The Euro fell to as low as 1.3550 as the regions growth figures started to cross the wires starting with German GDP contracting by 3.8% which was the most in four decades. This lead to the aggregate GDP figures for the Euro-zone falling by a record 2.5% as declining global and domestic demand caused companies to cut production and layoff workers.
[U][B]Talking Points[/B][/U][B]
• Japanese Yen: Back Below 95.00
• Pound: Downside risks Remain
• Euro: GDP Contracts By Record Amount
• US Dollar: CPI, Manufacturing and Consumer Sentiment Data on Tap[/B]
[U]Euro Weighed By Record Contraction in GDP, U.S. Inflation Data Ahead[/U]
The Euro fell to as low as 1.3550 as the regions growth figures started to cross the wires starting with German GDP contracting by 3.8% which was the most in four decades. This lead to the aggregate GDP figures for the Euro-zone falling by a record 2.5% as declining global and domestic demand caused companies to cut production and layoff workers. Meanwhile, inflation held steady for the economic union at 0.6% while the core reading rose to 1.8% from 1.6% as we saw a pick up in recreation and travel costs.
It wasn’t a major surprise to the markets that the region continues to be mired in a deep recession as we have seen the ECB become considerably more aggressive in their actions over the past few months. The central bank has long been considered to be behind the curve which fostered the pessimistic outlook for growth in the region. However, we have seen continued rhetoric from committee members that show a clear division on future policy with member like Axel Weber stating that the current interest rates are at the lowest possible level and that quantitative easing efforts will end with the recently pledged 60 billion euros. Meanwhile, in an attempt to diffuse the situation Ewald Nowotny stated “I hope I have been clear on that, the ECB decided to buy covered bonds. There’s no discussion of further steps.” Yet, the dismal growth figures will embolden members who want to bring interest rates near zero and add more quantitative easing. The euro has consolidated since the EZ GDP release above 1.3550 bit we could see further weakness as markets digest the growth figures with the possibility of a test 1.3420-the 200-Day SMA.
The pound has seen light volume with an empty economic calendar and focus on the Euro-zone and U.S> today. However, we have seen it come under pressure falling below 1.5150 as the currency lost its favor following the dour outlook from the BoE in their quarterly inflation report. Sterling has closely tracked equity markets and if we see weakness in the U.S. session today then the downside risk will increase. A break below 1.500 will open the dorr for an extended move lower with a test of the 50-Day SMA at 1.4645 a possibility.
The dollar has held firm during overnight trading despite Asian and European equity markets trading in positive territory. Although, there is still an underlying concern that a global recovery will be prolonged which was supported by the dour EZ GDP figures. A slew of fundamental data for the U.S. will cross the wires today including the consumer price report. Inflation is expected to have remained flat during April but the more closely watched yearly number is forecasted to fall to -0.6% keeping deflation concerns alive. Meanwhile, industrial production and Empire manufacturing are also forecasted to remain in negative territory but show improvement from the month prior. Falling prices and declining activity in the U.S. will only add to current growth concerns and could fuel risk aversion and lend dollar support. However, the University of Michigan consumer sentiment reading is forecasted to improve for a third consecutive month to 67.0 from 65.1 which could temper pessimism as it may signal a return of consumer spending and domestic growth.
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To discuss this report contact John Rivera Currency Analyst:[/I] [email protected]
