Market Drivers for January 27, 2015
Europe and Asia
AUD: NAB Confidence 2 vs. 1
GBP: GDP 0.5% vs. 0.6% eyed
North America
USD: Durable Goods 8:30
USD: New Home Sales 10:00
A choppy night of trade in the currency market as the euro was whipsawed by price action in EUR/CHF which saw a flurry of activity in early European dealing off comments by Jean Pierre Danthine the number two official at the SNB. Mr. Danthine stated that the SNB stands ready to intervene in the currency markets noting that the forex market has not yet stabilized.
The market had delayed reaction to his words, but once European traders arrived at their desk EUR/CHF quickly skyrocketed to 1.0305 only to then fall sharply to 1.0100. As some traders noted, the pair was at one point untradable with dealers quoting bid/ask spreads 100 pips wide.
The volatility in EUR/CHF spilled over into the EUR/USD with the pair spiking to 1.1345 before falling back below the 1.1300 figure. The fallout from the SNB de-pegging is clearly not over and nearly two weeks after the event markets remain turbulent although it appears that EUR/USD may be in the process of building a bottom at the 1.1100-1.1200 level.
Meanwhile in the UK, the GDP data missed its mark as the Q4 preliminary figure printed at 0.5% vs. 0.6% eyed. Growth in the UK remains relatively robust but the pace has clearly slowed and now puts into question the resolutely upbeat rate forecasts by the BOE. With inflation non-existent due to the collapse of energy and commodity prices and activity slowing down, the prospect of BOE rate hikes any time this year looks distinctly remote.
Cable generally shrugged off the news, dropping only 25 pips on the report, but if the GDP readings are not revised upward, traders will become considerably more cautious about the pair. One key factor that the market may be underestimating is the massive decline of wealth in Russia and the knock-on effects of that dynamic on the UK economy. If the pair breaks below the 1.5000 level it could test 1.4800 in the foreseeable future.
In North America today the calendar is relatively light with only Durable Goods and New Home Sales on the docket and dealing may be hampered by the weather conditions that have blanketed much of the East Coast in a foot of snow. Any upside surprise could help USD/JPY which has been stuck in the 117.00-118.00 range for the better part of two weeks and the pair continues to consolidate above the 115,00 level.