After spending most of yesterday in negative territory European markets managed to rally into the close, helped by a continued resilience in the oil price, as investors digested the disappointment of a Bank of Japan rate decision that maintained the status quo on monetary policy.
The Bank of Japan came in for a lot of criticism yesterday some of it deserved given some of the recent hints by Mr Kuroda, about possible further easing measures. It is clear though that having pushed rates into negative territory at the end of January by a slim 5-4 margin, the Japanese central bank chief was unable to repeat the trick again so soon after January’s surprise move, and with expectations so high leading onto the meeting the prospect of a disappointment was always on the cards, something we warned might happen on Wednesday afternoon.
Yesterday’s recovery off the lows in Europe was helped in some regard by some US dollar weakness after the latest numbers for US Q1 GDP came in much softer than expected, caused by a collapse in business investment caused by the low oil price, as well as weaker personal consumption by the US consumer.
The weakness of the above mentioned number along with a cautious Fed statement would appear to have diminished the prospect of a June rate rise. It will certainly make it that much harder for the Fed to move on rates soon unless the data shows a significant improvement between now and the June meeting in just over 6 weeks’ time.
This US dollar weakness continued into the US session, however US markets started to roll over after Europe had closed, dragged down by the tech sector, and Apple and IBM in particular, prompting the Dow to post its biggest one day fall in nearly two months.
As a result we can expect to see European markets open lower this morning as we come to the end of what has been a positive month, but a negative week, with a rising yen also weighing on Asia markets.
The main focus today is likely to be on the latest European CPI and unemployment data, which is unlikely to be good news for ECB President Mario Draghi, particularly in his battle to sway German public opinion over to the wisdom of recent ECB moves to stimulate certain sclerotic sections of the European economy.
Yesterday we saw Spanish Q1 unemployment unexpectedly rise to 21%, while flash CPI inflation dropped sharply to -1.2%. If these numbers are replicated in the latest EU numbers out today, we can expect the ECB to come under further pressure, to use additional measures to help the broader economy in Europe.
EU flash CPI for April is expected to slip back into negative territory of -0.1% with core prices slipping back below 1% to 0.9%. Unemployment form March is expected to remain steady at 10.3%.
Also worth keeping any eye on is the latest Q1 GDP from France which is expected to rise to 0.4%, and the latest Q1 GDP numbers from the EU which is also expected to rise to 0.4%, from 0.3% Spanish Q1 GDP is expected to slow slightly to 0.7% from 0.8%.
The latest UK lending numbers are expected to give an insight into consumer habits at the end of Q1 with the latest mortgage approvals and consumer credit numbers for March.
Finishing up the month we should get an idea as to whether the disappointing initial reading of US Q1 GDP might get nudged higher if we get an improvement in the latest March income and spending data.
Consumer spending has been a consistent weak spot in the US economy over the last 12 months and this trend looks set to continue with personal spending in March only expected to rise 0.2%.
We finish off the week with the latest April Chicago manufacturing PMI which is expected to slip back to 52.6, though given the weak Dallas and Philadelphia Fed readings seen earlier this month, it would be unwise to rule out a downside surprise.
EURUSD – the euro has risen for four days in a row raising the prospect of a move towards the 1.1440 level. Support comes in at the 1.1220 which if broken could see a move back towards the 1.1140 area, the lows at the end of March.
GBPUSD – this week’s break above the 100 day MA at 1.4450 as well as neckline resistance could well see further gains towards the 1.5000 level, but we need to push through 1.4650 first. Dips look set to remain well supported with only break below 1.4300 undermining the bullish scenario.
EURGBP – the weekly bearish engulfing pattern two weeks ago has seen the euro slide through the 0.7820 level closing back below the 200 week MA and targeting a potential further decline towards 0.7690 initially. Resistance now comes in at the 0.7820 level as well as 0.7860.
USDJPY – this week’s failure at 111.80 has seen the US dollar slip back sharply falling back below the 110.20 level and bringing the 107.65 level back into focus as the potential for further losses towards 106.60 increases. A break below the 106.00 level has the potential to target the 100 area.
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Disclaimer: CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.