Intraday Market Thoughts

Euro Drops on Weakest IFO Rise, Pending Home Sales Next

by Patrik Urban
Mar 26, 2012 12:54

German IFO improved slightly; Italian consumer confidence rose; German T bill auction; WTI eases back. Market turns to Bernanke and pending home sales. Latest Premium Intermarket Insights to be added towards end of London session.

The greenback is weaker against commodity currencies and unchanged against the rest of the majors. European equities are gaining about 0.3% and the relative strength winners are AUD followed by NZD.

The market opened in Asia on a positive note on the back of reports that Germany will agree to increase the firewall against debt crisis by running the EFSF and the ESM simultaneously. EU commissioner Olli Rehn said that the decision on the firewall's reinforcement will be made at the EcoFin meeting on Friday and Saturday. German finance minister spokesman reiterated today that the decision will be on relationship between the two funds and not on their size.

Even though improving German IFO data initially sent EURUSD higher, the common currency quickly lost ground and dropped from 1.3262 to 1.3191.

The IFO business climate survey rose +0.1 to 10.8 in March, the smallest increase in 5 months after a series of robust gains in the prior months. The same applies for the IFO expectations index, whose 0.3 increase is the smallest in 6 months, a period before which saw 10 consecutive declines.

The German IFO business climate rose in March to 109.8 from 109.7, current assessment sub index remained at 117.4 and the expectations index rose to 102.7 from 102.4. It was surprising to see the IFO rising considering declining PMI's from last Thursday. Digging deeper, we can see that manufacturing, wholesaling and construction all declined and the index rose only on the back of a sharp increase in retailing. EURUSD has recovered to about 1.3235.

The other European report released today was Italian consumer confidence that improved in March to 96.8 from 94.4.

Germany sold 12 month T bills worth of EUR 2.73 bln (EUR 3 bln target). The average yield declined marginally to 0.0765% but bid to cover fell to 1.4 from 1.9.

WTI is easing back after a spike to 108 on Friday afternoon caused by reports that Iranian oil export dropped by 300K barrels a day. WTI currently trades around 106.50.

The US session starts at 8:00 am today with FED chairman Bernanke's opening speech at the National Association for Business Economics in Virginia.

February pending home sales are due at 10:00 am and are expected to slow growth to 1% from January's 2%. Dallas FED manufacturing for March comes 30 minutes later and should decline to 16 from 17.8.

The CFTC Commitment of Traders report showed the USD net long position scaled back by 37%. The euro remains the most heavily shorted currency but positioning fell to -83K from -99K. The move away from GBP shorts was dramatic to -16K from -42K. Similarly, JPY shorts declined to -26K from -44K. The US dollar made up ground against AUD (to +45K from 67K) and NZD (+4K from +13K) but lost ground against CAD, where longs increased to +42K from +27K. All the data is as of the close on Tuesday.


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