Intraday Market Thoughts

Aussie Slumps Ahead of Chinese GDP

by Adam Button
Jul 13, 2012 1:18

The euro rebounded after falling as low as 1.2166 but sharp selloff in the Australian dollar was the big story on Thursday. The yen as the top performer. The focus will remain on AUD ahead of key releases on Chinese GDP, industrial production and retail sales. Thursdays Premium Intermarket Insights are out, starting with EURUSD.

Euro slumped in Europe but began to recover in US trading, climbing back above 1.22. The low of the day came just ahead of initial jobless claims. The 350K reading was much better than 372K expected but the Labor Department cautioned that auto plant retooling likely skewed the numbers. The mid-week July 4th holiday may have been another distorting factor.

Some good news also helped the euro as Spain announced an emergency lending facility for regions and relaxed regional deficit targets. Comments from Spains finance minister also suggested that junior bank bondholders may not need to take a haircut contrary to reports from yesterday.

Draghi said voiced a neutral bias while the ECBs Knot said there is no technical reason the ECB cant lower rates further.

Late in the session, dovish comments from the Feds Williams also weighed on the dollar.

Commodity currencies were a main focus of the session as the soft Australian jobs report spilled AUD/USD to 1.01 from has high as 1.0280 yesterday. EUR/CAD fell to a record low. As techs and black box trades sold the break, USD/CAD came under pressure.

The focus on commodity FX will continue in Asia with Chinese GDP set to be released at 0200 GMT. The economist consensus is 7.7-7.6% but the market is expecting likely priced for 7.5% due to the rate cut and soft import/export figures earlier this week. There are rumors of a number closer to 7.0%.

At the same time, June industrial production is expected to rise 9.8% y/y with retain sales expected 13.4% higher.

Disappointing numbers will weight most heavily on AUD but will spill over to CAD and other risk trades as well. If GDP can meet the consensus, there is potential for a rebound in risk trades.

The Premium Insights anticipated EURUSD to deliver a few more false rebounds before charting a gradual descent on its sub-1.20 path. The pair retested the $1.27 figure only once since its close below $1.25 in late May. Now that EURUSD has hit fresh 2-year lows at $1.2167 and the US dollar index hit new 2-year highs at 83.61, the broadening case for a higher greenback is more apparent. For DIRECT ACCESS to these Premium Insights, click here: Non Subscribers can please click here:



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