Prior to the bi-monthly summit meeting of single currency officials, the euro has had a tenancy to trade higher in anticipation of solutions within the currency block. Usually by Monday afternoon the market sorts through the politician's platitudes, and then reverses. This weekend's agenda is to have enough money in reserve to build "firewalls" and "ring fences."
It is interesting to note the Germans are marching in two directions. They are willing to boost the funds to build the "firewall" after having reluctantly approved the recent loans by the ECB for €1T of 1% money to avert a credit freeze in Europe. Fearful that some of these funds may work their way back to Frankfurt, Ambrose Evans-Pritchard reports:
"Germany launches strategy to counter ECB largesse ... Germany is preparing a raft of measures to safeguard its financial system and prevent excess stimulus from the European Central Bank leaking into an inflationary credit boom.
The plans have major implications for monetary union, dashing hopes in Southern Europe that Germany might accept a few years of mini-boom at home to help lift the whole system off the reefs.
Andreas Dombret, a key board member of the Bundesbank, said the body would be given powers to check "excessive credit growth" and impose "maximum leverage ratios" to nip economic overheating in the bud."
Unemployment in Germany is the lowest it has been in 20 years. For the EU, the new unemployment number coming out on Monday the 2nd of April is estimated to be 10.8%. It is hard to believe two such diverse economies can be tightly bound together with single policies that benefit everyone.
Looking at the weekly EUR/USD chart, the market is coiling. A breakout can be expected in the next several weeks.
Tuesday should prove an interesting day for the Aussie, because we get Australian Retail sales, and an interest rate statement and potential change in the bank rate by the RBA. The daily chart looks weaker, but we have been fooled before.
Finally, we end the week with a U.S. non-farm payroll report on Friday, a religious holiday for some. The NFP report usually results in heightened volatility, which may be exaggerated this year because trader ranks might be thin with the holiday. The preliminary guess for the NFP is 210K new jobs, and the unemployment rate remains unchanged at 8.3%.
Recent NFP reports have shown improved employment conditions but traders are skeptical of these numbers for two major reasons. NFP reports are subject to multiple revisions, often going back for months. Part of these revisions are caused by the birth/death ratio. This refers to the birth and death of small private businesses.
The second major reason traders are skeptical of the NFP is the perception Washington bureaucrats massage the numbers to help when a member of their party is in the White House. In an election year, it is tempting to think the boys and girls at the Department of Labor will work hard to present President Obama in a favorable light. Given the flexibility they have in the birth/death calculation, it is easy to understand how this could happen.
We note the pound versus the U.S. dollar has conquered the 1.60 handle but has failed to hold the advantage. For whatever reason the pound acts good, but maybe the short leg belongs in the yen, not the U.S. dollar. There are those that claim Japanese firms are repatriating the yen on this, the end of the quarter. If true this may have helped the yen versus the pound today. If that trade is over, perhaps the pound can resume its strength versus the yen next week.
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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.