In stark contrast to the economic news out of Europe, which saw markets take a tumble yesterday, and last week’s OECD assessment that the UK economy is set to contract in Q1, the outlook for the UK remains fairly positive, if the economic data seen over the past week or so is any guide.
After last week’s disappointing Q4 GDP downgrade the economic news has been fairly positive this week where Q1 has been concerned, with manufacturing, construction and services PMI data beating expectations across the board, with yesterday’s beat on services completing a hat-trick of data beats.
The icing on the cake would be if February industrial and manufacturing production painted a similarly positive picture, though given previous experience, positive PMI’s don’t always translate into positive production numbers.
Industrial production is expected to bounce back from January’s 0.4% decline, with a positive 0.4% rise, though the year on year figure is still expected to be negative with a 2.1% decline.
Manufacturing production is expected to stay steady at 0.1% for both monthly and annual figures.
Later in the day the latest Bank of England rate decision isn’t likely to raise too many temperatures with rates set to remain unchanged at 0.5% and asset purchases at £325bn.
We will have to wait for the publication of the minutes to see whether policymakers are more relaxed about holding off from further QE when the current batch runs out in May.
Europe remains a running sore and fears that the problems in the satellite countries are starting to infect the core of Europe are rising after economic data this week pointed to worries about both French and German economic activity. Notwithstanding rising concerns about Spain’s fiscal position after yesterday’s disappointing bond auction, problems in Germany could really worry markets, given that they are pretty much Europe’s paymaster. Services and manufacturing data have showed worrying weakness and today’s industrial production data for February is expected to continue that theme, with a slide of 0.5% expected.
In the US the jobs situation continues to look encouraging with yesterday’s ADP payrolls report for March coming in on target with a healthy upward revision for February to 230k.
Weekly jobless claims are expected to remain steady after last week’s surprise rise to 359k, expected to come in at 356k.
EURUSD – yesterday’s close below both the 55 and 100 day MA keeps the pressure on the downside as the single currency dropped through the lows of the past two weeks.
Given that the 4 hour chart is a touch oversold we could see pullbacks towards resistance around the 1.3250 level but the bias remains for the next move towards the 1.3000 level, on the way back towards the lows at 1.2630.
The 1.3385/90 area remains the key resistance area on the upside and while this remains intact a weaker euro remains the preferred option.
GBPUSD – the pound got caught in the bow wave of a resurgent US dollar finding support above the key 1.5820 support level mentioned in yesterday’s note. Only a move below this support area argues for a move back towards 1.5610 again. Resistance on pullbacks comes in around the 1.5920/30 level initially while behind that the 200 week MA currently at 1.5990 is also a key resistance. A failure to close the week above this average keeps the structural bias negative for the pound.
EURGBP – yesterday’s continued push lower saw the euro push below the 0.8280 level keeping the outlook constructive for a revisit of the January lows at 0.8220. The 4 hour charts are a touch oversold and as such we need to be cognisant of a possible rebound back towards 0.8320. While below the 0.8400 level the outlook remains for a move below 0.8220 and a move back towards the 2010 lows at 0.8065.
USDJPY – the US dollar remains choppy here, with the lack of any rally suggesting continued range trading between 81 and 84.
The outlook continues to remain positive in the long term while above the weekly cloud support at 80.70. To retest the twin highs at 84.20 we need to get back through last week’s high at 83.40.
We still need to remain mindful of the bearish engulfing weekly candle of two weeks ago which suggests in the short term a period of consolidation towards the cloud support at 80.70 which remains possible on a break below 81.90.
A break above 84.20 negates the bearish candle and suggests a move to 85.15.