by Dean Popplewell
EUR bears give it up! Bulls, is it worth it? All this for a few ticks in either direction from the close each day or are you both promising that this week will be different? It is another week full of PMIs, however, moderation is expected to be the overwhelming theme both in the US and Europe this week. Today's Chicago and Dallas releases are unlikely to be supportive for further recovery in risk sentiment. That's not saying to expect any weak reports this week, but, moderate estimates and releases will do little to reinvigorate growth-sensitive currencies and risk. The riskier of the releases will come from the Euro peripheries. They do not provide flash; for them, it's straight down to business.
After taking time out to acknowledge May Day, some of the market's focus will naturally shift towards the ECB meeting later in the week. The event itself is not expected to bring forth any new major initiatives this week. However, both investors and analysts will be pouring over all copy and rhetoric looking for evidence of softening rhetoric that aligns itself with some of the recent weaker data of late. The ECB must at least comply with the recent divergence alongside G7 yield thinking, otherwise, it's back to the drawing board for most of the trade strategy initiatives.
Both Greece and France go to the polls next weekend. The event risk probably sits with the Greeks. A Hollande victory in France, despite irking the 'Euro' Chancellor Merkel already, could be seen as a victory for a more pro-growth policy stance in France and it's this way of thinking that benefits market sentiment. It's not a surprise that the bigger event risk is probably Greece. The failure of the center parties to achieve an outright majority in combination can only lead to a coalition amongst the 'less' desirables. This will not be a EUR market friendly agreement. However, a round of new elections could be an alternative outcome.
Amongst all this political euro jockeying, Spain and France again have to come to 'market.' Last week was painful enough for the FX trader. The impatient bunch ended up yield watching during periphery refinancing week, and lived through every basis point! Spain will go to market with 3s and 5s on Thursday, and France will sell 5s, 10s and 15-years. With most of the Spanish refunding requirements completed for this year, the focus will shift to the other peripheries to lead the yield way. It is they that will keep the Spanish benchmark knocking on the +6% door.
NFP ending the week is the unknown component for risk in the new month. So far, the release estimate has been gyrating between a small negative print and a bang on release close to expectations (+175k). As the release approaches on Friday, many more opinions will be made known. With Treasurys, equities and gold ending last week higher and the dollar stumbling, are we setting the scene for QE3? It's worth reminding ourselves that a disappointing weekly claim print last week (third consecutive one) has inspired some renewed QE3 enthusiastic rhetoric. An uninspiring NFP release will be the key to shaping the quantitative outlook. Imagine what the asset class landscape is going to look like if there is no QE3 announcement at the June FOMC meet!
For now, the market is back to it regular EUR figure expiry and cross-selling routine. What else can anyone expect when you straddle key number points like 50 and the figure. The tighter stop losses on either side of market continue to be taken out as no fundamental strategy remains in play just yet. Overall and for now, the market continues to wait for momentum to build in either direction.