[B]- Japanese Yen: Carry holds firm as stock markets rally
- Euro: Strong ZEW does little good
- Pound: Hovers at 1.9700
- US Dollar: North America quiet Richmond fed on tap[/B]
Euro; Strong ZEW Does Little Good- Trapped in Range?
The ZEW survey printed at 24 vs. 16.5 the period prior reaching an 11 month high. The jump in investor confidence suggested that Euro-zone business climate continues to improve and augurs well for the second half of the year. However, after rallying the EURUSD to 1.3470 in preannouncement price action, currency traders actually sold the pair in the aftermath of the news as the ZEW results only matched rather than exceeded consensus expectations.
The EURUSD continues to meander in a 1.3650-1.3400 range essentially finding itself in a state of equilibrium. At present Eurozone data continues to post solid results but so far has not convinced the market that the ECB would be willing to raise rates beyond the 4% level expected in June. To reinforce that sentiment, German Economics Ministry warned today that a sustained euro rise would burden exports - the key sector of growth in the region - putting some pressure on the monetary authorities to retrain their hawkish impulses. In short, the ECB is likely to be quite cautious about any additional rate hikes above 4% and the realization of that fact by the currency market is beginning to weigh on the unit as traders pare down their euro longs.
In fact, only a severe deterioration in US fundamentals could drive the EURUSD to new highs. However, on that front dollar bulls hold a short term edge as the latest US economic data has provided some positive surprises. Specifically the US labor markets are proving to be far more resilient than most analysts predicted with weekly jobless claims printing below 300K barrier for two weeks in a row. The robust employment data has helped to rally US interest rates and the ten year US over Bund spread has widened to 47bps from last weeks low of 40bps providing further fuel for the dollar rally.
With little data on the economic calendar until Wednesday, the EURUSD is likely to seesaw in a familiar range for the time being. However, if US data continues to show improvement with better than expected readings in Durable Goods orders and some semblance of stabilization in the housing sector, the slow but steady decline in the EURUSD should continue.
