Sterling ended the week as the strongest performer as UK Q1 GDP beat expectations and the economy avoided the so-called triple dip recession. Swiss franc was the worst performer as driven by the strong rebound in EUR/CHF but we'd caution that such rebound has lost much steam towards the end. Dollar and euro were both weak. The greenback was weighed down by the extended rebound in gold as well as weaker than expected Q1 GDP report. Meanwhile, Euro was pressured by weak economic data and expectation of rate cut from ECB. Nonetheless, price actions in EUR/USD was rather indecisive. Yen's recent consolidation extended with selloffs seen in yen crosses on Friday after BoJ stood pat. New Zealand dollar was given a brief boost by RBNZ statement by pared much gain towards the end.
Technically, firstly, we'd again maintain our view that yen crosses are bounded in consolidation pattern and should have started the third leg last week. Secondly, Sterling's strength was rather impressive as GBP/USD resumed recent rebound from 1.4830 and is probably heading to 1.57/8 level. EUR/GBP also breached recent support at 0.8410 to resume the fall from 0.8806. Thirdly, our strategy of shorting AUD/USD didn't yield result as the fall was contained at 1.0220 and the pair turned sideway. Though, outlook in AUD/USD stays bearish with 1.0358 minor resistance intact. Fourthly, development in USD/CAD suggests that recent correction from 1.0341 is still in progress for another low below 1.0083.
For near term trades, we'd how favor GBP/USD long and EUR/GBP short this week but we'd keep it short term as the current moves are viewed as corrective in nature. Instead, the main focus this week could be on going long on yen crosses for medium term trades. And based on current momentum, GBP/JPY is favored.
Economic data from US saw Q1 GDP rose 2.5% annualized in Q1 versus expectation of 3.0%. Though, that's notably better than Q4's 0.4%. The price index rose 1.2%, also below expectation of 1.4%. Headline durables dropped -5.7% in March versus expectation of -2.8%. Ex-transport orders also dropped -1.4% versus consensus of 0.5% growth. A number of key important economic data will be released from US this week, including ISMs and NFPs and will be closely watched by the markets.
Eurozone PMI manufacturing dropped to 46.5 versus expectation of 46.8 while services PMI rose less than expected to 46.6. French PMI manufacturing and services improved to 44.4 and 44.1 respective but remained awful. German PMIs were the bigger disappointment today as PMI manufacturing dropped to 47.9 while services PMI dropped below 50 to 49.2 versus expectation of 49 and 51.1 respectively. Markit chief economist Williamson noted that "the survey is signaling a worrying weakness in the economy at the start of the second quarter, with signs that the downturn is more likely to intensify further in coming months rather than ease." The German Ifo business climate dropped for the second month to 104.4 in April and missed consensus of 106.5. Current assessment gauge dropped to 107.2 versus expectation of 109.4. Expectations gauge dropped to 101.6 versus consensus of 103.2. Some analysts expect that recent weak data from Germany, including PMIs, should have some implications for ECB on its policies.
UK avoided the so called triple dip recession. More importantly, the 0.3% qoq growth in Q1 GDP was indeed stronger than expectation of 0.1%. From a year ago GDP rose 0.6%. Total services gained 0.6% qoq following a contraction of -0.1% in the previous quarter while transport and communication services rose 1.4%. Concerning other areas, business and financial services increased 0.2%, distribution and hospitality services rose gained 1.1% and government services gained 0.5%. The data lifted some pressure on BoE for expanding the asset purchase program. The MPC has been split with outgoing governor King and two other members voted for expansion in prior meetings. BoE announced an expansion of its Funding for Lending Scheme to help small businesses. The program will now last until January 2015. Current BoE governor King said that the FLS revamp will give banks "continued assurance against the risk that market funding rates increase, especially in the light of continued uncertainty in the euro area," and will "help to maintain easier funding conditions for banks into 2015, and thereby help to support credit conditions and the recovery."
At the BOJ meeting in April, policymakers left the monetary measures unchanged. The policy rate was maintained at virtually zero and asset purchases stayed at an annual pace of 60- 70 trillion yen. The central bank, however, upgraded the economic outlook aggressively with economy expected to start picking up by the middle of this year. While differentiated on the inflation outlook, policymakers were unanimous in voting to leave the quantitative and qualitative measures unchanged at the meeting. The central bank also revised up its growth and inflation forecast. GDP is projected to grow 2.9% in 2013/14 fiscal year, up from prior forecast of 2.3%. Core CPI is expected to rise 0.7% versus prior forecast of 0.4%. For 2014/15 fiscal year growth is expected to be at 1.4% versus prior projection of 0.8%. Core CPI is expected to rise 1.4% versus prior projection of 0.9%. And, inflation is expected to be at 1.9% at the end of 2015/16 fiscal year, close to BoJ's 2% target. More in BOJ Left Stimulus Unchanged, Raised Economic Outlook.
Australian CPI rose 0.4% qoq in Q1 and accelerated to 2.5% yoy. However, that was below expectation of 0.7% qoq, 2.8% yoy. The RBA trimmed mean CPI has indeed moderated to 2.2% yoy even though the weighted mean CPI rose more than expected to 2.6% yoy. Overall, the data suggested there is scope for further policy easing from RBA should economy loose momentum. Markets are pricing in over 40% chance of rate cut by the central bank in May to boost non-mining activities.
The RBNZ left the policy rate unchanged at 2.5%. The accompanying statement was more upbeat than the previous one given more encouraging GDP and confidence data. Policymakers acknowledged that domestic economic growth has picked up and the reconstruction work in Canterbury has gained momentum. Yet, they warned of the rise in home price and the strength in New Zealand dollar. The central bank expected to leave the OCR unchanged through the end of the year. The RBNZ stated that NZD has remained "overvalued and is higher than projected in March" and this was partly driven by the accommodative policy by the Bank of Japan. Policymakers stated that "the high New Zealand dollar continues to be a significant headwind for the tradables sector, restricting export earnings and encouraging demand for imports". Concerning inflation, the central bank expected it to remain benign, expecting it to be "close to the bottom of the target range this year". Inflation will "gradually rise towards the 2 percent target midpoint" beyond this year. More in RBNZ Left OCR Unchanged, More Upbeat On Economic Outlook.
The week ahead
FOMC and ECB will announce rate decision this week. While the FOMC meeting could be a non-event, main focus is on whether ECB would cut interest rate during this meeting. US economic data will be closely watched. In particular, ISM indices and NFP disappointed last month and risk sentiments would be vulnerable to another round of downside surprises. Sterling was strong last week on solid Q1 GDP figure and this week's PMIs might give the pound another boost.
Monday: US personal income and spending
Tuesday: Eurozone CPI, unemployment; Canada GDP; US consumer confidence
Wednesday: China PMI manufacturing; UK PMI manufacturing; US ADP employment; ISM manufacturing; FOMC rate decision
Thursday: Swiss SVME PMI; ECB rate decision; Canada trade balance; US trade balance, jobless claims
Friday: Australia PMI; UK services PMI; US non-farm payroll; ISM services
EUR/GBP Weekly Outlook
EUR/GBP dropped sharply last week and the break of 0.8410 indicates that whole decline from 0.8806 has resumed. Initial bias remains on the downside and deeper fall could now be seen to 50% retracement of 0.7755 to 0.8806 at 0.8281. But overall, such decline is viewed as a correction only and might complete around there. On the upside, above 0.8503 is needed to signal short term bottoming or outlook will stay bearish.
In the bigger picture, medium term rebound from 0.7755 lost much momentum after hitting 0.8806 and the break of 0.8446 support raised the chance of reversal. But overall, we're still preferring the case that correction from 0.9799 has completed with three waves down to 0.7755 already and expect another rise to 0.9083 key resistance level. However, break of 0.8164 cluster support (61.8% retracement of 0.7755 to 0.8806 at 0.8156) will invalidate this view and turn medium term outlook bearish for 0.7755 low.
In the long term picture, no change in the bullish view that price actions from 0.9799 are merely a consolidation pattern and the up trend from 0.5680 is not finished yet. Indeed, such up trend is possibly resuming now. Break of 0.9083 key resistance should be a strong affirmation of the case and should at least send EUR/GBP for a test on parity.
IMOH, Clement I.
+234 802 905 9344
+234 703 569 1707
No comments:
Post a Comment