Intraday Market Thoughts

EUR Below 1.25 on Risk Assault, AUD Eyes Retail Sales

by Adam Button
May 29, 2012 23:33

A rapid assault broke against the euro and most risk assets right after the London close, driving EURUSD below 1.25. Gold lost $30 while New Zealand dollar outperformed. Australian retail sales, due later tonight, will be the impetus in Asia-Pacific trading. Tuesdays Premium Insights titled : Fading Gold & Sticking w/ EUR Shorts were revised later in the day after the rapid moves exceeded the stated entries. More details below.

Rumors were plentiful once again but solid reasons for the euro decline were hard to uncover. The euro climbed to 1.2550 early in US trading on unfounded talk that the ECB would roll out a bank recapitalization plan. The rumors grew so loud that officials were forced into a denial, which sank the euro back to 1.2525.

Shortly afterward, EUR/USD began a rapid plunge to a nearly three-year low of 1.2462. An Egan-Jones downgrade of Spain and banks repaying LTRO funds because collateral no longer qualified were variously cited but the move didnt add up. A hint may have come late in the day as the ECB rejected Spains plan to recapitalize Bankia with government bonds rather than cash.

The euro recovered as high as 1.2510 as the S&P 500 gained 1.1% but fell back below 1.2500 shortly after the US close.

Economic data was negative with US consumer confidence falling to 64.9 compared to 70.0 expected. The main index and most sub-indexes were at the lowest since January. The latest Greek poll showed New Democracy at 23.4% compared to anti-bailout Syriza at 22.1%.

The focus of Asia-Pacific trading is on Australia ahead of the June 5 RBA decision. April sales are expected up 0.2% after a 0.9% in March. The market is currently pricing in 32 bps of cuts at the meeting and this is the last Tier 1 data point beforehand. Expectations are likely to drift toward 25 bps if sales grow 0.0% or more. That should conspire to limit rate cut hopes. A strong number could make the market reconsider cuts this month and kickstart an AUD rebound.

Tuesdays Intermarket Insights, include new ideas in EURUSD, EURJPY and gold, with USDCAD and oil in progress. The GBPUSD hit all targets. For direct access to todays edition, click here: Non subscribers, click here:



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