No EUR Mayday

Mayday! Mayday! It’s a tad early to be using this distress signal for the single unit. The only alert is that the currency is about to extend its recent highs. The depth of existing EUR shorts continues to frustrate a still bearish market. The current loss of momentum is providing a bias towards the topside stops, drawing trade higher in the short term. This morning’s intraday break targets a test of the smaller 1.33 option barriers where a large defense of said area is deemed unlikely. Selling failures remain the preferred course of action followed by a market drift towards the 1.3250 expiries. However, FX price action remains relatively muted with markets closed for public holidays across most of Asia and now Europe.

The intraday trade exception has been the Aussie dollar, falling -0.8% after the RBA surprised the market with a-50bp cut. The sideways move in the Chinese manufacturing PMI has provided little direction for AsianFX in the o/n session. Governor Stevens at the RBA has ended up sideswiping the whole market. OIS’s had been pricing in about-33bps of easing for the meeting and have since rallied after the decision to price another three cuts for the remainder of the year.

The RBA judged that it was “desirable that financial conditions now be easier than those which prevailed in December and that a-50bp reduction was necessary to deliver the appropriate level of borrowing costs.” However, the release offered no forward guidance and the whole market will now have to focus on this Fridays Statement of Monetary Policy with new inflation and growth forecasts for more Aussie rate insight. For now, the market percentages continues to prepare for further cuts, how many? Not sure, however, AUD bearishness is the new reality.

Chinese Manufacturing PMI rose to 53.3 in April from 53.1 in March, and only a tad below expectations, but in line with the modest improvement in last week’s HSBC Flash PMI. The details were mixed with the new orders component and imports posting small declines, but new export orders edging higher. This data again would suggest that China’s concerns about a hard landing should be continued to be discouraged. However, the data does “fall short of providing much evidence of a pickup in Chinese activity.”

GBP PMI readings for this month paints a whole different picture. The UK reading came in at 50.5, well below the April forecast of 51.5. Worse still was the March revision decline, down to 51.9 from 52. This morning’s release would suggest that the UK has begun Q2 in a weaker position than Q1 and obviously would be a cause of concern over the economies ability to reemerge from this technical recession quickly. Manufacturing PMI accounts for +15% of the economy. The market needs to have a handle on Thursday’s services PMI release to formulate an overall market opinion. At the BoE meeting next week, the market does not expect any QE announcements after the long standing dove changed its spots and joined the “neutrals.”

With the market lacking both technical and fundamental momentum, investors can now expect another day of gyrating option contained pricing, accompanied by a laissez-faire attitude. Overall positioning remains short, with little threat of a strong enough squeeze momentum, one day after month-end window dressing. The market would be required too include the ECB rate decision, payrolls and a Greek election into consideration before wanting to add or reduce their single currency positions outright or on the crosses. For now, play the infamous contained price range.

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EUR Squeeze Persists

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