The EUR/USD rallied above the 1.3500 level but couldn’t hold its gains as consolidation continued in the currency market in the wake of successful Greek auction of 5 Billion euros that satisfied the country’s financing needs for the month of April. Meanwhile cable performed considerably better rallying well above the 1.5000 mark as economic data surprised to the upside on all fronts.
In a further testament to strengthening housing market in UK, Nationwide house prices rebounded in March rising 0.7% versus consensus calls of only 0.2% gain and considerable improvement from February’s 0.8% fall. UK GDP was also revised higher to 0.4% from 0.3% eyed while the Current Account deficit came in at -1.7 Billion versus estimates of -4.6 Billion pounds. The Current Account reading was the smallest deficit since Q1 of 2008 suggesting that UK Balance of Payments position is beginning to turn for the better.
Overall, the improvement in UK data was only incremental, but given the massive bearish sentiment that surrounds the currency, today’s news could provide further fuel to a short covering rally if risk appetite continues to be supportive into the North American session. The pair could target 1.5100 in New York trade in light of the fact that most of the recent UK economic data has surprised to the upside, suggesting that the recovery may not be as anemic as the bears believe.
Meanwhile the euro saw an initial flurry of buying on the European open that lifted the pair to a fresh weekly high of 1.3535 but struggled to maintain those gains as the morning progressed. Although the immediate crisis regarding Greek financing needs has passed, the market remains concerned that the key structural issues have been left unresolved. The Greeks are still forced to pay premium rates in order to roll over their debt– a dynamic that appears to be unsustainable as their debt service costs continue to rise making it much more difficult to curb their fiscal deficit. That issue is likely to weigh on the euro going forward, however for the near term the path of least resistance looks to be up as short covering flows push the pair higher and relieve some of the oversold conditions.
In North America today, the calendar remains relatively quiet with only the Consumer Confidence data on the docket. The market is anticipating a rise to 50.1 from 46.0 the period prior. A stronger than forecast number could push USD/JPY through 93.00, however the pair is likely to tread water until tomorrow’s ADP report which will provide traders with a first clue as to the strength of the US labor market in March. With event risk essentially absent from the calendar today, trading in FX is likely to be dominated by risk flows and forays to test key barriers of 1.3500 in the EUR/USD and 1.5100 in GBP/USD.