Forex - EUR/USD: Greenback Surrenders, Requires Additional Ammo - General

thenews 2015.05.05 18:29 #2601

EUR/USD: Greenback Surrenders, Requires Additional Ammo

The EUR/USD rose moderately on Tuesday as the US trading session brought overall weakness to the buck, pointing to mixed macro updates in the US.

The euro advanced against the US dollar on Tuesday, as the buck failed to hold profits earned during the Asian trading session, allowing the EUR/USD cross to approach the $1.12 level again. Moreover, the pair almost erased this week's losses while in non-directional mode as non-farm payrolls loom.

The euro climbed 0.50% to trade at $1.1202 against the buck shortly before the closing bell on Tuesday, rebounding from an intraday bottom at $1.1066, while the US dollar index dropped 0.40% to 95.21 points.

In the afternoon, bulls managed to take control amid a set of fresh US macro data. Initially, the US census bureau reported the highest US trade deficit in more than six yearsas imports surged after the West Cost port strike ended. The reading revealed thatthe trade gap widened by 43.1% to $51.4 billion in March, missing the estimate of a $41.7 billon drop, from $35.4 billion seen previously.

Later after the opening bell, the euro steadily increased despite a solid services PMI which stood marginally below the seven-month high in April, while a more important gauge - published by the Institute for Supply Management - increased to 57.8 points in April, posting better than the expected reading of 56.2, after 56.5 points seen previously.

Looking ahead, the critical non-farm payrolls figures are due on Friday, expected to post a 230,000 gain, along with the unemployment rate, which is predicted to soften to 5.4% from 5.5%.

European events

The euro zone economy is expected to expand 1.5% this year, up from the previous forecast of 1.3% growth, the European Commission said in its fresh Spring 2015 Economic Forecast published on Tuesday.

Meanwhile geopolitical news filled the headlines in Europe, with German Finance Minister Wolfgang Schaeuble rejecting rumors that the International Monetary Fund (IMF) had pushed euro zone ministers to cut Greece’s debt burden last month.

"The IMF of course did not make such a comment," Schaeuble said, noting however that IMF European chief Poul Thomsen had been clear that Greek finances were deteriorating because of a pause in reforms linked to the election there.

Press review Upside Risks For EUR/USD; EURUSD Technical Analysis 2015,

thenews 2015.05.06 03:11 #2602

This Pair Is Rising For The Wrong Reasons

EUR/USD is Rising for the Wrong Reasons

In talking to many investors Tuesday, we saw a lot of confusion about why the dollar performed so poorly. Everyone understands that the trade deficit ballooned and that it will weigh heavily on first-quarter growth, but the uptick in the non-manufacturing ISM report should have offset negative sentiment. It is no secret that the U.S. economy slowed in the first quarter and that the Fed views this decline as transitory. First quarter GDP numbers will be revised lower but a rebound is expected for the second quarter. In fact, the rise in Treasury yields and relatively modest sell-off in USD/JPY suggests that rate-hike expectations did not changed dramatically after Tuesday's reports. Considering that the dollar declined broadly, we can't really attribute anti-dollar flows to positive developments outside of the U.S., with the one exception being the Australian dollar, which was affected by the RBA monetary policy decision. However taking a quick look at how global bond yields moved over the last 24 hours we can see that while the 10-year Treasury yield rose 2bp to its strongest level in nearly 4 weeks, European bond yields are up more significantly. Italian and Spanish yields of the same maturity rose 27bp Yuesday while French yields rose 9bp and German bund yields rose 6bp. Both UK gilt and Australian bond yields were also up more than 10bp, which explains why the modest increase in Treasury yields held the dollar back. The following chart shows how EUR/USD took its cue from the German-10-year-U.S.-yield spread intraday. To the frustration of the European Central Bank, European bond yields have actually been on a tear lately. All the buying failed to pressure yields lower and instead some rates hit their highest level in months.

However the EUR/USD is rising for the wrong reasons. European bond prices have fallen sharply and yields have been driven higher because the Greek debt deal talks have gone nowhere. There may be a new negotiation team but they have made zero progress. In fact, Tuesday morning, we learned that there could be a major disagreement between the IMF and EU over the conditions Greece needs to meet to receive its next bailout payment. Apparently the IMF wants the pension system to be overhauled and the labor market deregulated while the EC wants to focus on the primary surplus. Either way, the talks are breaking down and it is looking increasingly unlikely that a deal will be reached at the next Eurozone Finance Ministers meeting on May 11. There have been some improvements in Eurozone data but we believe that EUR/USD should be trading lower especially since higher yields will hurt Europe at a time when the U.S. is expected to grow more swiftly, paving the way for a rate hike by the Federal Reserve in September. Eurozone retail sales are scheduled for release Wednesday along with revisions to the PMI services report. Given the steep slide in German demand in March, the risk is to the downside for the report.

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