DAILY EU FX WRAP: USD-index pares back the bulk of the day’s gains as disappointing US data continued, boosting major pairs across the board, with CAD strengthening further amid bullish outlook from the BoC
The bulk of the price action overnight was observed across antipodeans as weak Chinese data confirmed slowing expansion expectations in the region. AUD led the declines as AUD/USD and AUD/JPY broke below the 0.7600 and 91.00 handles respectively with downside also stemming from disappointing Australian consumer confidence data.
During the European morning, the USD-index extended on gains seen overnight to pare back losses inspired by yesterday’s sharp miss in US Retail Sale, leading EUR/USD lower and consequently seeing EUR/GBP make a technical break below 0.7200. GBP/USD continued to be weighed on by political concerns as the latest YouGov and Sun poll showed; Lab 35% vs. Con 33% compared to yesterdays’ poll which indicated Lab 34% vs. Con 33%.
However, data out of the US dragged the USD-index back into the red, with US Empire Manufacturing turning negative (-1.19 vs. Exp. 7.17) and the New Orders Index component coming in at its lowest in over 2 years. Furthermore, US Industrial Production posted its biggest decline since August 2012 (-0.6% vs. Exp. -0.3%), adding further to the negative sentiment in the greenback. Given the broad-based weakness in USD, major pairs moved higher across the board, with EUR/USD pulling away from multi-year lows alongside a minimal reaction to the ECB press conference. The press conference provided little surprises, however Draghi maintained that the ECB will continue to support Greece with ELA funding assistance, adding that the governing council have discussed Greek haircuts in the meeting and will revisit it in the future.
Also of note, the BoC kept rates unchanged at 0.75% as expected, with the monetary policy report showing the BoC expect ramifications of lower oil prices to fade towards the end of 2015, adding that risks to their inflation forecasts are currently 'roughly balanced' and boosting estimates for Q2 and Q3 growth. As such, CAD found firm support, leading USD/CAD to break firmly below 1.2500 in tandem with the sustained weakness in the USD. NZD came under some immediate selling pressure after the Fonterra Milk Auction showed a second straight decline in its GDT price index (-3.6%), while its Whole Milk Powder price index posted a third consecutive slump (-4.3%). Heading towards the European close, a markedly lower than expected build at the DoE report (1.29mln vs. Exp. 3.6mln), which was also less than yesterday’s API figure (2.6mln), sent oil prices surging higher, consequently bolstering sentiment in commodity-linked currencies, with CAD extending on gains vs. USD and antipodeans continuing their upward trend.
Looking ahead, the slew of US data continues, which will see US Jobs sector, Housing market, and Philadelphia Fed Business outlook data all reported tomorrow. Moreover, a flurry of Fed officials are due on the speaker slate, with Fed’s Lacker, Lockhart, Mester, Rosengren and Fischer all hitting the wires. Finally, ECB’s Constancio could provide further insights following today’s ECB press conference and German Finance Minister Schaeuble may shed light on Germany’s latest stance on Greece.