Rational FX: US Trade Balance beat expectations [14/01/2011]

Rational FX: US Trade Balance beat expectations [14/01/2011]

Yesterday’s Economic Data

For third day in a row the Euro gained against most of its major counterparts, with the Portuguese and Spanish bond auctions taking place and receiving a lot of interest from foreign investors. This has given the euro zone some support having recently declined over fears of the sovereign debt crisis spreading.
The question is, how long this will last? The Portuguese have only recently stated they wouldn’t need any help, It was not too long ago that the Greeks or the Irish said they didn’t need any help and we all know what happened there! If it does we will see a return to strength for the USD.

Yesterdays Market Movers

  • Industrial Production came out as expected YoY, however slightly worse than previous. This would have had little effect on the market. MoM figure came out slightly worse however this again would have been expected due to the adverse weather in December. This has a direct link to the Trade balance which came out negatively 2 days ago showing we imported more than we exported.
  • Manufacturing came out slightly better than expected both MoM and YoY, which is contradictory to the last point and our Trade balance figure, although seasonally we should expect this.
  • PPI in the US came in positively, as a result of this we saw risk appetite as investors came out of the safe haven greenback and bought into riskier assets. This saw the Euro and stocks rise.
  • US Trade Balance came in better than expected, which again supports the notion of risk appetite in the market.

Today’s Market Movers

  • German CPI is the first piece of data for the day. It is expected to come out better both MoM and YoY. This will be seen as a good figure for the Euro zone for at least the short term as it supports Trichet’s notion of upside pressure on the Euro inflation rate.
  • When Trichet spoke he said the Euro zone would have to carefully monitor the inflation reading, this has brought around speculation that interest rates may rise in the near future, although would this be beneficial for the Euro zone as a whole?
  • European CPI is due out at 10am and is expected to come in at 2.2%, slightly above the Euro zone’s desired rate of just below 2%. This will be seen as a positive and we could see the Euro’s surge continue as speculation mounts that interest rates could be increased soon.
  • The Euro zone trade balance figure is expected to come out worse than previous, however this is likely to have little effect on the market as the Euro’s surge is more down to other factors in the market.
  • In the US we have Retail Sales figures due out, this is expected to come out worse than previous even though the figure comes out from during the festive period, however the fact that they had the largest black Friday shopping on record in November may have had an effect. This may cause some risk aversion as traders square their positions at the end of the week.
  • Industrial production is due to come out better than previous with a 0.1% increase MoM, this will only add to the current risk appetite trend in the market.
  • The Final piece of data out for the day is the Reuters/ Michigan Consumer Sentiment Index which measure consumer confidence. This is likely to come in stronger which again supports the current trend of risk aversion.

 

Currencies
High
Low
Support
Resistance
GBP/EUR
1.2034
1.1988 
1.1900
1.2050
GBP/USD
1.5602
1.5473
1.5470
1.5580
EUR/USD
1.2961
1.2873
1.2850
1.2970
We wish you a very nice day.

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