Risk FX Spikes on Short Covering Rally

GFT Forex

Top Stories

  • Risk sees massive squeeze on reported Russian buying
  • French Manufacturing data better
  • Nikkei off by -1.14% Europe up 0.28%
  • Oil at $106/bbl
  • Gold at $1652/oz.

Overnight Eco

    Event Risk on Tap

    • USD New Home Sales (MoM) (FEB) expected at 1.3%
    • CAD Consumer Price Index (MoM) (FEB) expected at 0.5%
    • CAD Bank Canada Consumer Price Index Core (MoM) (FEB) expected at 0.3%

    Price Action

    • USD/JPY steady at 82.60
    • AUD/USD rallies back to 1.0450 on RRR cut rumors
    • GBP/USD back to 1.5600
    • EUR/USD squeezes to 1.3300

    Risk FX staged a vicious short covering rally in early European trade today on reputed buying by Russian central bank and speculation that the PBOC may lower its RRR rate in order to stimulate lagging growth in China. The EUR/USD rose to nearly 1.3300, cable broke above 1.5900 and Aussie shot to 1.0450 as shorts scrambled for cover in otherwise listless trade.

    The economic calendar was nearly barren in both Asia and Europe with no major releases in either region. In France manufacturing outlook improved in March with sentiment rising to 96 from 92.0 the month earlier. This was above market expectation of 93 suggesting that demand in the French manufacturing sector may be improving more than the market thought.

    Executives own company outlook also saw an uptick rising to +6 from -1 in February while sector production outlook  increased -15 versus -27. The news was welcome relief to euro bulls after yesterday’s disappointing PMI data which indicated that the region remains mired in a  technical recession. 

    In UK the Nationwide Consumer confidence report showed a dip to 44 from 49 forecast while mortgage approvals dropped to 33.1K from 39.1K projected, indicating an unexpected slowdown in UK housing market as it printed at the worst level since October of last year. The news did not have much of an impact on trade, but the rally in cable was nevertheless capped at 1.5900 by selling from Middle East.

    With nothing on the US calendar expect New Home data, the North American session carries very little event risk as well and trading in FX is likely to be dominated by technical flows and end of the week positioning. If Chinese authorities ease monetary policy by cutting RRR as they typically do on Friday, the short covering squeeze in high beta FX could accelerate markedly with EUR/USD taking out the 1.3300 barrier and GBPUSD rising above 1.5900 as the day proceeds.

    FX Upcoming

    CurrencyGMTESTReleaseExpectedPrior
    USD 14:0010:00New Home Sales (MoM) (FEB)1.3%-0.9%
    CAD11:007:00Consumer Price Index (MoM) (FEB)0.5%0.4%
    CAD11:007:00Bank Canada Consumer Price Index Core (MoM) (FEB)0.3%0.2%
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