FXS: Dollar Gains on Eurozone Woes and FOMC Meeting Minutes
The minutes from the FOMC previous meeting were revealed yesterday and much to the surprise of investors, they declared that current conditions do not warrant additional stimulus. I say surprise because after Ben Bernanke put on a dovish performance at last week’s press conference the market had started considering the notion that ‘QE3’ might be on the cards. So the continued uncertainty over the Federal Reserve’s future monetary policy continues.
Traders flooded into the dollar opting to sell the Euro and Aussie as debt concerns and the Eurozone seem to be re-emerging, and the Australian economy tackles another trade deficit and potential hard landing for the Chinese economy. EUR/USD declined below the 1.3145 key levels, whilst AUD/USD sold off from the highs of another pullback before finding support at the 1.0259 level.
Adding to the Euro’s woes was the poor demand at today’s auction for Spanish debt. The markets are demanding higher yields after the Spanish government announced public debt will surge this year. Yields on 5 year bonds rose 21bps to a 12-week high of 4.47%. Furthermore, the cost of insuring Spanish the debt also crept up by 18bps as investors express their sentiment towards higher debt levels.
In line with expectation the ECB held their minimum bid rate at 1.00%. ECB Chairman Draghi used the opportunity to express his concern over the downside risks to growth in region. The Euro was soft heading into the announcement, and there was little in the press conference halt reverse this decline.
EUR/USD has found tough resistance at the 1.3500 level, which coincides with the 50.0% Fibonacci retracement from the Oct 11 – Jan 12 decline. A break below the 1.2977 key levels will have bearish implication for this pair and will pave the way for a resumption of the longer term downtrend.
On the data front the Eurozone has endured weaker than expected Retail Sales and German Factory Orders. Factory Orders in the Eurozone’s strongest economy expanded at a significantly slower pace than analyst had forecast.
In the U.K, Services PMI growth accelerated and Housing Prices increased according to reports out today. Add this to the better than expected Manufacturing PMI and the Pound has managed to break higher versus the Euro.
ISM Non-Manufacturing PMI in the U.S came in at 56.0, missing the 56.8 expected. The Employment component beat forecast, adding to a better than expected ADP Non-Farm Employment Change. All eyes will be focusing on Friday’s NFP report. Markets will be thin due to the Easter holidays so expect some volatility.
