Posted on February 10, 2015 by the XM Investment Research Desk at 8:22 am GMT
Currency majors were mostly range-bound during today’s Asian trading, as the lack of fresh fundamental news led to minor fluctuations. Chinese inflation missed estimates as producer inflation fell much more than expected to -4.3% year-on-year (deflation of 3.8% was expected), while consumer inflation fell to a low of 0.8% compared to 1% expected and 1.5% the previous month. Consumer inflation was the lowest in 5 years. This opened the door to the possibility of additional monetary stimulus in the world’s second largest economy, although the drop in inflation was heavily influenced by falls in commodity prices.
There was a degree of profit-taking in risk assets given their positive performance the previous days. Worries that Greece and its European partners might not strike a deal over the country’s debt and future financing were the reason behind such profit-taking, as was the escalating conflict in Ukraine and the failure to agree to a ceasefire. The euro was more or less flat around 1.1320, while dollar / yen stayed within the 118 handle. Euro / yen was also range-bound around 134.30.
There was speculation whether increased tension over Greece’s continued membership of the euro area would benefit safe haven currencies such the Japanese yen and the Swiss franc. In contrast, the pound is more vulnerable to adverse events in Europe and British Finance Minister George Osborne warned that the danger of a ‘very bad outcome’ on Greece was increasing as a miscalculation could take place. This created risks to the world economy and the British economy, according to the Chancellor.
The US dollar itself was a candidate for safe haven demand, as it is seen distant from the woes of Europe. The dollar has so far proved unable to capitalize on the momentum generated by the positive nonfarm payrolls report on Friday.
Commodity currencies were tracking the fortunes of oil, which was trading above the $50 a barrel level since Thursday and was giving such currencies a lift. US crude oil was at 52.25.
Looking ahead, UK industrial and manufacturing production were expected, followed by US wholesale inventories. The Fed’s Lacker was also scheduled to give a speech. All eyes however were on tomorrow’s crucial risk event of the Eurogroup meeting of Eurozone finance ministers, where the Greek Minister of Finance would present his government’s comprehensive proposal.