EUR Bears Need a Break

Markets were not expected to be trading this way, however its a pleasant surprise for the first trading day of a new quarter. Perhaps the ‘hard’ landing question for China can be forgotten until their next major data point at least. On the weekend, their headline PMI rose to 53.1 in March, rallying a healthy +2.1 points from the previous month and against the consensus expectation of a mild moderation. This was in stark contrast to the HSBC PMI. Many now believe that the seasonality in the official series has diminished over the past year or so and that Saturday’s print should be seen as simply a good PMI number. This release probably will not require the PBoC to be thinking about launching any meaningful stimulus any time soon.

Initial reaction gave a boost to growth sensitive antipodean currencies, however profit taking and position squaring ahead of the RBA, who is not expected to ease, but whose official remarks could lead to an easing bias, has again pressurized some of this risk taking. Even yen has been sending mixed signals this morning. Now that Japanese exports have finished with buying their domestic currency for financial year end certainly has opened the topside for the currency pair outright. The weaker than expected Tankan survey over the weekend (-4 vs.-1 for Q1) is however going to raise expectations for more BoJ easing at next week’s meeting. The immediate problem with the short yen trade is that everyone has it on. Slippage, depreciation or whatever you want to call it, will be slow and meticulous, as the yen down fall from its highs last quarter has been rather aggressive.

Even a the perky cable, buoyed by its own manufacturing PMI numbers beating expectations (52.1 vs. 50.8), has managed to print a four and a half month high and generously pushed the EUR to temporarily test its overnight highs before the weight of the crosses has again put a stop to the single units gains. There is talk of good size real money demand for the EUR, but the rebound from its lows this morning already seems to be laboring. However, the pound should maintain its PMI advantage. Offers from the overnight EUR highs still trail to the 1.34 option barriers and are expected to slow gains. The ‘slip’ in the EU March manufacturing PMI and new orders is likely to reinforce better EUR selling on rallies.

So where are we? The EUR bears are no further ahead even with data adding to the Euro evidence that there are entrenched in a recession. The ECB meets on Wednesday this week, a day early as a result of holidays at the end of the week and no one expects “any innovative actions” from this meeting, with policy makers clearly in holding mode. Are we to wait for the other PMI release and employment reports before we are to make a move?

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Dollar Danger is to Trade Higher