The overnight short-squeeze in EUR crosses extended into the early part of the Asian session with a quick run-up through 1.25 and the overnight high versus the US dollar on stops triggers.
There was no particular news item as the catalyst for the push higher but subsequent dips were very shallow and we spent most of the morning hovering around the 1.2530 level.
AUD activity was quiet ahead of the RBA rate announcement which saw the Ozzie central bank cut its official cash target rate by 25bp to 3.50 percent. This was the outcome most had expected though some were gunning for a 50bp cut. In the accompanying statement, the RBA said the cut was due to the domestic outlook and expectations for both additional weakening in Europe and further moderation in Chinese growth. AUD moved higher after the announcement as the 50bp cut hopes were priced out.
Other data releases showed HSBC’s China services PMI improving to 54.7 from 54.1, the second monthly increase in a row and the fourth consecutive increase on the 3-month average. In contrast, Australia’s service sector continued to contract in May, but at a slightly less-worse rate than in April (43.5 from 39.6). Australia’s current account deficit widened in the first quarter of the year as slackening demand for commodities caused price falls. The deficit widened to A$14.892 bln with the trade balance swinging into a deficit of A$3.0 bln from a surplus of A$2.2 bln.
EUR’s short-squeeze had continued overnight with the UK’s jubilee holiday reducing liquidity during the European session. G7 announced it was to hold emergency conference call talks today on the EU debt crisis and hopes of a “magic wand” solution lifted the single currency. There were also favourable words from the IMF for Portugal on its reform progress which also helped the move higher but S&P’s thoughts of a 1-in-3 chance of Greece leaving the Euro capped the rally short-term.
US data releases were confined to factory orders for April which showed orders falling by 0.6 percent from a month earlier, and a downward revision to March’s data, giving further indication of the global slowdown. There was a muted reaction from markets with Wall St closing mixed, the DJIA losing 0.14 percent but the S&P and Nasdaq both rallied by 0.01 percent and 0.46 percent respectively.
Data Highlights
US May ISM New York out at 49.9 vs. 61.2 prior
US Apr. Factory Orders out at -0.6% m/m vs. +0.2% expected and revised -2.1% prior
AU May AiG Performance of Services Index out at 43.5 vs. 39.6 prior
AU Q1 Current Account Balance out at –A$14,892 mln vs. –A$14,850 mln expected and revised –A$9,639 mln prior
China May HSBC Services PMI out at 54.7 vs. 54.1 prior
AU RBA cuts cash Target rate by 25bp to 3.50%
Upcoming Economic Calendar Highlights
(All Times GMT)
Sweden PMI Services (0630)
GE PMI Services (0755)
EU PMI Services/Composite (0800)
EU Euro-zone Retail Sales (0900)
GE Factory Orders (1000)
US Fed’s Fisher to speak (1100)
CA Building Permits (1230)
CA Bank of Canada Rate Announcement (1300)
SI PMI (1330)
US ISM Non-manufacturing (1400)
US Fed’s Bullard to speak (1815)
Andrew Robinson,
SAXO BANK