Intraday Market Thoughts

EUR @ 55 dma, Weale Remains Hawkish, Chinese CPI Upcoming

by Adam Button
Jun 13, 2011 23:26

EUR Shrugged S&P's downgrade of Greece to CCC & closed at its 55 dma.GBP made gains throughout US trading on technical buying and a further commitment to hike rates from BOE hawk Martin Weale. The NZD continued to lag but recouped most of its post-quake losses. The. focus now shifts to the monthly data slate from China and the Bank of Japan interest rate decision.

Weale noted softer data recently but said there are significant risks in delaying interest rate hikes. He sees a substantial risk the CPI will surpass 5% this year. The bulk of the BOE remains committed to low rates and the OIS market is pricing in just 26 bps in hate hikes for the next 12 months. Kyle earlier mentioned major support in cable at 1.6175 and that area provided a springboard as the pair shot to 1.6376. The move forms a bullish reversal on the daily chart.

Overall risk sentiment was volatile and volumes were low. Stocks opened higher before falling to a three-month low and then closing fractionally higher. The euro rebounded from earlier losses despite to an S&P downgrade of Greece and closed above 1.44 after falling as low as 1.4320. Trichet boosted the currency by emphasizing that any action for Greece must not trigger a credit event. Commodities were weak with oil falling oil falling $2 to $97.30 and Gold down $5 to $1525.

Asia-Pacific Preview

The Chinese slate of economic data will be released at 0200 GMT. The main focus will be CPI but industrial production and retail sales will drive trading as well. The CPI is expected to climb to 5.5% in May from 5.3%. A report today in the China Securities Journal suggested inflation could peak at 6%. The high readings put pressure on policymakers to respond with interest rate hikes, CNY appreciation or raising bank reserve ratios all options will cool global and domestic growth. April trade figures suggested slowing imports and this could feed through to industrial production which is expected to decelerated to 13.1% y/y from 13.4% y/y. Retail sales are expected at 17.0% y/y. The overall tone of the various reports will be the main driver of trading in the day ahead. Low inflation and strong growth would benefit risk trades and commodity currencies and vice versa.

Japan will also be in focus due to the Bank of Japan rate decision. There is no set time but it is usually announced around 0300 GMT and followed by a press conference. No change from the 0.10% rate is expected. Nikkei is reporting that the BOJ may introduce a new low-interest lending program or expand on the current program. New measures could weigh on JPY and help boost broad sentiment but overall trading will likely be overshadowed by China. At 0430 GMT Japan will also release industrial production with a 1.0% rise expected.

SEASONED MARKET PARTICIPANTS may have have learned that BoJ monetary policy decisions to further ease policy have usually resulted into YEN STRENGTH and NOT yet weakness, with the interpretation that the action has been priced in the market. PROCEED CAREFULLY after the decision.


Latest IMTs