Forex News and Events:
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Risk aversion surged back in yesterday’s trading, prompting significant selling in equity markets, while traders found comfort in Gold, Usd and treasuries. The core driver of this capital flight was the Moody’s warning that they were going to review the rating for European banks. The review was prompted by the rapid deterioration in Eastern Europe. While this event was focused on the corporate side of credit, it once again highlights the weakness in Eurozone Sovereign ratings. In the past few weeks we have seen a CDS spreads balloon led by concerns regarding Ireland . US markets received little support on the economic data front. The US NAHB housing index rose from a record low of 8 to 9 in February, which suggests low mortgage rates are becoming tempting to buyers. However, at such a low lever an uptick would hard to get excited about. The bigger new and more of a market mover was NY Fed Empire manufacturing index for February, that dropped to a record low of -34.65, below expectations of -24.0 and down from -22.2 in January. This reading hints to more deterioration, rather than stabilization as other releases have indicated. Wall Street had a horrid day, with the S&P closing down -4.56%, which has now pilled over in into today’s Asian and European sessions. Despite the slightly encouraging earning releases from a few European banks, which beat analysis estimates, European indexes couldn’t exploit the positive momentum.
In the FX markets, we are seeing choppy trading without real direction. However, with risk aversion still well elevated we would expect this environment to benefit the Usd and and, to a lesser extent, the Jpy. The EurUsd is expected to make a slight correction to the 1.2707 resistance before retesting December 2008 1.2550 and October 2008 1.2331 support.
In Australia, retail sales rose 0.8% q/q vs. 1.0% exp. Declines were across industries but sectors with a reliance on discretionary spending performed weakly. The decent rise in sales seems solidly the result of the government’s first $8.4bn stimulus package. Given the relatively subdued shift from stimulus to sales suggests the consumer decided to save over spent. Looking forward we would expect that next round of stimulus spending (11bn) to have a greater impact.
In the US session, markets will be watching Industrial production data, where surrounding evidence is suggesting that another sharp drop is in the making. The closure of many auto plants should have a significant influence on this critical reading. In addition drops in overall industrial indexes suggested dark readings ahead.
