Risk FX Boosted By Better Data

Top Stories

• IFO beats rising for 6th month in a row
• UK Retail Sales much better boosted by warm weather
• Nikkei off -0.28% Europe off -0.23%
• Oil at $102.50
• Gold $1645/oz.

Overnight Eco

• JPY Tertiary Industry Index (MoM) (FEB) 0.0% vs. 0.8%
• EUR German IFO - Business Climate (APR) 109.9 vs. 109.5
• EUR German IFO - Current Assessment (APR) 117.5 vs. 117
• EUR German IFO - Expectations (APR) 102.7 vs. 102.5
• GBP Retail Sales (MoM) (MAR) 1.5% vs. 0.4%
• GBP Retail Sales w/Auto Fuel (MoM) (MAR) 2.8% vs. 1.4%

Event Risk on Tap

• CAD Leading Indicators (MoM) (MAR)
• CAD Consumer Price Index (MoM) (MAR)
• CAD Consumer Price Index Core (MoM) (MAR)

Price Action

• USD/JPY remains above 81.50
• AUD/USD weak at 1.0326
• GBP/USD takes out 1.6100 on string Retail Sales
• EUR/USD above 1.3150 post better IFO

Risk FX was boosted in morning European trade today by better than expected IFO reading out of Germany and stronger Retail Sales from UK with EUR/USD rising above the 1.3150 level while cable broke through the 1.6100 figure. German IFO survey printed better than expected rising for the sixth straight month as the country’s manufacturing sector continues to defy concerns over slowdown in economic activity in the region. IFO rose to 109.9 from 109.6 eyed just a tad higher than the 109.8 reading posted last month.

Despite the upbeat headline number there was a massive gap between current conditions which printed at 117.5 versus future expectations which came in nearly 15 points lower at 102.7. The widening gulf between present and future reflects the anxiety of manufacturing executives over the chronic problems in the region’s credit markets.

Credit market remained tense in early European trade with GE/Spanish spread widening to 431 point from 423 yesterday while the concern over the possible election of Socialist candidate Francois Hollande in France put pressure on the 5 year CDS which was trading above 200bps. Although the credit backdrop remained negative for the EUR/USD, the latest IFO results provided a boost to risk sentiment helping to lift the pair to 1.3170 in post release trade.

Meanwhile in UK the Retail Sales figures proved far stronger than market forecast rising to 1.5% vs. 0.4% forecast. Retail sales rose at their fastest monthly pace for a year in March, as clothing and footwear sales were boosted by the warm weather. The news bodes well for Q1 GDP figures and shows that the UK consumer demand may perk up into the spring especially if petrol prices stabilize. Cable has been one the strongest pairs over the past few days as it has benefited both from safe heaven flows and better than expected economic data. The pair broke above the 1.6100 level in post news trade and could eye 1.6150 as the day progresses.

With no major economic releases in North American session the key question will be whether the positive risk sentiment in Europe can carry through into the week-end. To that end the EU credit markets could prove critical as the day proceeds. If the periphery spreads stabilize and begin to tighten the albatross of credit concerns would be lifted somewhat and could help fuel further short covering in the EUR/USD towards the 1.3200 level.

FX Upcoming

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