Intraday Market Thoughts

EUR Drops Below Jan Trendline, Risk Aversion Widens

by Ashraf Laidi
Mar 6, 2012 14:19

EURSD drops below its January trendline support, now nearing the 55 dma of 1.3070s. RBA keeps rates unchanged; IIF estimates damage from Greek default at EUR 1 trillion; UK Halifax declines; second reading Q4 Eurozone GDP unrevised; ECB deposits at fresh record high. No data from the US as the country gears up for "Super Tuesday". Canada Ivery PMI next.

EURSD drops below its January trendline support, now nearing the 55 dma of 1.3070s, which coincides with the 1.3050s--50% retracement of the rally from the January low. The greenback is stronger against all majors with the exception of JPY. European equity indices are losing about 1% and the relative strength winner is JPY while NZD lags.

Commodity dollars continue to be under pressure together with gold and other metals on the back of Chinese growth concerns. The pressure increased further on the Aussie after the RBA left rates unchanged in line with expectations. The dovish statement stressed scope for lower rates should demand conditions weaken. In three months time, markets are pricing 27 bps of rate cuts today compared to 23 bps on Monday. AUDUSD trades around 1.0595.

Sentiment worsened today further on report that IIF projects that Greek default would result in liabilities exceeding EUR 1 trillion and required assistance to Portugal, Spain, Italy and Ireland. Earlier reports that Greece would delay PSI decision to 3/14 proved inaccurate and the decision will be made on 3/8.

UK Halifax house price index declined in February 0.5% m/m and 1.9% y/y which is lower than market expected.

Second estimate of Eurozone Q4 GDP was unrevised at -0.3% q/q and 0.7% y/y. However, Eurozone Q4 household consumption dropped 0.4% from previous 0.3% growth.

ECB deposit facility reached a new record high yesterday at EUR 827.5 bln.

The only report that is due during the NY session today is Canadian Ivey PMI that is anticipated lower in February at 62.1 from previous 64.1. The employment sub index declined dramatically in January to 55.2 from December's 60 so today's report may receive more attention than usual as traders will use it to predict Friday's Canadian labor data.

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