Intraday Market Thoughts

EURUSD Slides To 1.3230; Canadian GDP Is Next

by Ashraf Laidi
Mar 2, 2012 12:15

Eurozone demands assurances from Athens; German retails sales drop m/m but rise y/y; Eurozone PPI higher; ECB deposits soar after LTRO. Market turns to Canadian GDP.

The USD trades higher against most majors. European equities are little changed and the relative strength losers are EUR followed by NZD.

The common currency has been under pressure after Eurozone finance ministers decided to delay the release of EUR 71.5 bln which is over half of the total EUR 130 bln bailout to Greece. The Eurozone needs assurances from Athens that reforms and austerity measures will in fact be implemented. EURUSD was falling until WSJ reported that German lawmakers may be willing to boost Eurozone's rescue fund by combining the EFSF and ESM in order to increase its firepower from EUR 500 bln to EUR 750 bln.

Diverging monthly and annual results were seen in both today's European reports. German retail sales fell sharply 1.6% in January from 0.1% growth seen in December but the annual print improved considerably to 1.6% from 0.3%. Bear in mind that retail sales is one of the more volatile indicators and large revisions are common. Similarly, January Eurozone PPI rose 0.7% from -0.2% m/m but declined to 3.7% from 4.3% y/y. Rising energy costs contributed the most to the monthly increase.

UK Construction PMI rose dramatically in February to 54.3 from previous 51.4 which is the fastest pace of growth in 11 months. New work intakes rose sharply, business confidence reached 9 month high but the employment component declined. GBP was boosted across the board on the news.

ECB deposits soared on Thursday to EUR 776.941 bln significantly above Wednesday's EUR 475.22 bln as banks parked a portion of their funds obtained through the LTRO. Short term increases are not significant but should the deposits remain elevated it would imply that banks are hoarding cash due to market tension instead of extending loans as the ECB hoped. The deposit facility pays 0.25% while banks have to pay 1% for the LTRO funds.

Reports during the NY session are limited to Canadian GDP that is expected to rise 0.3% in December after contracting 0.1% in November m/m but decline to 1.9% from 2% y/y. The quarterly print is seen at 1.8% from 3.5%.


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