U.S. Durables Counter German Ifo

: The pair fluctuated around the 1.3000 level for the entire trading session in Europe on Wednesday. As we have been suggesting over the past few days, any poor European economic data will likely hold more weight on the single currency, with speculation of an ECB rate cut growing by the day. German Ifo Business Climate Index this morning was perhaps the highlight of the calendar as we commented yesterday, and once again the numbers didn’t hold up against expectation. Ifo was reported at 104.4, widely missing the consensus for a slighter drop on the month to 106.2. The euro reacted negatively, dropping once again below 1.3000 to a session low of 1.2956 and outstripping the previous day’s range. Almost as a carbon copy of yesterday’s price action, poor US economic data in the afternoon once again hampered the dollar, with dismal durable goods numbers this time causing the damage. EUR/USD rallied to back above 1.3000, however unlike yesterday, the market appears to have settled below the 1.3000 level instead of above it.

AUD/USD And NZD/USD: The kiwi was well supported overnight, as the RBNZ left rates on hold at 2.5% and indicated that this would likely remain the scenario throughout the year. NZD/USD rallied to 0.8440 from 0.8395 on the announcement, a rally which was extended to 0.8470 during early European trading when traders got to their desks. In contrast the Aussie has weakened slightly, with poor CPI data providing further fuel to conjecture that the RBA will cut rates at some point over the coming months. AUD/USD dropped from 1.0275 to 1.0235 from the data, however has recovered to 1.0260 thereafter. Both these events saw the AUD/NZD cross fall to a daily low of 1.2125 and more notably its lowest levels since December 2008. This is obviously a slight pinch to Australian central bankers who are happy with a strong Aussie and New Zealand politicians who favour a weaker Kiwi.

Outlook:
USD: Quite monotonously, we still favour a stronger dollar over the coming weeks. One has to believe that the endless line of poor European economic data will eventually give the euro an overdue reality check. Interestingly some investment banks have started forecasting a much weaker single currency by year end, so that certainly appears to be the developing thought process. Unfortunately for the time being, depressed figures from Europe are simply being counteracted by equally miserable data from America, making the catalyst for a softer Euro not so poignant. It’s encouraging to us that EUR/USD has actually settled down below 1.3000 as of today, so this could be a good heading to urge the trend lower. Highlights tomorrow on the economic calendar include Spanish unemployment, UK growth data and weekly U.S. initial jobless claims.

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