After Friday’s poor NFP results, the greenback started the week off much the same way it went out - by losing yet more ground to the euro and the pound and the Swiss franc.
[B]Talking Points
• Japanese Yen: Eco Watcher slides for 2nd consecutive month
• Euro: Takes out 1.5800 as Trade data surprises to the upside
• Pound: Ultra hot PPI data boosts to within whisker of 1.9800
• Canadian Dollar: Housing Starts on tap
• US Dollar: Pending Homes only event risk today[/B]
Dollar Woes Continue With the New Week – Back to 1.60?
After Friday’s poor NFP results, the greenback started the week off much the same way it went out - by losing yet more ground to the euro and the pound and the Swiss franc. The EURUSD rallied as high as 1.5844 in early European trade before the failure to take out the 1.5850 barriers triggered a wave of profit taking. On the economic calendar German Trade Balance printed far better than expected at 18.7 Billion versus 15.6 forecast helping to underpin the run through 1.5800.
Despite very challenging conditions German exports managed to rise by 1.2% in April on demand from Non-EU countries. The Trade Balance news underscores Germany’s key role in fueling growth in the overall EZ economy and shows the vulnerability of the region to any potential slowdown in German output. Germany continues to be the engine that pulls Europe forward but with energy costs skyrocketing and exchange rates within several cents of all time highs the question forward is can the country’s economy sustain this pace for much longer? Latest labor data indicates that a slowdown is occurring and future numbers may not be as rosy.
In UK the PPI data printed an ultra hot reading of 1.6% versus 0.8% on a month to month comparison indicating that price pressures are in fact escalating rather than abating. If the PPI increases pass through to the consumer level, the BoE will find it very difficult to even consider the idea of rate cuts despite clear evidence of weakening consumer demand. As a result of the news cable rallied to within 12 points of the 1.9800 level and performed even better on the crosses as carry trade demand for GBPJPY lifted the pair nearly 300 points higher since the start of trade in Asia.
Finally, Swiss data also produced strong results with Swiss unemployment rate declining to 2.4% on a seasonally unadjusted level. With ECB President Trichet hinting at another possible rate hike this summer, traders are also paying careful attention to the SNB. Over the past two years, the Swiss monetary authorities have essentially shadowed their much larger neighbors and therefore there is some speculation in the market that Mr. Roth may follow suit should Mr. Trichert produce a rate hike. The SNB chairman is scheduled to speak later today at 14:00 GMT and traders will watch for any hawkish bias in his remarks. Meanwhile in a testament to tightening rate expectations, the Swissie has performed considerably better than its anti-carry partner the yen with CHFJPY cross having recently taken out a very long term resistance level at 103.00
In the North American session, the US calendar only carries the Pending Home Sales for April which are forecast to decline yet again by –0.3%. As we noted in our weekly, “If (this) week’s economic data proves as disappointing as the NFPs – the EURUSD may mount another challenge on its recent record highs.” For the time being that appears to be the path of least resistance.
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