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Mid-Day Report: Euro Weakens as Markets Unsettled by Spain again Print E-mail
Action Insight Archives | Written by | Apr 13 12 13:29 GMT

Mid-Day Report: Euro Weakens as Markets Unsettled by Spain again

Euro was unsettled by worried on Spain again today and fails to stay above 1.32 against dollar. Data from Bank of Spain showed that Spanish banks borrowed a record EUR 316.3b from ECB in March, almost doubling the EUR 169.8b in February and a new record high. And the data argues that ECB's second LTRO was dominated by Spanish banks which tapped over 30% of the EUR 529.5b cheap funds offered. There were also talks that ECB's liquidity measures has boosted the correlations between the debt crisis and bank risks as banks used the fund to buy government bonds. Spanish 10 year yield is backing towards 6% level after intra-week dip.

Inflation data from US showed headline CPI moderated less than expected to 2.7% yoy in March while core CPI rose to 2.3% yoy. Nonetheless, the data painted the picture that inflation is slowing as impact from prior jump in energy prices fades. And it shouldn't be the major factor to for Fed policy makers to decide on QE3. Growth and employment would remain the biggest concern. UK PPI input slowed less than expected to 5.8% yoy in March while PPI output slowed to 3.6% yoy.

The 8.3% yoy growth in China's Q1 GDP was worse than consensus of 8.3% and Q4's 8.9%. That's indeed the slowest growth since Q1 of 2009. But bear in mind that the official target this year is 7.5% and thus, today's data isn't too much of a surprise. Meanwhile, other March data were solid where industrial production grew 11.9% yoy, retail sales rose 15.2% yoy fixed investment rose 20.9% yoy. Released yesterday, China’s lending surged to RMB 1.01T, the highest level in 14 months. Growth in M2 also rebounded to 13.4%, suggesting that Chinese economic activity in March probably picked up again due to the central bank’s open market operations. After all, more easing is expected by China ahead and reserve ratio would be the main tool rather than interest rates. There are speculations that China could lower the RRR by another 100 basis points in Q2.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.3120; (P) 1.3166 (R1) 1.3231; More.....

EUR/USD formed at temporary top at 1.3212 and retreated sharply today. Intraday bias is turned neutral for the moment. Near term outlook is also unclear as EUR/USD is bounded in range of 1.3003/3385 and more choppy sideway trading could still be seen. On the downside, break of 1.3033 support will revive that case that rebound from 1.2625 is finished at 1.3486 and will bring deeper decline. On the other hand, break of 1.3385 resistance is needed to confirm resumption of rebound from 1.2625.

In the bigger picture, price actions from 1.6039 (2008 high) are treated as a long term consolidation pattern and there is no clear indication of completion yet. That is, price actions could remain corrective and relatively unpredictable. Current development suggest that the falling leg from 1.4939 is not finished yet and break of 1.2625 should pave the way to 1.1875 low. On the upside, we'd prefer to see sustained trading above 55 weeks EMA (now 1.3508) to indicate the start of another rising leg inside the pattern.

EUR/USD 4 Hours Chart

EUR/USD Daily Chart

Economic Indicators Update

GMT Ccy Events Actual Consensus Previous Revised
02:00 CNY Industrial Production Y/Y Mar 11.90% 11.40% 11.40%
02:00 CNY Real GDP Y/Y Q1 8.10% 8.30% 8.90%
02:00 CNY Retail Sales Y/Y Mar 15.20% 15.10% 14.70%
06:00 EUR German CPI M/M Mar F 0.30% 0.30% 0.30%
06:00 EUR German CPI Y/Y Mar F 2.10% 2.10% 2.10%
08:30 GBP PPI Input M/M Mar 1.90% 1.40% 2.10% 2.50%
08:30 GBP PPI Input Y/Y Mar 5.80% 4.80% 7.30% 7.80%
08:30 GBP PPI Output M/M Mar 0.60% 0.50% 0.60%
08:30 GBP PPI Output Y/Y Mar 3.60% 3.50% 4.10%
08:30 GBP PPI Output Core M/M Mar 0.10% 0.20% 0.50%
08:30 GBP PPI Output Core Y/Y Mar 2.50% 2.60% 3.00%
12:30 USD CPI M/M Mar 0.20% 0.30% 0.40%
12:30 USD CPI Y/Y Mar 2.70% 2.60% 2.90%
12:30 USD CPI Core M/M Mar 0.20% 0.20% 0.10%
12:30 USD CPI Core Y/Y Mar 2.30% 2.20% 2.20%
13:55 USD U. of Michigan Confidence Apr P 76.6 76.2

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