Euro falls, Aussie breaks uptrend as Europe still a mess

The Euro remained under pressure overnight as the concerns over Cyprus gave way to concerns over Italy as the impasse between the parties and the inability to form a Government saw the Italian bond auction attract less bids and higher yields then had been anticipated.

Bloomberg reports that the Italian 10 year spread to German bounds is the widest it has been this year. The back story is that putative Italian PM Pier Luigi Bersani said their was no chance of a broad coalition to end the deadlock in Italian politics at the moment and Italian retail sales were weaker than expected for January down 0.5%. The 5 year Italian bond auction went at 3.65% and the 10 year bond auction went at 4.66%. Hardly huge or punative rates but Spanish and Greek bonds were also under pressure relative to the rate of the core German markets.

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.

Also in FX Land overnight the Aussie and GBP were under pressure and USDJPY looks like it is trying to slip lower as it walks down through the uptrend line that has been driving this rally for a few months now. Sterling sits at 1.5126 this morning after trading through a 1.5181-1.05092 range. USDCAD had a positive day up 0.05% but it couldn’t hold the gains from earlier and still looks biased lower.

Looking at the Aussie Dollar we see a currency that is outdoing all and sundry. It is more than holding its own against the US dollar. It it smashing the Euro and Pound with EURAUD at 1.2235 its lowest level since November 2012 and GBPAUD is back near its recent lows. It is a good performance in context and does speak of money flowing into Australia to get away from Europe. We know the troubles of the European banking system and we know that the Dutch Finance Minister has put the onus back on the banks and their Governments now to fix their own back yards as a first port of call and with little chance of being bailed in in Australia the Aussie is the beneficiary, even if it is at margin.



But as you can see in the chart above that didn’t stop the Aussie from slipping down below the uptrend line that has been driving it making 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 though it does look like the Aussie is biased lower. Last nights 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 uptrend. We are targetting a move back toward this weeks lows at 93.55 and then we’ll see but 90.90 is not beyond the realms of possibility.

Looking briefly at 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%. In Europe the weakness abated around the middle of the day when the US markets entered the fray but that didn’t stop the Stock market being universally lower. 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.

Stocks could be interesting into the close of the week tonight given that 4 days of Easter holidays.

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 bouth 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


Thoughts, comments, queries together with frank and fearless feedback all welcome. I’m happy to answer questions or comments on the comment stream wherever I can.

NB: Please note all references to rates above are approximate and should not be used for trade reference.

Happy Easter everyone.