On Thursday, EUR/USD continued to hover within the sideways trading pattern that is in place since earlier this week. The Spanish bond auction went rather well, but failed to change sentiment for the better. EUR/USD dropped temporary below the 1.31 mark, but the key 1.3000/1.2974 support stayed out of reach.
Yesterday, the focus of global markets was on Spanish and, to a lesser extent, French bond auctions. Sentiment was not bad going into the auctions and the euro gained a few ticks. The Spanish bond auction went rather well (amount on the topside of the range). However, the auction results couldn’t really convince investors to search for more risk. EUR/USD touched an intraday high at 1.3166 immediately after the publication of the auction results, when the move stalled.
Early in the afternoon, markets were spooked by diffuse rumors on a French downgrade. The rumor was said to be linked to an analyst report indicating that Moody’s may put the rating for France on review by the fall. The currency market being unsettled by this kind of “news” tells much about sentiment. EUR/USD dropped to the 1.3070 area.
Reported corporate earnings (in the US) were mostly above consensus, but failed to support equities, risk sentiment and also EUR/USD. Weaker than expected US jobless claims initially had also no big impact on EUR/USD trading. EUR/USD set an intraday low at 1.3069, but the 1.3058 Wednesday low stayed out of reach. The relationship with equities was weak. The temporary decline of EUR/USD and the rebound occurred while equities traded range-bound, and when equities did drop in later US trading, EUR/USD hovered sideways. So, this was another session of erratic EUR/USD trading that ended virtually unchanged, a pattern visible since the failed test of the downside on Monday.
EUR/USD trades direction less near 1.3140. Later today, the calendar is moderately interesting. The German IFO indicator is expected to decline slightly, but current levels suggest a decent level of economic activity. We put the risk for a (slightly) weaker figure than the market consensus. However, it is even doubtful that an unexpected much-stronger-than expected figure will be able to change the fortunes of the single currency.
The focus is on the periphery/Spain, not on Germany. There will also be a lot of market chatter/analysis about the meeting of the G20 Finance Ministers. IMF’s Lagarde indicated already that the IMF firepower will be significantly increased at this weekend’s meeting and several countries indeed signalled their willingness to raise their contributions.
However, it probably won’t change the market perception on the sustainability of the EMU debt situation. So, we don’t see it as a big input for EUR/USD trading. The French elections, first round this weekend, are another source of uncertainty.
