Daily Financial News & Fundamental Analysis

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EUR/USD- Trading the European Central Bank (ECB) Rate Decision
Governing Council may show a greater willingness to further embark on its easing cycle, and we may see the EURUSD continue to give back the rebound from November (1.2659) as the central bank preserves its one and only mandate to ensure price stability.
How To Trade This Event Risk
Trading the given event risk may not be as clear cut as some of our previous trades as the ECB sticks to its current policy, but the fresh batch of central bank rhetoric may set the stage for a long Euro trade should the Governing Council remain upbeat on the economy.

 

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EUR/USD - Trading the U.S. Non-Farm Payrolls (NFP) Report

The world’s largest economy is expected to add another 190K job in March, and the ongoing improvement in the labor market should heighten the appeal of the U.S. dollar as it dampens the Fed’s scope to expand the balance sheet further. As the recovery gradually gathers pace, it seems as though the FOMC is slowly moving away from its easing cycle, and the central bank may scale back its asset purchase program over the coming months as the outlook for growth and inflation picks up.

The EURUSD is threatening the downward trending channel following the European Central Bank interest rate decision, but the move above the 200-Day SMA (1.2882) may be short-lived as the long-term bearish flag formation continues to pan out. However, we may see a short-term reversal take shape should NFPs fall short of market expectations, and the EURUSD work its way back towards the 1.3000 figure should the data renew expectations for more Fed support.

 

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A Surprising Rise in Industrial Production Fuels Hopes for UK Q1 Expansion
1.5300 against the US Dollar. Industrial production rose 1.0% over February, beating expectations for 0.4% and up from the revised 1.3% decline in production in January. Industrial production was down 2.2% from February 2012, according to the Office for National Statistics.
Additionally, manufacturing production rose 0.8% over February, beating expectations for a 0.4% rise in factory production. In negative news for the UK economy, the total trade balance declined to a new six month low of -3.642 billion Pounds in February, versus expectations for -2.8 billion Pounds and down from a revised 2.494 billion Pound trade deficit in January.

 

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A Surprising Rise in Industrial Production Fuels Hopes for UK Q1 Expansion
1.5300 against the US Dollar. Industrial production rose 1.0% over February, beating expectations for 0.4% and up from the revised 1.3% decline in production in January. Industrial production was down 2.2% from February 2012, according to the Office for National Statistics.
Additionally, manufacturing production rose 0.8% over February, beating expectations for a 0.4% rise in factory production. In negative news for the UK economy, the total trade balance declined to a new six month low of -3.642 billion Pounds in February, versus expectations for -2.8 billion Pounds and down from a revised 2.494 billion Pound trade deficit in January.

 

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Euro Rally to Get Capped, Further ECB Support on Horizon
Euro: Spain Calls for More ECB Action to Repair Transmission Mechanism
The Euro pared the overnight advance to 1.3067 as Spanish Prime Minister Mariano Rajoy said the EU should consider revamping the European Central Bank’s (ECB) mandate, while Economy Minister Luis de Guindos argued that the Governing Council should introduce measures to address ‘fragmentation of the capital markets’ as the euro-area remains mired in recession.
Moreover, Mr. Guindos said the ECB should take further steps in repairing the transmission of monetary policy amid the ongoing turmoil in the periphery countries, while U.S. Treasury Secretary Jacob Lew encouraged the region to adopt policies that foster consumer demand as the outlook for growth and inflation remains weak.

 

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Crude Oil May Fall as Gold Gains on US Jobless Claims Data

Commodity prices are little-changed ahead of the US trading session. A relatively quiet economic calendar is headlined by weekly Jobless Claims figures. Economists’ forecasts call for a slight improvement on the closely-watched Initial Claims print, but a downside surprise in line with the deterioration in US news-flow relative to expectations since late March seems like a distinct possibility. Such an outcome may weigh on risk appetite, pushing cycle-linked crude oil and copper prices lower. A soft print may be supportive for gold and silver however, reinforcing Fed QE continuity expectations and thereby amplifying anti-fiat demand while compounding overnight pressure on the US Dollar.

Spot Gold (NY Close): $1558.54 // -26.80 // -1.69%
Prices recoiled from resistance at 1586.48, the 23.6% Fibonacci expansion, taking out support at 1565.69 marked by the 38.2% level. Sellers now aim to challenge the 50% Fib at 1458.89, with a drop below that eyeing the 61.8% expansion at 1532.09. Alternatively, a reversal back above 1565.69 exposes 1586.48 anew.

 

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Commodities: Gold Rebound May Be Short-Lived on US Inflation Drop

Commodity prices are correcting higher as financial markets digest yesterday’s aggressive flare-up in risk aversion. Sentiment-linked crude oil and copper prices are following S&P 500 index futures higher ahead of the opening bell on Wall Street.
Risk appetite may find added fuel from expected improvements in Housing Starts and Building Permits. US economic data has increasingly underperformed relative to economists’ forecasts since late March however, keeping the door open for downside surprises to punish sentiment anew.
The recovery in gold and silver may be capped even in the event of a broadly risk-on scenario as signs of ebbing inflation sap anti-fiat demand. The US Consumer Price Index report is penciled in to show the year-on-year price growth rate slowed to 1.6 percent in March, matching a six-month low recorded in January.

 

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Gold, Crude Oil Sold as PMI Data Sparks Risk Aversion

Commodity prices are under pressure as risk aversion sweeps financial markets amid renewed concerns about a slowdown in global growth following disappointing Chinese and Eurozone PMI figures. Cycle-sensitive crude oil and copper prices are following stocks lower while gold and silver are facing de-facto pressure as haven demand boosts the US Dollar, denting demand for anti-fiat assets.S&P 500 index futures are pointing higher however, hinting there may be scope for a reversal. The March set of US New Home Sales data as well as April’sRichmond Fed Manufacturing Survey headline the economic calendar.
Want to see economic data releases directly on your charts? Try this App.
WTI Crude Oil (NY Close): $89.19 // +0.92 // +1.04%
Prices are re-testing resistance-turned-support at 88.45, the 23.6% Fibonacci retracement. A reversal back beneath that aims for the 14.6% level at 87.37. Near-term resistance is now at 90.21, the 38.2% Fib.
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EUR Looks Lower on Deepening Recession- ECB Support on Horizon

Euro: EU to Consider More Extensions, ECB Sees ‘Major Concern’
The Euro tumbled to 1.2971 as manufacturing and service-based activity in Europe contracted for the fifteenth consecutive month in April, while the EU said it would ‘consider an extension of the deficit target deadline in the case of some member states’ as governments operating under the single currency struggle to get their house in order.
As the euro-area remains mired in recession, European Central Bank (ECB) board member Christian Noyer warned that the lack of lending to small firms remain a ‘major concern’ for the region, and we may see a growing number of central bank officials show a greater willingness to push the benchmark interest rate to a fresh record-low as the economic downturn persistently threaten price stability.
However, as European officials become increasingly reliant on monetary support, the Governing Council may introduce more non-standard measures over the coming months, and the ECB may have little choice but to embark on its easing cycle throughout 2013 as the outlook for growth and inflation remains tilted to the downside.
As the EURUSD struggles to maintain the range-bound price action from earlier this week, we should see the pair continue to retrace the rebound from 1.2743, and we may see the euro-dollar make another run at the 23.6% Fibonacci retracement from the 2009 high to the 2010 low around 1.2640-50 as European policy makers retain a reactionary approach in addressing the risks surrounding the region.

 

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Dollar Can’t Gain Traction at Multi-Year Highs, Watch USD/JPY
Yet, ‘new high’ gives a false sense of strength to the lackluster greenback. In reality, the benchmark currency has made little effort to capitalize on its move above March’s swing high and in fact has utterly failed to generate meaningful follow through to convince the market that the bulls are in charge. The issue remains the headwinds seen in risk trends. While the safe haven dollar is climbing, so too is the S&P 500 leading global equities to hearty gains. While the two can move in concert to some degree thanks to the competitive monetary policy programs across the world, a genuine trend requires the support of the more elemental themes. The best way for USDollar to overtake 10,600 is for a maket-wide risk aversion. Otherwise, we could arrive at the same outcome – though likely with limited immediate follow through – with a USDJPY break above 100.

 

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The preliminary set of first-quarter UK GDP figures headlines the economic calendar in European hours. Expectations suggest output expanded 0.1 percent, narrowly avoiding a triple-dip recession. Data from Citigroup suggests news-flow has tended to underperform relative to expectations over recent months however, opening the door for a downside surprise. Such an outcome is likely to weigh on the British Pound as traders build out expectations for an expansion of BOE stimulus effort.
The US Dollar faced broad-based selling pressure in overnight trade, down as much as 0.3 percent against its top counterparts, as a pickup in risk appetite put downward pressure on the go-to safe haven currency. The MSCI Asia Pacific regional benchmark equity index added 0.8 percent. The likewise safety-linked Japanese Yen managed to find support however. While a readily apparent catalyst for the divergence is unclear, the Yen may have enjoyed vaguely supportive comments from Finance Minister Taro Aso and BOJ Governor Hirohiko Kuroda, both of whom talked down intentions to weaken the currency.

 

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Yen Poised to Extend Gains as US GDP Fails to Ease Growth Fears

A quiet economic calendar in European trading hours is likely to see the markets looking ahead to the first-quarter US GDP report. Expectations suggest output grew at an annualized pace of 3 percent, marking a strong recovery from the paltry 0.4 percent increase recorded in the three months through December 2012. The outcome may not offer much support to risk appetite absent a meaningful upside surprise however.
Much of the weakness that has recently spooked the markets about the prospects for US recovery has come from March data. That means the cumulative GDP figure will be inherently skewed toward the far more encouraging results seen in the first two months of the year. This is arguably old news at this point and may not alleviate worries about another coordinated global downturn in the pipeline.
Indeed, S&P 500 futures are pointing lower ahead of the opening bell on Wall Street, hinting at a risk-averse mood heading into the GDP announcement. The standout result following a print that fails to underpin sentiment is likely to be a further recovery in the Japanese Yen as an unwinding of carry trades encourages gains in the go-to funding currency. The unit is already on the upswing following astatus-quo BOJ policy announcement overnight.

 

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Crude Oil, Gold May Not Find Support in US GDP Data

Commodity prices are under pressure in European trade as risk appetite flounders across the financial markets. Cycle-sensitive crude oil and copper prices are following stocks. Gold and silver are likewise under pressure, although losses are relatively modest as an overnight decline in USDJPY keeps the greenback broadly contained, underpinning anti-fiat assets. S&P 500 index futures are trading lower, hinting the risk-on dynamic is likely to carry forward as Wall Street comes online.
On the economic data front, the spotlight is on the first-quarter US GDP report from here. Expectations suggest output grew at an annualized pace of 3 percent, marking a strong recovery from the paltry 0.4 percent increase recorded in the three months through December 2012. The outcome may not offer much support to risk appetite absent a meaningful upside surprise however.
Much of the weakness that has recently spooked the markets about the prospects for US recovery has come from March data. That means the cumulative GDP figure will be inherently skewed toward the far more encouraging results seen in the first two months of the year. This is arguably old news at this point and may not alleviate worries about another coordinated global downturn in the pipeline.
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Crude Oil, Gold Prices Look to US Data for Guidance
Commodity prices are treading water in European trade as the spotlight turns to US Consumer Confidence figures.Expectations call for a narrow increase to 61.0 in April compared with 59.7 in the prior month. US economic news-flow has increasingly underperformed relative to expectations since late March however, hinting analysts continue to underestimate the degree of slowdown playing out in the world’s top economy and opening the door for a downside surprise.
Such an outcome may weigh on risk appetite, punishing cycle-sensitive crude oil and copper prices. The implications for precious metals are a bit clouded however. On one hand, a risk-off scenario has scope to boost haven flows into the US Dollar, sending both gold and silver de-facto lower. Coming against the backdrop of the FOMC policy meeting however, a soft print may be interpreted to support the case for continuity of aggressive Fed stimulus, sending the greenback lower and offering support to anti-fiat assets.

 

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Euro Rebounds from a Session Low Despite Unexpected Inflation Drop
The economic picture of the Euro-zone has been further shaped this morning by a plethora of economic releases that included a multi-year high for German consumer confidence and a multi-year low for Euro-zone inflation.
The Euro set a session low against the US Dollar at 1.3053, right by the 38.2% retracement of the rally from the pair’s all time low to its all time high. Furthermore, EUR/USD actually rebounded about twenty points following the three-year low Euro-zone inflation. Along with the consumer prices estimate, Euro-zone unemployment was also reported at an all-time high.
Besides for the consumer confidence, we also found out that German unemployment rose for a second month, and the unemployment rate remained at 6.9%. Spanish GDP fell 0.5% in the first quarter according to today’s initial estimate, slightly better than the 0.8% economic decline in Q4 of 2012.
In the UK, BoE’s Miles said he sees inflation remaining at the current level, most recently reported at 2.8%. He said he sees annual inflation falling closer to the BoE’s target 2.0% rate in early 2014.

 

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Yen May Rise vs. US Dollar, Fall Elsewhere on FOMC and ISM

The major currencies consolidated against the US Dollar in overnight trade. The Australian Dollar narrowly underperformed, weighed down by a narrowly disappointing Chinese Manufacturing PMI reading. The report showed factory-sector activity slowed more than economists expected in April, sending the Aussie as much as 0.2 percent lower against its top counterparts.
Price action is likely to remain lackluster in European trading hours as most of the region’s markets remain offline for the Labor Day holiday. Event risk heats up in the US session however as the Federal Reserve delivers its monthly interest rate announcement and April’s ISM Manufacturing gauge crosses the wires.
The rate-setting FOMC is widely expected to keep the monetary policy mix unchanged but traders will look to the tone of the statement for acknowledgement of the recent weakness in US economic data. Such an outcome will reinforce the likelihood of continuity of aggressive stimulus efforts, which stands to feed risk appetite and boost cycle-sensitive currencies like the Australian, Canadian and New Zealand Dollars.
The ISM report stands to amplify this dynamic. Consensus forecasts see manufacturing activity growing at the weakest pace in four months, compounding the recent run of worrying news releases from the world’s top economy and adding credence to the argument for a dovish Fed posture.
The JapaneseYen may yield a mixed response if this helps to produce a risk-on scenario. The unit may advance against the greenback on a narrowing of the yield differential between the two funding currencies while declining against higher yielders as carry trades follow other risky assets upward.

 

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Pound Rallies as PMI Shows Little Contraction in Manufacturing Activity

THE TAKEAWAY: UK PMI for manufacturing for April beats expectations at 49.8 -> Markit says sector may lighten its drag on economy in Q2 -> Pound rallies
The Pound rocketed to a new 2-month high against the US Dollar, following the report that UK manufacturing activity contracted at the slowest pace in three months in April.
Markit’s Purchasing Managers’ Index for UK manufacturing rose to 49.8 in April, beating expectations for 48.5 and higher than the revised 48.6 PMI result in March. A PMI reported below 50.0 indicates a decline in sector activity.
Output and new orders rose in the manufacturing sector rose for the first time since January, according to Markit. The level of new export work rose for the first time in over a year, but demand in the Euro-zone remained weak. Manufacturing job losses continued for the third straight month in April.
The UK economy grew an unexpected 0.3% in Q1, thereby just missing a triple dip recession after the 0.3% GDP decline seen in Q4. Markit reported that manufacturing acted as a drag on the economy in Q1.“With forward-looking indicators such as new orders and the demand-to-inventory ratio also ticking higher, the sector should at least be less of a drag on broader GDP growth in the second quarter,” according to Markit Senior Economist Rob Dobson.
The Pound rose about forty five points to 1.5585 against the US Dollar in Forex markets, following the UK PMI release. GBP/USD has risen for six straight sessions and may next see resistance at 1.5593, by the 50% Fibonacci retracement of the decline from January’s high to March’s low. Support may be provided by the 1.5500 key figure.
The European trading session has been otherwise very quiet, as most equity markets are closed for May Day. However, the US session may provide volatility, especially for USD based pairs, as the FOMC announces its rate decision.

 

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Oil, Gold Vulnerable to Disappointing ECB Rate Decision
Commodity prices are treading water in overnight trade as all eyes turn to the European Central Bankmonetary policy announcementamid widespread speculation about a 25bps interest rate cut to address the region’s deepening recession. Taken together, the Eurozone is the world’s second-largest economy and currently the sickliest of the major engines of global output, seemingly making the introduction of added stimulus there a supportive development for risk appetite.
A reduction in the benchmark lending rate alone without an accompanying QE-like non-standard stimulative effort may fail to impress investors however. The market rate to borrow Euros overnight has averaged around 0.1 percent over the past 12 months. That means cutting the ECB benchmark lending rate from 0.75 to 0.5 percent would be essentially moot in terms of lowering regional borrowing costs. Meanwhile, a Bloomberg index tracking Eurozone financial conditions has shown slow deterioration since late January, underscoring the inability of low rates by themselves to secure a supportive funding environment.
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UK PMI for Manufacturing Rises to a Six Month High

THE TAKEAWAY: UK PMI Manufacturing rises to 49.4 in April, a six month high -> BoE predicts muted growth in H1 -> Pound fails to maintain gains
The UK Purchasing Managers’ Index for construction rose to a six month high in April, but failed to send the Pound significantly higher. The PMI for construction was reported at 49.4, beating expectations for 48.0 and higher than the 47.2 index result in March. A PMI below 50.0 indicates a contraction in sector activity, according to Markit.
The UK economy expanded by 0.3% in Q1 on an improvement in the services sector. The BoE predicted muted growth in the first half of 2013, and Governor King said a recovery is in sight in the longer term. Signs of increased economic growth are Pound positive.
However, the Pound was unable to sustain gains following the beat of expectations in the construction PMI release. GBP/USD is trading higher for the seventh consecutive session, but the pair may see resistance around 1.5595, by the cross of a 50% Fibonacci retracement and an upward trading channel.

 

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European Commission Lowers the Euro-zone Growth Estimate

The European Commission released its official growth forecast today, and although the official estimate of Q1 GDP won’t be released until April 15, the commission already downgraded its forecast of Euro-zone growth to -0.4% for 2013 from a previous estimate of -0.3%. Furthermore, the European Union’s report forecasted 1.2% growth in 2014.
The German economy, the biggest one in the Euro-zone, is forecasted to grow 0.4% in 2013 and 1.8% 2014. Meanwhile, the EU cut the UK economic growth forecast to 0.6% in 2013, down from a previous forecast of 0.9%. The downgrade to the EU forecast follows the recently reported better than expected 0.3% GDP growth in Q1.
Furthermore, the UK was the sources of the only significant economic release during the European session. The UK PMI for services rose to an eight month high of 52.9 in April, and Markit wrote that the better than expected increase in services activity alleviates pressure on the BOE to add to stimulus.