Risk Selloff Intensifies as EUR/USD Drops Through 1.3150

GFT Forex

Top Stories

  • RBA leaves rates on hold as expected
  • Risk selloff continues as IIF warns of 1 Trillion cont. liabilities
  • Nikkei off -.63% Europe down -1.35%
  • Oil at $106/bbl
  • Gold below $1700/oz.

Overnight Eco

  • AUD Current Account Balance (Australian Dollar) (4Q) -8.4B vs. 8.0B
  • EUR Euro-Zone Gross Domestic Product s.a. (QoQ) (4Q P) -0.3% vs. -0.3%

Event Risk on Tap

  • CAD Ivey Purchasing Managers Index s.a. (FEB) expected at 62

Price Action

  • USD/JPY falls through 81.00
  • AUD/USD takes out stops at 1.0600 as risk sell off intensifies
  • GBP/USD drops through 1.5800
  • EUR/USD support at 1.3150 taken out

Risk selloff intensified in early European trade today with EUR/USD breaching the 1.3150 level as equities tumbled by more than -1.5%. The economic calendar was barren, but investor sentiment continued to sour on expectations that growth in China will slow materially this year. Adding fuel to the fire was an IIF document that noted some drastic consequences should Greece face a hard default.   

The IIF report stated that bank recapitalization costs in the wake of a Greek default could climb to 160 Billion euros weaken the credit standing of Portugal, Ireland, Spain and Italy and result in contingent liabilities of more than 1 Trillion euros. The markets now await the resolution of Greek PSI deal which is due in two days and skittishness may prevail until currency traders are assured that  the exchange goes off without a hitch.

Meanwhile in Australia, RBA left its benchmark rates unchanged at 4.25% but stressed that there is further scope for easing should the global economic growth begin to falter. The statement by RBA Governor Glenn Stevens noted that, “Recent information is consistent with the expectation that the world economy will grow at a below-trend pace this year, but does not suggest that a deep downturn is occurring. Several European countries will record very weak outcomes, but the US economy is continuing a moderate expansion. Growth in China has moderated as was intended, but on most indicators remains quite robust overall.”

The RBA concluded that ,”With growth expected to be close to trend and inflation close to target, the Board judged that the setting of monetary policy remained appropriate for the moment. Should demand conditions weaken materially, the inflation outlook would provide scope for easier monetary policy. The Board will continue to monitor information on economic and financial conditions and adjust the cash rate as necessary to foster sustainable growth and low inflation.”

The statement suggests that Australian policymakers are in no hurry to lower rates aggressively as long as Australian economy continues to expand. To that end, this week’s slew of economic data including GDP, employment and Trade Balance should provide a fuller picture economic conditions Down Under. Most importantly of labor markets continue to grow, the RBA will remain stationary for the foreseeable future.

In North America today the US calendar is also empty of any data with only the Canadian Ivey PMI on the docket. Many analysts have noted that EUR/USD has now broken trendline support which could precipitate further weakness in the days ahead. For now the bears clearly have control of the table and if US equities follow Europe lower, the pair could test the 1.3100 figure as the day proceeds.

FX Upcoming

CurrencyGMTESTReleaseExpectedPrior
CAD 15:0010:00Ivey Purchasing Managers Index s.a. (FEB)6264.1

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