Given last week’s disappointing US employment report its all the more surprising to see the US dollar back above the levels it was trading at prior to last week’s data.
What’s all the more surprising is that US stocks have also rallied along with the greenback
, with a lot of investors seemingly content to write off last week’s number as an outlier, particularly given the continued improvement in weekly jobless claims.
With both the US dollar and US stock markets trading at two week highs
investors appear to be dismissing any concerns a strong currency could have on company earnings, but the risk is that further gains in the dollar could well limit the upside for US stocks, particularly if we start to see multiple earnings misses and guidance reductions in the coming days.
Even so we look set for a strong finish to the week for European markets with further declines in European yields
and the euro
acting as the catalyst for new multi-year highs this week. We’ve seen new record lows across the European yield curve, with the euro also declining every day this week, its worst run in a month, despite some improvements in the broader economic data.
The latest Chinese CPI inflation data for March showed that prices continue to remain weak
, stabilising at 1.4%, unchanged from 1.4% in February, though factory gate prices still remained firmly in negative territory at -4.6%, as weak demand and low commodity prices kept prices low. This weakness is likely to keep the Chinese central bank fairly accommodative in the months ahead, with further rate cuts likely.
With the problems in Greece continuing to act as a running sore
it is becoming increasingly apparent, despite yesterday’s latest repayment to the IMF, and policymakers best attempts to persuade us to the contrary, that the gap between what Greece’s creditors want, and what the Greek government is able to deliver, could well be too large a gap to bridge, within the six day deadline set by the EWG earlier this week.
It could well end up being a long Easter weekend in Greece, as officials look to come up with a deal in time for the finance ministers meeting on April 24th.
The ECB once again raised its ELA facility yesterday by another €1.2bn
to just over €73bn, as capital continues to leak out of Greek banks, ahead of another key week next week, when the Greek government will need to roll over €2.4bn worth of 3 and 6 month T-bills, as well as paying out over €1.5bn worth in social security payments.
The pound has also started to come under some pressure in recent days
as the prospect of political gridlock in a few weeks’ time starts to become a real possibility, at a time when some of the economic data is starting to show some signs of weakness.
The latest manufacturing and industrial production numbers for February
are expected to come in fairly positive at 0.4% and 0.3% respectively, but they aren’t expected to completely reverse the weakness seen in the January numbers, which were disappointing, with any disappointment likely to weigh further on the pound.
– yesterday’s unexpected break below last week’s low at 1.0710 suggests that we could be set for a move back towards the March lows at 1.0460, with interim support at 1.0600. Any rebound needs to get back above 1.0760 to suggest a return towards 1.0900.
– the pound also slid back breaking below its lows last week at 1.4735, suggesting the potential for a return to the March lows of 1.4630, and possibly even lower, as we head towards the election next month, with the 2010 lows at 1.4230 now in play. To stabilise we need to move beyond the 1.5000 area, which has capped every rally for the last week.
– the euro is currently holding above the 0.7220 level with intraday resistance currently at the 0.7280 level. A move through here has the potential to target the 0.7340 area.
– the US dollar continues to edge higher but needs to move conclusively above the 120.70 level to retarget the highs at 122.00. Support currently sits down at the 119.70 area.
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