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Fresh Weekly Lows for Risk FX

Boris Schlossberg, Director of Currency Research, GFT

Top Stories

  • Australian Retail Sales miss increasing chance of more RBA rate cuts
  • Spanish yields under pressure after ECB refuses to help Bankia
  • Nikkei off -0.28% Europe off 0.82%
  • Oil below $90/bbl
  • Gold at $1549/oz.

Overnight Eco

  • AUD Retail Sales s.a. (MoM) (APR) -0.2% vs. 0.2%
  • JPY Nomura/JMMA Manufacturing Purchasing Manager Index (MAY) 50.7
  • NZD Building Permits (MoM) (APR) -7.2% vs. 19.6%
  • CHF KOF Swiss Leading Indicator (MAY) 0.81 vs. 0.46
  • EUR Euro-Zone Business Climate Indicator (MAY)
  • EUR Euro-Zone Consumer Confidence (MAY F)
  • GBP Net Consumer Credit (APR) 1.4b VS. 1.3B
  • GBP Mortgage Approvals (APR) 52k VS. 50k

Event Risk on Tap

  • USD Pending Home Sales (MoM) (APR) expected at -0.1%

Price Action

  • USD/JPY risk off drives it to 79.30
  • AUD/USD below .9800 after weak retail Sales
  • GBP/USD drops through 1.5600
  • EUR/USD below 1.2500 on concerns over Spain

Risk FX was under relentless assault in Asian and early European trade today as weak retail sales data from Australia, a denial of any fiscal stimulus plans from China and continued problems with the failed Spanish banking concern Bankia weighed on currencies pushing them to fresh weekly lows as investors sentiment deteriorated.

The ongoing saga with the Spanish banking concern Bankia weighed heavily on euro in today’s trade as Spanish authorities were strongly rebuffed by the ECB in their effort to recapitalise, the troubled lender, by indirectly tapping the central bank for cash. The ECB told Madrid that a proper capital injection was needed for Bankia and its plans were in danger of breaching an EU ban on “monetary financing,” or central bank funding of governments. 

However, central bank funding of governments is exactly what many Spanish officials are seeking. Ironically enough after the massive bailout failures of Greece, Ireland and Portugal the two largest Southern European economies Spain and Italy will now never agree to any further from of debt as part of any rescue package and will insist on straight monetization by the ECB. The ECB in the meantime has remained deafeningly silent on the matter as credit spreads in the region continue to expand. 

The latest results from Italian 5 year auction show rates rising 5.66% from 4.8% the period prior and as credit markets inch towards a crisis point the ECB will have to step in or trading will become much more volatile in both credit and currency markets. Meanwhile on the economic front the news from Europe remained dour with EZ confidence at -19.3 same as last time while business climate indicator sunk to -0.77 from -0.67 the period prior.

In Australia, Retail sales dropped for the first time in ten months sending the Aussie through the .9800 barrier in Asian session trade as risk aversion flows intensified.  Australian Retail Sales missed their mark contracting by -0.2% versus 0.2% eyed as spending at department stores fell 1 percent, and consumers spent 0.8 percent less on household goods.

The report showed  that consumers Down Under continue to curb their spending despite aggressive monetary easing by the RBA suggesting that Australian monetary authorities may have  to lower rates further in order to stabilize demand.  Markets are now pricing a 25bp cut at the June 5th meeting with odds of a 50bp cut rising to 38%.

With only Pending Homes on the docket today the economic calendar in North America is basically barren, but FX flows will continue to be dominated by any headline risk from Europe and if markets see no relief from EZ authorities risk currencies could sell off further with euro probing 1.2400 cable 1.5500 and Aussie targeting .9700 as the day proceeds

FX Upcoming

Currency GMT EST Release Expected Prior
USD 14:00 10:00 Pending Home Sales (MoM) (APR) -0.1% 4.1%