It’s been a mixed session in Asia but the Nikkei continues to plough on to multi year highs helped by a weak yen which hit its lowest levels since 2002, and in the process pulling the Japanese benchmark further away from the 20,000 level and closer to the 21,000 level. With retail sales finally rebounding into positive territory after three months of declines, domestic demand continues to remain weak, but the boost to exporters from a weaker yen is clearly helping drive the share prices of Japanese exporters ever upward. For the best part of this week sentiment surrounding a positive outcome to this week’s Greece debt talks had been particularly downbeat, but midway through yesterday’s session, reports that some form of deal was in the offing saw European stocks lift off quite sharply, in the process wiping out the losses of the previous two days, and this move higher also translated into a sharp rebound in US stocks as well, with the Nasdaq hitting a new record. Reports in the afternoon session from a Greek official that the framework of a deal was to include no wage and pension cuts, reforms to VAT, and investment package and some long term debt relief saw the euro rebound sharply along with equity markets. Setting aside the fact that these measures, that Greece claims have been agreed, appear to cut across pretty much all the red lines previously laid down by EU leaders as well as the IMF, rather makes the market reaction hard to square with the fact that we’ve been here so many times before. Indeed it wasn’t too long before we got that inevitable sense of déjà vu as officials on the EU side were saying that any accord remained some way off, and that the prospect of a deal for now was the product of wishful thinking. For the avoidance of doubt, debt restructuring or debt forgiveness of any sort, has been consistently ruled out by EU officials, while at the same time they have also been particularly insistent on Greece implementing labour market and pensions reform. All the while the clock continues to tick with many feeling that some form of can-kick will eventually delay the day of reckoning, while the prospect of a Greek default remains a distinct possibility, despite yesterday’s hope fuelled rebound. Away from the continuing saga in Europe the focus shifts back to the UK this morning as we get the latest revision to the initially disappointing Q1 GDP numbers that we saw posted just prior to this month’s election vote. The initial Q1 GDP number was rather disappointing, coming in at 0.3%, well below expectations of 0.5%, and raised concerns that the uncertainty created by the approaching election had prompted a delay in some investment decisions. Today’s revision is expected to see an upward revision to the Q1 numbers to 0.4% as more data is added to the internals of the GDP calculation. Furthermore it is expected that we will see a significant increase in business investment of 1.6%, from the disappointing decline seen in Q4 of 0.9%. The biggest concern going forward is likely to be on the exports side of things given the gains seen in the pound over the last few months, with a small decline of 0.2% expected. Given the strong showing seen in recent European data in Q1 this would be disappointing, so there is a chance that this estimate could well be wrong. In the US the small improvement in some of the economic data seen this week has prompted renewed speculation surrounding the probability of a US rate hike this year, as well as a strong rally in the US dollar. Today’s weekly jobless claims are likely to reinforce that narrative if only because these numbers have been consistently good over the past few weeks. Expectations are for rise of 270k, slightly down from last week’s 274k. US pending home sales for April are expected to follow on from last week’s positive new home sales data, with a rise of 0.8% expected, though rising US rates could quickly undermine this particular market. EURUSD – having posted a new low of 1.0820 dropping briefly below the 1.0845 61.8% retracement level the euro continues to remain under pressure. A move through here argues for further losses towards 1.0745. We need a move back above the 1.1050 level to stabilise and argue for a move back towards 1.1220. GBPUSD – having broken through the 1.5440/50 area suggests the scope for further losses towards the 1.5200 level. We need to rebound back above the 1.5570/80 level to stabilise. EURGBP – while below the 0.7120 level the bias remains for a move towards the March lows at 0.7015. Resistance on any pullbacks is likely to be found at the 0.7120/30 area, which had been support up until last week’s break. USDJPY – having broken above the previous highs at 122.00 and the trend line resistance at 122.15 from the 1990 highs at 160.30, we moved briefly above the 2007 highs at 124.20, hitting a 15 year high at 124.30. Support remains down at 122.00 the previous highs as well as the recent range lows between 118.30 and 118.65. 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.
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