EUR/USD Back Below 1.3000 On Rate Cut Anticipation

 | Apr 23, 2013 06:41AM ET

An ugly little squeeze higher this morning caught the EUR/USD sellers off guard before the pair pushed lower again after dissapointing German PMI data. Where the EUR/USD settles today vis-à-vis 1.3000 and on the other side of tomorrow morning’s IFO survey result will likely set the tone for the next week or more.

The JPY was stronger overnight, and commodity dollars depreciated after a weaker than expected HSBC flash China Manufacturing PMI for April. Europe came in and plowed into equities and risk-on trades, selling the JPY before the German survey data put a halt to those developments. This morning, in less than an hour, the EUR/JPY went from 128.55 to 129.35 and back to 128.40. The strong JPY came despite Standard and Poor’s indicating that it saw a one in three chance of downgrading Japan’s sovereign debt ratings due to uncertainty over Japanese policy. There was commotion yesterday concerning Japanese life insurers wanting to buy foreign bonds if long Japanese yields remained as low as they have lately.

France released slightly less awful than expected preliminary April manufacturing and services PMI survey data. We have to remember that these surveys compare conditions with recent months (diffusion indices), so eventually, as long as an economy stabilizes, the surveys should edge back toward 50. As long as they are below that level, it means that things are continuing to get worse. The difference between the survey moving up to 44.1 vs. 41.3 the previous month, as we have seen with the French services PMI reading this morning, is a question of things getting worse at a slower pace than they were previously. The worsening does need to decelerate before outright improvement can be seen, but we can’t say that “things are getting better” per se until these surveys go above 50.

The German survey data came in quite weak, with the preliminary April Services PMI dipping back below 50 and the Manufacturing survey showing the worst reading in four months at 47.9, as we look towards a likely rate cut at next week’s ECB meeting.

The Swedish unemployment rate jumped to 8.8% vs. an unchanged reading at 8.5% expected. This has shot the EUR/SEK to new local highs and has the USD/SEK challenging above its 200-day moving average at the time of writing.

Chart: USD/SEK
This is oneI’ve had my eye on for a while now. The krona has taken a real beating lately, and the USD/SEK could have a good deal more wood to chop to the upside now that this 6.55 level appears fully taken out and the descending trendline has been more decisively broken. If the EUR/USD confirms the 1.3000 break, we may have a look at 6.75+ here.