Sterling was the big mover overnight with the release of the better than expected Q1 GDP which printed +0.3% from -0.3% last and against 0.1% expected. It is an encouraging sign that the UK economy may not be as weak as many including us here at Global FX had thought was the case but the reality is that the UK economy and its budget deficit still face some big chllenges as the year on year GDP is only up 0.6%.
But as we always note often it is not the data that makes the markets move but rather where the data prints relative to what the market thought was going to print. So Sterling fairly roared from 1.5262 to a high of 1.5480 and its sits at 1.5430 this morning.
The chart above shows that GBP has continued to respect the uptrend since the low in March and the Fibonacci extension now that GBP has taken out the high from this month is for a move to 1.5627 which seems a long way from the 1.42 we had been expecting that GBP would head toward back in March when it broke down through 1.52.
Key to the GBP’s move and the Euro’s selloff from a high of 1.3093 overnight against the USD is the move in EURGBP. We don’t often talk about this cross although we watch it every day. What you see in the chart above is an excellent set up for a crash in the EURGBP rate if it can close below the .8404 low of last night. Target is .8265 and then .8082 if that level gives way.
Which gives us a nice segue to look at the Euro itself. We have a small lifestyle short in Euro at the moment believing it is headed toward 1.2750 perhaps 1.2650. The data out of Europe last night fairly screamed ECB rate cut with Spanish and french unemployment hitting new records of 3.25 million and 6.2 million people respectively. The French don’t report a percentage figure but the Spanish unemployment rate of 27% is truly appaling and stands testament to the ludicrous notion that you can austerity yourself to growth and helps explain why there has been so much academic aggression toward Professors Reinhart and Rogoff’s poor excel skills which caused them and by implication the IMF and Europe to draw incorrect conclusions about the relationship between debt and growth.
But whatever path Europe chooses for its future lower rates and at some point more bond buying across the zone seem part of its future. Which paints a picture of a weaker Euro even if the data in the US has been a bit more disappointing recently.
The chart above of the EURUSD gives a clear picture of a currency that is rolling over but a break of the low of this week and the 200 day moving average that comes in at 1.2946 today is required to confirm this outlook.
The Aussie has recovered nicely of the lows of earlier this week and from the post CPI lows on Wednesday where it dipped into the 1.0220’s. Over the course of ANZAC day the Aussie rallied to a high of 1.0339 in tune with USD weakness and Euro’s aborted strength. It sits at the moment at 1.0289 mid range for the past two days. The high yesterday is actually the third touch on a tentative trendline on the 4 hour charts. This line comes in at 1.0325 at the moment. On the downside last nights low at 1.0268 and the 1.0260/70 zone which has been an important level both up and down is seen as an important level for the Aussie to hold.
In other overnight news the better than expected print of jobless claims in the US which fell to 339,000 against expectations of a fall to 351,000 from last weeks 355,000. This bigger than expected drop seems to have put a little more confidence back into the US recovery story from what we’ve seen and read this morning. Never mind the weaker than expected Kansas City Fed index – nope just ignore that.
The Dow rose 25 points or 0.17%, the Nasdaq was up 0.62% and the S&P rose 6 points or 0.39% to 1585 which is a great reaction away from the key 1520 level we identified last week and the S&P continue to keep keeping on.
In Europe the FTSE had every right to rally but didn’t really get on with it only rising 0.17%. In Germany the DAX was up 0.95% but the CAC paid a little bit of attention to the weak employment numbers as did stocks in Spain with falls of 0.08% and 0.29% repectively. In Milan stocks were up a little more than half a percent.
Commodity market moves help explain why the Aussie rallied with Crude up 1.96%, Gold up 2.7%, Silver up a ludicrous 5.74% while Dr Copper rose 2.53%. These moves suggest both US dollar weakness and a different take on global growth but the volatility in the moves recently remains disquiting.
New Zealand Trade is out this morning and then Japanese CPI and a BoJ meeting results. Tonight we get the preliminary US GDP report.