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| Market Overview | Written by ActionForex.com | Apr 27 08 06:29 GMT | | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Weekly Review and OutlookEUR/USD's sharp reversal after making a new record high at 1.6019 last week triggered talk on whether the multi year up trend in the pair has finally completed. While it's too early to conclude a long term reversal, a couple of underlying factors are playing in the markets that will at least continue to support the greenback and pressure the common currency in the near term.
On the one hand, there are growing speculations that Fed's policy easing cycle is near to an end. Indeed, interest rates futures are now pricing in over 20 percent odds that Fed will be on hold at 2.25% this week. Even though Fed is still more likely to cut rates by 25bps to 2.00%, the accompany statement may include change of languages that signal Fed is near to a pause. Also, a number of important growth data will be released this week, including Q1 GDP, ISM Manufacturing and Non-Farm Payroll. Markets are expecting some poor numbers which gives not much room for downside surprises. Note that investors' sentiment has improved remarkably in recent weeks, which is also reflected in the pull back in Yen and Swissy, as well as in the strength in Sterling. It's sensible that investors are adjusting their dollar short positions ahead of a defining week for the greenback. On the other hand, there has been a drastic change in sentiments over the Euro, in particular after the surprising disappointing Germany Ifo business climate. ECB President Trichet's comment that Euro's surge to a record high against dollar may hurt the Eurozone economy added additional pressure to the common currency. Indeed, Euro's weakness towards the end of the week was rather broad based and is apparent in EUR/GBP and to a lesser extent, in EUR/JPY too. After all, the Swissy was indeed the biggest loser last week as it's being dragged down by weakness in Euro as well as pressured by return of risk appetite in the markets. The Franc, along with Euro, will likely continue to be most pressured if the upcoming events proves to be dollar positive. Yen was mixed and will probably remain so. So is the Aussie even though it surged to new 24 year high of 0.9541 against dollar earlier. Conflicting factors will likely continue to play on commodity currencies. Sterling will continue to be dominated by cross activies and will likely be supported if investors' sentiment continues to improve.
On the data front, it was indeed a rather light week in the US. On the positive side, jobless claims unexpected fell to a two month low of 342k. Also, even though headline durable goods orders dropped for the third consecutive by -0.3% in March, the details were indeed solid. Ex-transport orders rose strongly by 1.5% while ex-defense orders also climbed 0.3%. On the other hand , deterioration in the housing market is still clearly seen in another month of disappointing new home sales which dropped sharply by -8.5% to 526k annualized rate in March. Existing home sales dropped further by -2.0% to 4.93m annualized rate in March. Final print of U of Michigan consumer sentiment in Apr was revised further down to 62.6. From Eurozone, the most market moving data last week was the Germany Ifo index. The business climate index disappointed the markets by dropping to 102.4 in Apr, which is even lower than Dec's low of 103.0. Indeed, that was the lowest reading since Jan 2006. M3 money supply slowed much more than expected from 11.3% yoy to 10.3% in March PMIs were mixed. Eurozone Services PMI improved from 51.6 to 51.8 in Apr but Manufacturing PMI tumbled from 52.0 to 50.8. German Services PMI gave the markets a big surprise of rising remarkably from 51.8 to 54.6 but manufacturing PMI disappointed by falling from 55.1 to 53.6. Industrial orders climbed 0.6% mom, 9.9% yoy in Feb. Eurozone current account turned to 5.0b surplus in Feb. BoE minutes released revealed a surprise 6-2-1 split in the decision to cut rates by 25bps to 5.00% earlier this month. Six members voted for the 25bps cut while Besley and Sentance voted for no change. Blanchflower, on the other hand, voted for 50bps cut. Markets expected an unanimous 9-0 vote. UK retail sales dropped -0.4% mom in Mar with yoy rate at 4.6%. Feb's growth was revised higher, in particular with the yoy rate revised up from 5.5% to 6.3%. On a quarter to quarter basis, GDP growth in UK slowed from 0.6% to 0.4%, inline with expectation. Year over year rate slowed from 2.8% to 2.5%, missed expectation of 2.6% and being the slowest pace in three years. While this was certainly not an impressive number, the data did released some fears of a deeper slowdown in the UK and revive some speculations that the worst of credit crunch could be over. From Japan, CPI climbed to a decade high of 1.2% yoy in Mar, suggesting that the rally in oil and commodity prices was being passed on to consumers. Tokyo CPI was unchanged at 0.6% mom in Apr. The yen showed little reaction to the data as it's inline with expectation and BoJ is not expected to have any change in the monetary policy in near term. Other data saw tertiary industry index dropped more than expected by -1.7% in Feb, all industry index dropped more than expected by -1.4% in Feb too, leading indicators improved to 54.5% in Feb, trade surplus widened less than expected to 1119b in Mar. Swiss combined PPI climbed sharply from 3.% yoy to 3.9% in Mar. Trade surplus narrowed from 1.5b to 1.25b in Mar but was above consensus of 0.7b. BoC cut rates today by 50bps to 3.00% as widely expected. The accompanying statement re-empahsize that "some further monetary stimulus will likely be required to achieve the inflation target over the medium term," which is taken as a signal the further easing will be seen from BoC. Also, the bank is now projecting a "deeper and more protracted slowdown" in US which will exert a "significant drag" on 08's growth. Aussie surged to new 24 year high against the dollar early last week after strong inflation data. PPI jumped 1.9% qoq in Q1, which was the biggest quarterly rise since 98. On a year to year basis PPI rose 4.8%, highest since 2000. The acceleration in produce price was much faster than expectation of 1.0% qoq and 3.9% yoy. Q1 CPI accelerated sharply from 3.0% yoy to 4.2%, fastest pace since 2001 and beat expectation of 4.0%. RBA has made it clear is their last statement and minutes that a strong inflation number is expected and the tightening cycle should be paused after March's hike. The current inflation outlook will certainly keep RBA on hold but speculation will on the possibility of resuming rate hike will likely grow is the next round of growth data continues to show robustness in the Aussie economy. RBNZ kept rates unchanged at 8.25% and issued a rather dovish statement. RBNZ expects that "OCR will need to remain at current levels for a time yet," which was changed from "a significant time yet". Also, regarding the economy, the bank described that "economic activity has weakened more markedly than expected" Source : Actionforex.com | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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