Intraday Market Thoughts

EUR Regains 1.31, RBA Likely to Cut

by Adam Button
Feb 7, 2012 0:30

Disappointment about the lack of a Greek deal was short-lived as the euro rebounded back above 1.31. On the day, moves were very small across the board. There is considerable uncertainty about the RBA rate decisions but the market is favouring a cut. Ashrafs latest Intermarket Insights include trades on AUDUSD, AUDNZD, EURUSD and oil, as well as charting FX and commodity performance since the Dec 20 LTRO.

The euro rebounded in early North American trading, shrugging off losses precipitated on the lack of a deal in Greece. Papademos met with the Troika and has scheduled meetings with coalition partners on Tuesday in hopes of passing the austerity measures required for another round of bailout funds. Some measures already appear to have support, including 15,000 public sector layoffs. EUR rebounded from a rumor that Portugal has sought out advice on how to handle a potential debt restructuring. Officials denied the report.

Economic data was light with Canadas Ivey PMI as the lone indicator. It climbed to 64.1 from 59.7, the highest since last May.

Questions about quantitative easing continued as the Feds Bullard (non-voter) indicated he would not support another round unless there was the threat of deflation and a significant economic deterioration.

RBA Preview

A busy week of tough central bank decisions begins in Australia where the RBA will announce rates at 0330 GMT. The OIS market is pricing in an 82% chance of a cut to 4.00% from 4.25%. The market is also seeing the chance of a dovish statement with another cut on March 7 priced in at 25%. Mondays retail sales data underlined a slowing economy and jobs reports have deteriorated but if there is a risk it is that the RBS isnt as dovish as expected.

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