Intraday Market Thoughts

Euro Bounces, Risk Aversion Continues, RBA Minutes Upcoming

by Ashraf Laidi
May 17, 2011 1:31

Risk aversion was the dominant theme in markets once again Monday. The Swiss franc was the top performer followed by the yen while NZD and CAD lagged. The euro popped early in US trading while the S&P 500 fell to the lowest since April 20 and closed at 1330. The upcoming Asia-Pacific session features RBA minutes.

EUR/USD shot 150 pips higher in early New York trading to 1.4240 before slipping back to 1.4177. The reasons for the gains were unclear but several theories have been floated: 1) rumours Microsoft will by Finlands Nokia 2) the EU approved aid for Portugal and Ireland 3) German Fin Min Schaeuble hinted at further aid for Greece 4) talk that French Socialists will be defeated by Sarkozy due to Strauss-Kahns imprisonment. 5) the US officially breached the debt limit.

None of those theories are particularly convincing so we will side with flows and a possible short squeeze as the chief factors. US economic data may have weighed on the USD particularly the Empire Fed, which fell to 11.9 from 21.7 (exp: 19.6). Fears are growing that a slowdown in US manufacturing will exacerbate the trade deficit and cut into growth.

Ashraf reveals some important medium-term trend changes in EUR, DXY and GBP todays Premium Piece:

The Canadian dollar struggled on Monday despite a 1.9% rise in March manufacturing shipments (exp: +1.7%). Some economists are now saying Q1 annualized GDP could be close to 5%. The forward looking measures in the report were excellent with unfilled orders hitting a record high and new orders posting the second largest gain on record. The market instead focused on a $2.60 fall in oil to $97 and comments from the BOCs Carney that were less hawkish than speculated. USD/CAD rose to the highest since March 29 and is trading just below the 100-day moving average a level that has been instrumental in capping rallies over the past 18 months.

Asia-Pacific Preview

The minutes of the May 3 RBA meeting will be released at 0130 GMT in the only meaningful event of the session. At the meeting the board left the cash rate unchanged at 4.75% and indicated it will remain on the sidelines as officials said the current mildly restrictive stance of monetary policy remained appropriate. The comment triggered a two-day drop in AUD but that reversed May 6 when the RBA foreshadowed a rate rise this year in the quarterly MPS. We know that a hike is not imminent but it will happen before year end. That still leaves a great deal of middle ground and the minutes may help to sharpen the focus on a particular month.

By A.B - Staff


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