Greenback strength returns

Equities enjoyed gains across the US and Europe as reports came in overnight that Greece had finally completed its payment to the IMF.

Source: Bloomberg

This underpinned European markets and resulted in some solid gains across the board. Perhaps the weakness in the euro played a big role in supporting equities as the greenback came back to life.

EUR/USD was trading at $1.1000 just a week ago but has now resumed its downward trajectory. An uptrend that had been in place since the March lows at around $1.0460 has also now been broken and this seems to have prompted traders to add onto shorts.

The high correlation between the euro and the DAX in particular remains prevalent and the renewed weakness in the single currency is seeing German equities head back to record highs. The index is consolidating above 12,000 and remains one of the key markets to watch this year.

China will remain in focus

After yet another stellar performance yesterday, focus in Asia will remain on the Hang Seng. The southbound quota was used up once again yesterday with plenty of volatility in price action. It’ll be interesting to see how much longer this run can go but a slight concern is the fairly hefty reversal from the highs that we saw yesterday.

Adding to the excitement today will be China’s CPI and PPI, which is due out at 11.30am. The AUD is one of the few currencies that remained steady against the greenback. AUD/USD is just holding on to $0.7700 with the only local release being home loans data at 11.30am.

The market is looking for a rebound to a 3% gain after having contracted 3.5% in January. Perhaps the impact of the rate cut will be reflected in this data and, after the strong retail sales we saw this week (driven primarily by electrical goods sales), we could be in for a strong reading.

If this reading confirms that demand for housing lending has remained strong, the AUD could extend its gains. Conversely, a drop off in this number could be construed as dovish.

6000 barrier to remain elusive

Ahead of the open we are calling the ASX 200 0.4% higher at 5960. Investors continue to wonder just when we’ll see the market finally break through 6000 and it seems this level will remain elusive until we get a clear indication of an imminent rate cut.

The price action leading into this week’s rate decision was overwhelmingly bullish as investors positioned for a potential cut. However, the reversal following the announcement was very swift and this suggests it’s all about rates at the moment.

This is dictating how the yield plays trade and they’ve shown no signs of life this week. The other point of contention is around iron ore miners and whether the investment case will return in the near term.

Despite a tick higher in the price overnight, It doesn’t seem like investors will be in a hurry to get back into these stocks.

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