Merkel’s comments music to the ears of the Euro

15.19 AEST, Friday 17 August 2012

Merkel’s comments music to the ears of the Euro
By Tim Waterer (Senior Trader, CMC Markets)

With hopes for an ECB action plan beginning to wane, the German Chancellor’s reminder to financial markets of a commitment to the Euro cause came as music to the ears of the single currency which is again residing above the 1.23 level against the Greenback.

US economic data continues to paint a less than clear picture over which way the FOMC will be leaning in September regarding the need or otherwise for QE3. Whilst the data on display from the US this week could be categorised as slightly above average at best, next month’s jobs report will likely be the decisive factor for the FOMC.

Oil traders are looking for what positives there have been in US data this week and using this as a basis for buying, on expectations that there are signs of life on the demand side heading into the coming quarters. Retail Sales and construction data this week have both served to push the price of oil higher, with US$100 per barrel now a realistic short term target, particularly if the ECB settle some nerves and partake in Eurozone bond buying come September (the emphasis here is on the 'if' part).

The Australian Dollar has not been able to keep pace with the Euro in the past few sessions, with the lack of new domestic drivers keeping the Aussie in a fairly tight range half a cent either side of the 1.05 level. The lack of new buying momentum and continued uncertainty over stimulus likelihood in the US is having a containment type of effect on the AUD, which was illustrated by the tight trading range again today and for that matter the tight trading ranges on offer the whole week. The AUDUSD rate has operated in just a 1.2c trading range for the week, which is something of a rarity in this day and age and this reflects the lower levels of volatility present in the market as we await new drivers of sentiment.

Propelled by optimism on the corporate earnings front in recent days, the ASX200 hit the finish line with some gusto to cap off the week. The ANZ result set the tone for the financial sector, while elsewhere the big retail stocks registered substantial moves higher with Wesfarmers again an outperformer.

With impressive gains on both Thursday and Friday acting as a one-two punch, the ASX200 index is being driven ever closer to the elusive 4400 level. Tonight in the US, Consumer Sentiment data will be among the key events to watch for. How US equities perform this evening in reacting to the data could be a momentum setter for the Australian market early next week in its quest for 4400 on the benchmark index.

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