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Asian Session – Commodity currencies rebound on oil; euro up on Greece deal hopes

Posted on February 4, 2015 by the XM Investment Research Desk at 8:09 am GMT

oil-industry-2There was plenty of action in foreign exchange markets as some significant counter-trend moves took place in the past few sessions.  Oil continued to gain, rising around 20% from its trough as US crude oil overcame the $52 a barrel level.  Signs that capital expenditure regarding exploration and production were being cut by oil majors such as BP combined with news of last week’s drop in the US oil rig count, gave rise to optimism that the floor in oil prices had been found.

 

The rise in oil prices boosted commodity currencies such as the Canadian and Australian dollars, as the loonie pushed the US dollar as low as 1.2351 and the aussie rallied to 0.7828 from a low of 0.7627 only the previous day when the RBA cut interest rates.  The New Zealand dollar also climbed to 0.7436 from 0.7175 the previous day as dairy prices rebounded following an auction and Governor Wheeler said he foresaw interest rate stability in the foreseeable future.

 

Rising oil prices also helped energy shares, which in turn led to improving risk sentiment as stocks rallied on Wall Street and elsewhere, while Treasury bond yields also pushed higher.

 

The dollar however did not receive much support from the increase in treasury yields as it declined both against the euro and against sterling.  The dollar held better against the Japanese yen, although when a challenge to the 118 level failed, it corrected all the way back to 117.50.   The euro was at 1.1460 after briefly rising above the 1.15 level the previous day, while sterling tried to take on the 1.52 mark but failed and came back to around 1.5155.  The euro was helped by the news that Greece would no longer seek a debt write-off but some kind of debt swap instead, although excessive short positioning against the euro and the triggering of stop losses played a bigger role in the sudden move.

 

The positive risk sentiment was not dented by news that China’s services sector PMI declined to 51.8 in January from 53.4 the previous month, signaling that services as well as manufacturing could be slowing in the world’s second largest economy.

 

Looking ahead to the remainder of the day, the early European session will be dominated by final Services PMI numbers out of the Eurozone as well as UK Services PMI.  Eurozone retail sales for December will then follow, while early in the US session the ADP employment report will come out.  Finally, the ISM non-manufacturing PMI out of the United States will be released later.

 



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