week’s lows at 93.55 and then we’ll see but 90.90 is not beyond the realms of possibility.

On commodity markets Nymex crude was a little higher up 0.25% to $96.58 but off its highs. Gold is back aboe $1600 with the Eurozone troubles in the headlines again but its not exactly roaring is it. It sits at $1604 oz while Silver is at $28.54 oz. Corn and soybeans were both up a little under 0.4% and wheat rose 0.78%.

Data

Obviously we’ll be having a few days off over Easter and so will most markets – but not all.

Today in Australia we get TD inflation and Private Sector Credit. Retail sales and unemployment in Germany tonight before Italian business confidence. In the US GDP is out for Q4 along with jobless claims and the Chicago PMI

Happy Easter everyone.

Twitter: Greg McKenna

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Comments

  1. Wait until the banks open, there is going to be a drain of funds no matter how hard they try to put measures in place.

    As far as I know it’s later today they will open. Russians I am sure will do everything within their power to draw as much out as possible, even if they have to take money out everyday to clear their accounts.

    • Deus Forex Machina

      Yeah and can you imagine how it is going to play on Telly – the media will beat this into a frenzy. Cyprus is not settled by any stretch in terms of impact on Europes Citizens.

      Cheers

      Greg