Commodity Currencies Take Focus On USD Weakness

Commodity currencies took focus today seeing strength throughout the session amid improved sentiment surrounding the commodities complex and a weaker USD. However, some strength was observed in the USD later on in the session as American participants came to market. In spite of this, commodity currencies continued to see strength, ending the session near highs.

EUR was largely dictated to by German national and regional CPI readings and an increase in carry trades during the early part of the European session. The headline reading came in under the expected at (0.00% Y/Y vs. exp. 0.10% prev. 0.20%). This comes as some have speculated that the current QE program employed by the ECB may be insufficient to reach its inflation target of 2%, and German inflation data printing below expected could contribute to the argument for an expansion of the ECB’s QE program. Towards the end of the session EUR/USD tripped light stops through the 1.1200 handle to the downside, with the 200DMA at 1.1180 in sight, however it found resistance at this level and regained the 1.1200 handle.

Elsewhere in FX markets, throughout the day JPY has seen some choppy price action initially benefiting from safe haven flows overnight, as Asian equity markets traded in the red amid a strong risk-off sentiment. However safe have bids in JPY began to unwind during the European session and continued in this vein throughout the session with USD/JPY trading higher in conjunction with a stronger USD.

Looking ahead, tomorrow sees German unemployment data and an initial estimate of eurozone CPI, which will be under particular scrutiny given the aforementioned speculation surrounding the ECB’s QE. Other notable data points include UK GDP and US ADP employment change ahead of Friday’s US nonfarm payrolls report.

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