We have updated our privacy policy and terms & conditions. Find out more here.
18
 

What's Driving Today's Selloff?

By  |  Forex  |  Mar 27, 2013 02:19PM GMT  |   Add a Comment
 
AA
+
-
With U.S. stocks opening lower and European equities under significant pressure, the selloff in currencies is consistent with a return of risk aversion. The weakness this morning was kicked off by softer euro-zone data, which shouldn't surprise our readers since we warned in our note last night that the Italian elections in February and Cyprus problems would weigh on sentiment. This morning's U.S. economic report also failed to ease the pain with pending home sales dropping 0.4% in the month of February after rising a downwardly revised 3.8% the previous month. While January was a very good month for the U.S. housing market, existing, new and pending home sales all gave back some gains in February. Both the U.S. dollar and the Japanese Yen have been big beneficiaries of the shift in risk appetite. Looking ahead if we don't get any good news from Thursday's German retail sales and unemployment numbers, the EUR/USD could find itself trading below 1.27.

Template Fear
Meanwhile the market is still talking about Cyprus and whether it will be a template for future bailouts. Based on the big moves in German bonds, it is clear that investors in Europe are turning to the bonds of the strongest euro-zone economy for safety. Ten year German bund yields are trading at its lowest level since August. We don't expect much recovery in currencies during the North American session. Four Federal Reserve President are scheduled to speak today but only one is a FOMC voter. Between Rosengren, Pianalto, Potter and Kocherlakota, Rosengren's comments are the only ones that carry the most weight and he is usually dovish so don't be surprised if he echoes recent comments from Dudley who called on the Fed to keep monetary policy "very accommodative."

Finally, the Canadian dollar reversed its earlier gains after hotter than expected consumer prices. CPI jumped 1.2% in the month of February, which was the strongest increase since 1982. Annualized price growth increased by the same amount while seasonally adjusted prices rose by a more modest 0.4%. For the Bank of Canada, higher inflationary pressures will encourage them maintain their hawkish bias. Between the recent rise in oil prices and stronger data, the CAD has risen to a one-month high.

Kathy Lien, Managing Director of FX Strategy for BK Asset Management.
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data .

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

Add a Comment

 

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

EUR/USD
 
 
 
Are you sure you want to delete this chart?
 
 
 
Are you sure you want to delete this chart?
 
 
 

Successfully Reported

Thank you. This comment has been flagged for a moderator.
_touchLoadingMsg