Forex Afternoon Wrap – 02/06

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Euro strengthens on rumors of Greece debt deal

Key Notes:

  • New Zealand overseas trade index q/q 1.5% vs. 1.6%
  • Japan monetary base y/y 35.6% vs. 34.3%
  • Japan average cash earnings y/y 0.9% vs. 0.4%
  • RBA cash rate unchanged at 2%
  • Spain unemployment change -118k vs. -115.4k
  • German unemployment change -6k vs. -10k
  • UK Construction PMI 55.9 vs. 55.1
  • UK mortgage approvals 68k vs. 64k
  • Eurozone CPI flash estimates y/y 0.3% vs. 0.2%; Core CPI y/y 0.9% vs. 0.7%
  • Eurozone PPI m/m -0.1% vs. 0.1%

Later:

  • US Factory orders
  • US IBD/TIPP Economic optimism
  • New Zealand GDT price index

The markets saw a busy trading day with the Asian session seeing the RBA monetary policy statement being released. While the overnight cash rate was unchanged at 2% as expected, the RBA’s monetary policy hinted at a period of stability as the board reviews more economic data. The RBA also continued its rhetoric on the Aussie’s exchange rate to the US Dollar and a basket of currencies as well. The Aussie dollar initially rallied on the news but the bullish momentum started to fade into the European trading session after the currency reached session highs of 0.77. Further upside is expected in the Australian dollar ahead of the quarterly GDP data due tomorrow.

The Japanese Yen continued to remain subdued across the board with the USDJPY trading near 124.5. Economic data from Japan included the average cash earnings, which beat estimates rising 0.9% for the month, above estimates of 0.4%

The European trading session saw the Euro in focus as rumors of the Eurozone and Greek officials reaching a deal was on the newsbeat. However, reports continued to remain conflicting but the general market consensus being that some kind of compromise could be reached. Greece is due to pay another due to the IMF on the 5th of June, which the country is expected to pay off but further dues beyond the June 5th payment is starting to look unlikely that could result in a default. The Euro which was weak into today’s open managed to strengthen to trade above 1.1 at the time of writing. Economic data from Eurozone was overall positive with CPI flash estimates pointing to a better than expected pickup.

UK’s construction PMI managed to beat estimates, rising 55.9. The data managed to boost the Pound Sterling but the currency remained volatile for the most part of the day. GBPUSD hit a session high to 1.5268 before easing from this level.

The Greenback was relatively weaker today after yesterday’s Core PCE data showed a less than expected print in inflation. Most of the currencies, including the Kiwi dollar have been looking modestly stronger today.

Economic data from the US is light with the factory orders and small business optimism due for release later in the day. The overall theme is likely to play into the end of trading day today ahead of key market events due tomorrow which include the ECB’s monetary policy statement and the ADP job numbers for the month of May.

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