Market Drivers for March 17, 2015
Europe and Asia
AUD: RBA Minutes
EUR: ZEW 54.8 vs. 58.9
North America
CAD: Manufacturing Sales 8:30
USD: Building Permits/Housing Starts 8:30
It's been a quiet, rangebound night in the forex market with most major currencies content to trace out narrow ranges as few traders wanted to assume directional bets ahead of the FOMC meeting this Wednesday. The euro saw some early buying jumping above the 1.0600 level but the rally fizzled and the pair quickly dipped below that mark in morning European dealing.
As we’ve noted earlier, the 1.0400-1.0500 zone remains key support for the pair and after relentless liquidation over the past several months it appears to be finally stabilizing at these levels. Although the deck is clearly stacked against the unit with US and EZ monetary policies diverging broadly, we continue to believe that the pair may be due for a short covering bounce sooner rather than later.
One key problem for dollar bulls right now is that sentiment is wildly skewed. Every day brings a new, ever lower forecast from the banks for the EUR/USD with some already predicting an exchange rate of 8000 cents by 2017. The problem with such linear thinking in the forex markets is that it is almost inevitably wrong. Just as we could find no EUR/USD bears when the pair was in the 1.5000s so too now euro bulls are non-existent.
Such lopsided sentiment typically sets up for sharp reversals, although perhaps we haven’t fully reached the bottom yet. Maybe that won't happen until the Economist puts the currency on the cover, wrapped in bandages with headline screaming “The End of The Euro?”
For now, the market appears to be in an uneasy truce as both bulls and bears await the FOMC. The latest US data has been less than stellar as weather woes in the Northeast and Midwest have clearly taken their toll on economic activity. Today’s Building Permits and Housing starts figures could become yet other victims of the winter storms., The markets are looking for essentially the same figures as the period prior, but if the data misses it could push the dollar lower with the USD/JPY pair testing 121.00 for the first time this week.