Burn, baby, burn! The euro got burnt at the stake yesterday, as it got torched versus all its major counterparts. EUR/USD dropped 112 pips to finish at 1.2946, while EUR/JPY sank to new lows at 99.32, marking a 74-pip loss on the day.
There were actually a couple of factors that caused the euro’s demise yesterday.
First, the CPI report showed that inflation died down a bit from 3.0% in November, to just 2.8% last month. Some feel that this could give the ECB more room to cut rates once again sometime later this year.
Second, German bond auction results were as disappointing as Ryan Reynolds acting career. While yields on 10-year bonds were at a somewhat acceptable 1.94%, Germany was only able to sell 4.05 billion EUR worth of bonds, way short of its target of 5.0 billion EUR. This goes to show that even though Germany may be the kingpin of the euro zone, there is still some concern as to how “safe” its bonds are.
Third, we also received data that showed that banks have deposited up to 453 billion EUR in the ECB’s deposit facility, which was a new record high. This indicates that instead of pouring cash into the economy, banks are just using the ECB’s offerings and loans to help shore themselves up. That ain’t good at all!
Tying this all up, along with a pullback in risk taking yesterday, was a recipe for disaster for the euro. With a couple of second tier reports scheduled for release today, can the shared currency bounce back today and bust a cap on the rest of the major currencies?
At 7:00 am GMT, German retail sales figures will be released. Word is that after declining by 0.2% in November, sales order may have risen by 0.2% in December.
Later on at 10:00 am GMT, euro zone industrial new orders data is expected to show that orders rose by 2.4%. This would mark a sharp improvement from the -6.4% decline we saw the previous month.
Should these two reports come in better-than-expected, it may help the euro get back on track and erase some of yesterday’s losses.