Intraday Market Thoughts

Emerging Market Money Floods Europe

by Adam Button
Aug 20, 2013 23:29

The euro rose to a six-month high as emerging markets continued to suffer on Tuesday. Is it a coincidence? The Swiss franc was the top performer on Tuesday while the kiwi lagged. Australian skilled vacancies are the lone item on the calendar.

EURUSD broke through the 200-week moving average and its June highs – two of the major resistance levels protecting 1.37. The rally came despite large declines in periphery stock markets.

The broader story is that emerging markets continue to struggle. Indonesia is the latest victim, with the main index falling nearly 11% in the past three sessions. India was also forced to intervene as the rupee fell to a two-year low.

There are signs that safe haven flows are headed to Europe rather than the United States. Normally, disruptions in emerging markets like the ones over the past two months would lead to a dollar rally but that hasn't happened. Questions about tapering, the Treasury rout and improved European economic data may be attracting the money to Europe.

Switzerland also appears to be benefitting. USD/CHF fell to the lowest since June on Tuesday and has been stubbornly bid recently. The Swiss banks wisely developed relationships in China and elsewhere in Asia and offshore money could be seeking Swiss safety.

The focus on stocks in Indonesia and Japan threatens to steal the spotlight in the upcoming session. The lone indicators are for Australia with the Westpac leading index at 0030 GMT and DEWR skilled vacancies a half-hour later.

Yesterday, RBNZ Governor introduced targeted measures aimed to cool the housing market. The change is a negative development for the New Zealand dollar as it likely represents a shift in ideology where the central bank tries to tackle rising home prices without resorting to interest rate hikes.

The latest Premium Insights have new trades in AUDJPY, trading notes on the existing shorts in USDJPY and a new note on GBPUSD suggesting to remain on hold for now. More trades to resume later in the week.

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