The World Bank on Wednesday reduced its global growth projection for this year and warned countries to be careful and ready to adjust their economies on the lower commodity prices and the probable increase in US interest rates. The World Bank’s chief economist added that Fed should wait until next year to raise its Interest rate to avoid the negative consequences on other countries and on the general global outlook. The Fed Policy meeting on Wednesday will reveal us the Fed officials’ thoughts about their monetary policy.
[B]EUR mixed in the absence of significant economic news[/B]
There were not market affecting news from Eurozone yesterday and not scheduled economic data expected today. Therefore in the absence of any fundamental reasons I expect a quiet day driven largely by technical factors. A final Greece agreement would be a surprise that may change that, but traders will be conservative as Greece and their Creditors continuous to change their view and comment up and down on the talks’ progress.
The shared currency ended the day higher +0.38% against the greenback as is still hovering above the 200-period SMA, on the 4-hour chart, around the psychological level of 1.1300. The EUR/USD pair is trading positive for the week +1.80% followed a 1.14% in the last week of May. The next big key for the bull will be the 1.1470, the previous high, which coincides with the 200-period SMA on the daily chart. A move above these obstacles would be a significant development, however, in many cases when the price penetrates such important levels, it comes back to trigger some stops and then move to the next resistance level. Therefore, intraday traders should watch this closely. The next resistance for the bulls will be the psychological level of 1.1500 and then the 1.1550 barrier. In case of a pullback, the support is likely to be the 1.1215 barrier, and then the 1.1130 level, which includes both the 50-period and the 200-period SMAs on the 4-hour chart.
[B]GBP surged after the NIESR GDP Estimate and Carney’s comments[/B]
The Pound gained ground against most of its G10 peers on Wednesday and early Thursday, after the NIESR GDP Estimate release and the BoE Governor Mark Carney speech. The NIESR showed that UK economy expanded by 0.6% the last three months to May, a steeper pace than the upwardly revised 0.5% in the three months to April. The UK economy is expected to base on the higher domestic demand and the continuously increasing consumer spending as the country is in low deflation minimizing the already meagre wage growth. BoE Governor, after the industrial data that surprised on the upside, said on a statement published before his formal speech that potential market volatility has increased. Industrial Production has grown by 1.2% in April beating expectation to have slowed down to 0.6%. Even though the Manufacturing Production in April weakened more than the market forecasted, economists didn’t pay too much attention at it. Mr. Carney at his speech at the Mansion House, an annual traditional event by BoE Governor and Chancellor of the Exchequer, didn’t comment at the BoE Monetary Policy but instead pointed to moral issues in the financial markets.
The British pound is trading below the symbolic line of 1.50 on early Thursday following the sharp gains a day earlier. The GBP/USD surged more than 0.94% on Wednesday, adding to the last two days of +0.80%. The aggressive break above the psychological level of 1.50 triggered some stops that took the currency pair to a two-week high of 1.5553. The pair is trading higher this morning, although we had had a pullback after the pair reached a two-week high during the US session. The pair broke above the resistance trend line on Wednesday, which suggests the market is still bullish. It also broke above the 200-period SMA on the 4-hour chart near the psychological level of 1.5400. Therefore, we did get confirmation of the break on Wednesday, when the trend line became a new level of support for the pair, as well as the 200-period SMA, although based on the current price action, we may see it tested again in the coming days.
[B]NZD to a five-year low vs USD after a surprise rate cut[/B]
The New Zealand dollar slumped to five-year low versus the US dollar after the Reserve Bank of New Zealand surprised with a rate cut of a quarter to 3.25% and further monetary easing may take place if the data showed it is needed. The rate cut is based on the sharp decrease of inflation rate to 0.1% yoy in Q1 2015 from 1.6% three-quarters before. The dairy prices have fallen significantly reducing farmers’ income. In Addition, the strong New Zealand dollar reduced the country’s exports and affected further the Trade Balance. The country’s GDP is also very weak and if doesn’t pick up soon the bank may reduce the interest rates further.
The NZD lost more than 150 pips against the USD following the rate cut by the RBNZ, surpassing some significant obstacles including the 0.7200, the 50-period SMA on the 4-hour chart, as well as the 0.7100 level. With the NZD being beaten against its main rivals, I would expect the currency to continue moving downward and towards the psychological level of 0.6800. The New Zealand Dollar plunged lower against both, the Australian Dollar and Canadian Dollar following last night’s official cash rate cut. The NZD came under pressure and fell more than 2.5% against the AUD and more than 2.3% versus the CAD. I would expect the NZD to continue depreciating against both, the AUD and CAD.
[B]U.S. Indices[/B]
Dow Jones surged 236 points on Wednesday and closed the trading session at 18,000! Visa Inc (NYSE: V) was the top gainer stock of the index which rose by +2.48%, followed my Microsoft Corp (NASDAQ: MSFT) with gains of +2.26% and Caterpillar Inc (NYSE: CAT) +2.11%. The Nasdaq Composite Index edged higher by 1.25%, +62.82 points while the S&P 500 increased by +1.20%, +25.05 points.
[B]Economic Indicators[/B]
Today, investors’ attention will turn to US Retail Sales for May after April’s mom indicator was flat and the yoy indicator has recorded the third drop in a row. The US Retail Sales for May are expected to have increased sharply to 0.7% yoy from 0.1% yoy before and 1.1% mom from 0.0% mom in April.