EUR to Buckle on Month End?

It is frustrating to digest the same FX story day after day while other asset classes see movement. Of late, during North America, watching some of the price action is like watching paint dry. It seems that more chatter is putting further emphasis on month and quarter-end requirements and what we are supposed to expect. The meeting of both tend to muddy the FX market and destroy many traders playbook and this one is no different. The recent performance of other asset classes is expected to see pension funds have a significant rebalancing requirement, especially given the size of the equity market rally and fixed income sell off this quarter. Logic and history would also mean significant month-end forex flow. As expected, the support for treasury’s and selling of equities is only “muddying the waters in determining whether we have moved into a new FX paradigm whereby risk sentiment is on the up.”

Despite Forex threatening to trade in lockdown as quarter end draws near, big picture risk sentiment appears to be holding up, a development that supposedly will boost consumer confidence going forward. Of late, global business confidence readings have been surprising the market moderately on the weak side. As a consequence, and during the past week, the previously prevailing combination of a sell off in rates and a tightening rally in credit spreads has temporarily come to a halt. The market should not expect anything new until economies can deliver stronger global macro data. With that, the EUR remains vulnerable on the downside rather than on the up. This will certainly keep many of the EUR bears happy, especially the weaker shorts and not the individuals that have been selling into the Bernanke dead cat bounce earlier this week.

There seems to be a strategy at play in the oil market that is surely to put the commodity sensitive currencies under further pressure, independent of risk aversion and rate sensitive trading strategies. The loonie this morning already has a federal budget day to contend with, while the Aussie has a dominant yen. Comments from the UK, the US, Saudi Arabia and now France have all been directed at talking prices down to aid global growth. Having crude too far north of $100 cannot support or sustain growth amongst these fragile economies. Yesterday’s chatter was all about the US releasing oil from their reserves. If you added that to US Energy Department showing crude inventories at a 20-month high, certainly helped to complete a decent drop in crude prices and by default also equities. Combining a potential myth and change in sentiment is hoping to give us the biggest bang for our buck.

The market expects the Euro-finance ministers meeting in Copenhagen tomorrow to decide to run their twin programs, the +E500b ESM and +E400b EFSF (tapped and untapped), along side each other. The liquidity boost comes after Chancellor Merkel this week warned of “fragility” in Portugal and Spain. Logically, it seems to also be designed to entice the rest of the world into putting more money into the IMF’s arsenal.

Earlier this morning, German seasonally adjusted jobless rate fell (6.7%) to a new record low in March, despite the ongoing debt crisis and a weak run in German growth data. This mornings US claims data is expected to uphold its recent trend and decline further to around +345k, w/w.

Other Links:
US 5-years weaker than 2′s