Forex research

[Alpari_UK]

[B]Volitile day ahead as markets gear up for nonfarm payroll[/B]

Today’s US opening call provides an update on:

[ul]
[li]Pullback in the euro highlights potential overreaction to Draghi comments;
[/li][li]UK services PMI figure beats expectations as expected;
[/li][li]Nonfarm payroll figure expected to bring volatility to markets;
[/li][li]Headline US unemployment rate seeking third consecutive fall;
[/li][/ul]
Yesterday saw significant volatility in the market off the back of ECB president Mario Draghi’s comments after the announcement of a 25 basis point reduction in the headline interest rate. The measure itself was widely expected and market response actually brought about a strong move to the upside for the euro, despite predictions of a sell-off. However, it was Draghi who lit the fuse to the devaluation of the euro across the board through the announcement of two highly dovish statements.

Draghi’s declaration of a potential 50 basis points reduction being mooted hinted to an increasingly dovish standpoint from the ECB, but it was the refusal to rule out potential future negative interest rates which saw a strong selloff in the euro. Inversely this also sent the CAC and DAX soaring higher. However today it seems like this sell-off has been overdone, with the euro pulling back and recovering around 50% of the 150 pip loss.

The UK services PMI figure came out above expectations today, rising from 52.4 to 52.9, 0.4 above the market forecasts of 52.5. This outperformance seemed to be on the cards given the above expectations release of manufacturing and construction PMI figures earlier in the week. This caps off a very strong period for the UK economy, having come off the back of last week’s better than expected GDP figure. The upshot of this is a push back towards record highs for the FTSE100 market.

The world looks towards the US today for the crucial nonfarm payroll figure, representing the last of the week’s highly market sensitive economic releases. The markets typically see strong volume on NFP day as it is often the case that traders scale down positions to reduce portfolio exposure to such an unpredictable event. Earlier in the week we had the ADP nonfarm payroll figure which came in well below expectation, falling instead of a predicted rise. However, there has been a noticeable discord between these two measures and therefore we cannot draw too many conclusions from this release.

Many of the earlier NFP releases have been closer to the 150k mark in recent months and therefore there is a potential for the forecast of 146k to be beaten. However, given the weakness of last month’s release (88k), there is a distinct possibility of the figure falling short. This all plays into the uncertainty that is the nonfarm payrolls.

Lastly, the unemployment rate of the US is due out at the same time as the NFP, and markets largely expect it to remain the same. For me, I am looking out for a potential reduction in this rate off the back of two months of unexpected reductions in this headline figure. That being said, we are coming off the back of a poor nonfarm payroll release last month and therefore there is likely to be a slowdown in the reduction of the US unemployment rate.

Markets are expected to open marginally lower, with…

[U][B]Read the full report at Alpari News Room[/B][/U]

[Alpari_UK]

0:09 Market reaction to yesterday’s ECB rate decision
1:34 What the ECBs actions and comments mean for the eurozone
3:47 Predictions ahead of US jobs report

Forex research: Global markets daily

[Alpari_UK]

[B]RBA becomes the latest central bank to cut interest rates[/B]

Today’s UK opening call provides an update on:

• FTSE to open lower after uneventful bank holiday Monday;
• RBA cuts interest rates to record lows;
• Eurozone data in focus this morning.

The FTSE is expected to open slightly lower on Tuesday, as traders in the UK return to their desks following the long bank holiday weekend.

Monday was a largely uneventful day in the markets, especially when compared to last week which saw the ECB cut interest rates, the Fed hint at a possible increase in QE and a much stronger US jobs report than had been expected. We did have the release of the eurozone services PMIs early in the session, although these were fairly mixed. An improvement was seen in France, Italy and the eurozone as a whole in April, while Spain came in below expectations and Germany’s services sector contracted for the first time since November.

These figures are unlikely to have any impact on the next ECB meetings, given that the first estimates of these figures were released prior to last weeks’ meeting, although they do highlight the ongoing difficulties in the region. More disappointing figures like these could prompt further action from the ECB at its next meeting in June, as confirmed again by Mario Draghi when he spoke in Rome yesterday.

The Reserve Bank of Australia unexpectedly cut interest rates to an all time low of 2.75% this morning. Although there has been talk of a possible rate cut recently, it wasn’t expected at this meeting and was therefore not priced into the markets. The aussie has been in a downward spiral recently and this cut is going to do little to change that.

Against the greenback, the aussie is now trading close to 1.015, a major support level. A break of this could see the pair should see the pair fall back towards parity, before continuing its freefall back towards last years’ lows of 0.9580.

The decision by the RBA to cut interest rates clearly suggests that the central bank anticipates a further slowdown in Chinese growth this year, which is likely to be driven largely by a further reduction is exports to the eurozone and the US. The fact that the RBA clearly doesn’t share Mario Draghi’s optimism that the eurozone will recover later this year may way on European indices on Tuesday, although most people in the markets are already quite pessimistic when it comes to the eurozone recovery already.

There isn’t a huge amount of data out of the eurozone on Tuesday. German factory orders for March will be released just before lunch and are expected to show a small month on month drop, while compared to last year, orders are forecast to be lower by around 2.9%.

French industrial production figures are expected to be just as depressing. A drop of 0.5% is also expected here, further highlighting the extremely tough task ahead for the French, who’s recession is expected to be confirmed next Wednesday.

[B]EURUSD[/B]

The euro is continuing to head south after bouncing off the 50 fib level last week. The break below the mid-bollinger band on the daily chart could be quite significant today, as it would go some way to confirming the bearish outlook for the pair. Just below here, around 1.3030, is the neckline of a double top that has formed over the last month or so. A break below here, based on the the size of the formation, should prompt a move back towards 1.28. This is just above the neckline of the head and shoulders formation on the weekly chart, which I’ve highlighted over the past couple of months. A break below here would be incredibly bearish for the pair.

[B]GBPUSD[/B]

Sterling is looking quite bearish against the dollar at the moment. The pair found strong resistance last week around 1.56, the 50% retracement of the move from this years’ highs to lows. If the pair breaks below the mid-point of the ascending channel, it would go some way to confirming the reversal of the recent uptrend, and the continuation of the longer term downtrend, dating back to the beginning of the year. The next major support level would then come around 1.5410, a previous level of support and resistance. Along the way, it should find additional support around 1.55 and 1.5479.

[B]USDJPY[/B]

It seems like a lifetime ago now that the Bank of Japan announced its quantitative and qualitative easing program that prompted this pair to jump almost 700 pips in the space of three days. Since then, we’ve seen the pair retrace back below 96.0, before gradually making its way back towards 100.0 before finding resistance here each time. This has resulted in an ascending triangle formation, which is typically bullish. While the breakout looks likely to come on the upside, we may have to wait a while longer for it. In the mean time, we could see another retracement this week, with the target being around 97.50, where the pair will find support from the bottom of the ascending triangle. Along the way, it should find support around 98.40, 98.20 and 97.66.

Ahead of the open we expect to see…

[U][B]Read the full report at Alpari News Room[/B][/U]

[Alpari_UK]

0:09 Global indices at 5 year highs;
0:25 Australian interest rate cut;
1:06 Markets still feeling effects of last week

Forex research: Global markets daily

[Alpari_UK]

[B]Europe boosted by better Chinese trade data[/B]

Today’s UK opening call provides an update on:

• Chinese data encouraging, although not necessarily reliable;
• UK retail sales fall heavily in April due to earlier than normal Easter;
• Little economic data out on Wednesday.

European indices are expected to open around a quarter of a percentage point higher on Wednesday, following the release of some encouraging trade data out of China.

China’s trade surplus rose to 18.16 billion in April, easily beating expectations of a 15.05 billion surplus and far better than March’s small deficit. The most encouraging thing here was the substantial improvement in both imports and exports , with both once again coming in well above expectations and easily beating March’s figures. If we continue to see these kinds of figures, the recent concerns over a slowdown in China will appear a little premature.

That said, these figures have proven to be extremely volatile in the past, so the probability of a repeat performance even next month isn’t very high. On top of that, questions will always be raised about such strong improvements in Chinese trade data, especially when the other economic releases have been pointing to a slowing of growth. Clearly the markets aren’t overly concerned about this right now, however this is likely to limit any upside that will come as a result of these figures.

The BRC retail sales data showed a 2.2% drop in the UK in April, compared with a year ago. This is the first drop in the figure since October and the biggest fall since the same month last year. I think the first thing this highlights is just how fragile the recovery is in the UK, despite stronger than expected growth in the first quarter and an improvement in the PMIs in April.

On the other hand, the fact that Easter fell in March this year is certainly going to have an impact on the figure. It’s actually pointless comparing the figure to April last year, which is why I expect the impact of the large drop to be minimal. It may have even been priced into the markets to a degree.

It’s going to be another quiet day in terms of economic releases. Yesterday we saw markets rally strongly off the back of some encouraging German factory orders data, as little else was providing any direction for the markets and trading volumes were down. We could see a similar scenario on Wednesday, with the only economic releases in Europe being the Halifax house price data out of the UK, which is expected to show a marginal increase in April, and German industrial production, which is expected to have fallen heavily from a year ago. Given yesterday’s surprise to the upside in German factory orders, I wouldn’t be surprised to see a similar beat in the data this morning.

[B]EURUSD[/B]

The euro is trading higher this morning, after finding support once again from the middle bollinger band on the daily chart. As I mentioned yesterday, a break below the middle band would be quite a significant move for the pair and could prompt a significant move lower. However, the fact that it found support here once again, suggests there may still be some upside left in the pair. If we do see it push higher, the pair should find resistance around 1.3131, 1.3158, 1.3178 and 1.3241. On the other hand, despite finding significant support here, we could see further attempts in the coming days to break below this middle band, which if successful should see the neckline of the double top come under significant pressure, around 1.3030.

[B]GBPUSD[/B]

Sterling is looking quite bearish after breaking below the midpoint of the ascending channel yesterday. This had provided support for the pair over the last week or so, as the pair rallied towards 1.56. The bounce off the 50 fib level and now the break below the mid point of the channel is quite a clear bearish signal for the pair and should now prompt a move back towards 1.54. Here the pair should find support from the bottom of the ascending channel. This is also a previous level of support and resistance, which should make this an even bigger support level. A break below here would be a very bearish signal for the pair and could prompt a move back towards March’s lows around 1.4830.

[B]USDJPY[/B]

The dollar is continuing its slow ascent back towards 100 this morning. We’re currently seeing another small retracement in the pair, which if previous retracements are anything to go by, should see the pair pull back towards 98.22, the 50% retracement of the move from last weeks’ lows to this weeks’ highs. While the ascent has been slow following the rapid move higher last month, there has been a very clear pattern, in that each retracement has clearly respected the fib levels, in particular the 50 and 61.8 levels. Therefore, I see no reason why this will be any different. If we do see the pair pull back to this level again, it should find support along the way around 98.63 and 98.40.

Ahead of the open we expect to see…

[U][B]Read the full report at Alpari News Room[/B][/U]

[Alpari_UK]

[B]DAX at new record highs as data beats expectations[/B]

Today’s US opening call provides an update on:

[ul]
[li]Europe higher as DAX hits new record highs;
[/li][li]Sentiment up on improved Chinese trade balance figure;
[/li][li]German industrial production figure much better than expected;
[/li][li]Fed voting member Jeremy Stein speaks later.
[/li][/ul]

It’s been a positive start to the European session this morning, after the DAX became the latest index to hit record highs despite the fact that the eurozone is stuck in recession.

A significant improvement in the Chinese trade balance data in April has been largely responsible for the gains seen in Europe this morning. Last month, China reported a small trade deficit, which, along with other data, led to growing concerns that we are seeing a slowdown in the worlds’ second largest economy. April’s figure suggests otherwise, after a surge in both imports and exports left China with a surprisingly large surplus of $18.16 billion.

The problem with this data is that a lot of people are very sceptical about how accurate it actually is. The fact that most people don’t see the data as reliable isn’t stopping them buying into the equity rally though, which highlights the problem that we have. It doesn’t seem to matter whether the data is good or bad, anything is being turned into a reason to buy. Either it’s good, which is seen as a positive sign that the economy is recovering, or it’s bad which means the central banks will intervene. This is not sustainable.

Helping to push the DAX higher this morning has been the industrial production figure for March, which followed the factory orders data yesterday, in coming out much better than expected. Ordinarily, I don’t think these figures would have had such a big impact on the markets, but with trading volumes so low and investors looking for any reason to get in on the rally, they’re clearly having a big impact at the moment. I think we’re now setting ourselves up for a big fall.

It’s going to be another quiet day in terms of economic data on Wednesday, with no significant releases in the US. We will hear from Jeremy Stein, a voting member of the Fed, at the start of the US session, which is likely to attract a lot of attention. The Fed vowed to remain flexible when it comes to its QE3 program after the meeting last week, which suggested we could see the amount of purchases rise as well as fall.

However, these comments came before the release of the jobs report on Friday, which painted a much better picture of the economy than had been expected. Not only were more jobs added in April than had been forecast, March’s number was revised significantly higher as well. On top of this, the unemployment rate fell again. It will be interesting to find out what impact, if any, these figures have on the Fed’s monetary policy in the coming months.

Ahead of the open we expect to see…

[U][B]Read the full report at Alpari News Room[/B][/U]

[Alpari_UK]

0:25 China trade balance defies expectations
1:28 German industrial production expand ahead of GDP release
2:07 RBNZ Governor highlights unknown currency manipulation in New Zealand
3:10 NZDUSD chart
4:00 GBPUSD chart

Forex research: Global markets daily

[Alpari_UK]

[B]All eyes on the UK ahead of BoE rate and QE decision[/B]

Today’s UK opening call provides an update on:

• No change in monetary policy expected from the BoE on Thursday;
• Slight improvement expected in UK industrial and manufacturing production;
• No surprises expected from the ECB monthly report;
• US jobless claims expected to remain low.

The UK is going to be back in the spotlight on Thursday, not long after data confirmed the country avoided a triple dip recession in the first quarter.

The Bank of England is expected to leave monetary policy unchanged following Sir Mervyn King’s penultimate meeting as Governor. Mark Carney will take over this role in July, and you get the feeling that most members are not interested in committing to anything until the transition is complete.

This has been clearly evident recently by King’s inability to convince the six members who voted against more quantitative easing to join him in the “yes” camp. In the past, the BoE has always announced additional QE within two months of King voting in favour. This is no longer the case.

Given the improvement seen in the data recently, including the first quarter GDP figure that saw the UK avoid a triple dip recession with relative ease, we could even see King give up in his attempts to convince the other policy makers, instead voting against more stimulus and just seeing out the final months of his term. We won’t find out if that has happened though until the minutes are released on 22 May.

Staying in the UK, we have a few major pieces of economic data out this morning, including industrial and manufacturing production figures for March. A small improvement is expected here in March, compared to a month earlier, however this doesn’t cloud the fact that both have contracted significantly compared to a year earlier. A third monthly improvement in four months is encouraging, however unless we see a massive improvement in the months ahead, both are going to continue to weigh on the economy.

The NIESR GDP estimate for the three months to April will watched closely again on Thursday, although its unlikely to be as important as it was a month ago. The UK may have avoided recession in the first quarter, but that doesn’t change the fact that we’re likely to see the economy stagnating this year. Any improvement here will obviously be positive for the British pound and the FTSE, however this seems unlikely.

No surprises are expected from the ECB monthly report. The fact that the central bank cut the main refi and marginal lending rates last week, and discussed the prospect of cutting the deposit rate, currently at 0%, clearly highlights the dire economic situation currently facing the eurozone. I can’t think of anything we could see in this report that will tell us what we don’t already know.

Next it’s over to the US for the release of the weekly jobless claims. A slight increase to 335,000 is expected here, although this is still extremely low and seen as an encouraging sign for the US economy, especially following the better than expected jobs report on Friday. The initial jobless claims figure has beaten market expectations in three of the last four weeks, so I wouldn’t be surprised to see it happen again today, with another figure around 325,000.

[B]EURUSD[/B]

The euro made some strong gains again on Wednesday, after another piece of German data easily beat expectations. The pair has been stuck in a range since the start of the month, between 1.30 and 1.32, however that appears to have tightened slightly, with the middle bollinger band now providing strong support for the pair. The fact that the German data has had such a big impact on the euro in the last few days suggests to me that traders are looking for any excuse to long the euro. We could therefore see a significant break above 1.32 over the next week or so, with strong resistance then being found around 1.3227, from the 50 fib level. If the pair breaks above here, the next target will be 1.3341, the 61.8 fib level. I don’t expect it to rally much beyond here as I still think that all we’re seeing at the moment is a retracement of the longer term downtrend. If the pair does break above the 50 fib, it should find strong resistance again around 1.3250, which has previously been a key level of support and resistance.

[B]GBPUSD[/B]

Sterling is trading slightly higher this morning, as traders continue to ditch the greenback in favour of more risky currencies. The pair is finding strong resistance again this morning around 1.5540, from the mid-point of the ascending channel. The fact that it is struggling to break above here is quite a bearish signal, and suggests we could see a move back to 1.54 in the coming days. Around here, we should see the lower bollinger band, on the daily chart, cross with the bottom of the channel to provide significant support. If we see a break of this level, it would be extremely bearish, potentially prompting a move back towards this years’ lows of 1.4830. Before that though, the pair should find support around 1.5479, 1.5445 and 1.5422, 38.2 fib level.

[B]USDJPY[/B]

A breakout in this pair may be closer that first thought. The recent price action has seen this pair consolidate further to the point that we’re not longer looking at an ascending triangle so much, as a pennant. This could bring the breakout forward to as early as next week. As it stands, it looks like we’re going to see another test of the ascending trend line before we see an assault on the all important 100.0 level. Currently, the pair is finding support around 98.63, if we see a break below here, it should find additional support around 98.40, 98.21, 50 fib level, and 97.92, 61.8 fib level.

Ahead of the open we expect to see…

[U][B]Read the full report at Alpari News Room[/B][/U]

[Alpari_UK]

[B]Sterling rallies ahead of BoE decision on improved data[/B]

Today’s US opening call provides an update on:

[ul]
[li]UK manufacturing and industrial production improves again in March;
[/li][li]BoE likely to leave monetary policy unchanged;
[/li][li]Commodity currencies lead the gains following strong employment data from Australia and New Zealand;
[/li][li]US weekly jobless claims up next.
[/li][/ul]

It’s been a positive start to the morning for the UK, with industrial and manufacturing production figures for March coming out much better than expected. Both figures are still deep in negative territory compared to a year earlier, but the fact that we’ve seen a third month on month improvement in the last four months is encouraging.

The recent improvement in the economic data has all but ended any hope of further stimulus from the Bank of England while Sir Mervyn King is still Governor. King couldn’t even convince the remaining six policy makers to vote in favour of additional purchases when there was a real threat of a triple dip recession. Now that the threat has gone, for now at least, he doesn’t really stand a chance.

In fact, when the voting is revealed on 22 May, I expect to see the voting shift more in favour of no more QE, with either King or Pail Fisher, or even both, changing their vote.

We’ve seen a strong start to the session from the commodity currencies this morning, after both Australia and New Zealand released some strong employment figures. Both central banks have been active recently, with the Reserve Bank of New Zealand admitting to selling its currency last month in a bid to halt its appreciation, while the Reserve Bank of Australia went for the more conventional measure of cutting interest rates to all time lows.

Based on these moves, it would have been safe to assume that both economies are struggling and that the data released would reflect that. This was far from the case, with New Zealand unemployment dropping from 6.9% to 6.2% in the first quarter, while Australia’s fell from 5.6% to 5.5% in April. On top of this, the number of people employed rose by more than 50,000 despite expectations of a small increase.

Later on the focus will switch to the US, with initial jobless claims once again being watched closely. Fears of a slowdown in the US appear to have eased now, after the jobs report on Friday showed more jobs added in April than was expected, while March’s woeful figure was revised significantly higher.

Another strong figure here today, in the region of 320,000 to 330,000 should help keep sentiment high in the markets and could push US indices back into positive territory, with futures currently pointing at a lower open.

Ahead of the open we expect to see…

[U][B]Read the full report at Alpari News Room[/B][/U]

[Alpari_UK]

0:09 Commodity currencies rally on employment figures;
2:07 Chinese inflation picks up in April
2:54 Bank of England rate and QE decision

Forex research: Global markets daily

[Alpari_UK]

[B]German trade data highlights further imbalance in eurozone[/B]

Today’s UK opening call provides an update on:

• Nikkei surges as USDJPY moves above 100.0 for the first time in four years;
• German and UK trade balance figures due out this morning;
• G7 meeting likely to be uneventful;
• Ben Bernanke speaks for the first time since the jobs report was released on Friday.

European indices look like following in the footsteps of their US counterparts on Friday, after stocks in the US closed lower for the first time this week.

The rest of the week has seen the US indices hitting record high after record high, so it’s no surprise to see investors take a breather. The same cannot be said for investors in Japan, where the Nikkei 225 jumped almost 3% over night, after the dollar moved above JPY100 for the first time in four years. The pair is currently trading around 101 and could hit 101.50 before the markets close tonight…

The economic calendar is looking pretty light again on Friday, with the only noteworthy releases being the trade balance figures out of Germany and the UK. Germany has arguably done very well out of the debt crisis so far, with borrowing costs currently at record lows and the country’s trade surplus near the levels last seen at the end of 2007.

Germany is expected to report another large trade surplus again in March, of around EUR18 billion, the largest surplus since August last year. When you see figures like this, it’s no surprise that other countries in the euro area are calling on Germany to do more to help with the rebalancing in the region, such as encouraging the German public to buy more goods from other eurozone countries.

The UK is facing a different problem altogether. The country has been running a trade deficit for years and efforts by the coalition government to reduce this are having absolutely no impact. This has been put down to the debt crisis in the eurozone so far, with it being the UK’s largest trading partner. This is why more efforts are being made to boost trade with other countries such as the US and China, in order to reduce the UK’s reliance on the eurozone. This will take time though, which is why another large deficit of GBP8.9 billion is expected today.

The two day G7 meeting, which starts on Friday, is likely to be a much more low key event than those we have become used to recently. With the situation in the eurozone looking a little more stable, the focus at this meeting is likely to be on growth, trade and financial reform. The finance ministers are also likely to discuss the recent moves by a number of central banks, although I think it’s been made very clear already that all members of the G7 support the efforts of the central banks to boost the domestic economy.

Finally, we’ll hear from a few members of the Federal Reserve this evening, most notably Fed Chairman, Ben Bernanke, who is due to speak at the annual conference in Chicago. It will be interesting to see here whether Bernanke still sees potential for an increase in the asset purchase program now that the jobs data last week suggested that we’re in fact not seeing a slowdown in the second quarter. If not, then questions will once again be raised about when we can expect to see the Fed taper its asset purchases.

[B]EURUSD[/B]

There was a major sell-off in the euro yesterday, after it once again found strong resistance around 1.32. The pair could now be viewed as quite bearish when looking at the daily chart, despite once again failing in its attempts to break below 1.30. The euro sell-off yesterday resulted in a bearish engulfing pattern on the daily chart, while the pair also broke below the middle bollinger band which has previously been a key level of support and resistance. That said, the pair has now found strong support from both the 50 day SMA and the neckline of the double top, which formed over the last month or so. This is going to be a very difficult level to break and could in fact prompt a move back towards 1.32. If this level is broken, we should see a move back towards 1.28, based on the size of the formation.

[B]GBPUSD[/B]

We’re seeing further weakness in sterling this morning, following a major sell-off yesterday. The pair failed again to break above 1.56 yesterday, which has been a significant resistance level over the past couple of weeks. The sell-off may be brief though, with the pair already coming up against a major support level, between 1.54 and 1.5422. A combination of the 38.2 fib level and the middle bollinger band on the daily chart is going to make this a significant support level. On top of that, the level has previously acted as a key level of resistance. This could now prompt a move back towards 1.56, with a move above here setting up a move towards the 61.8 fib level around 1.5788. If it breaks below this support level, it should find additional support around 1.5375, from the bottom of the ascending channel. It’s worth noting that unless we see a significant rally today, we’ll have a bearish engulfing pattern on the weekly chart, which could suggest we’re about to see another sell-off.

[B]USDJPY[/B]

Yesterday’s rally in the dollar saw this pair finally break above the 100 level yesterday. The pair is currently trading around 101.20 and should push on to 101.50 today, where it will find strong resistance, with it being a previous level of resistance. From here I expect to see some weakness in the pair as it comes back to test the 100 level as a new area of support before continuing its move higher. We should then see the pair target 105.57, the 61.8 fib level, of the move from 2007 highs to 2011 lows, although this will probably take a few months.

Ahead of the open we expect to see…

[U][B]Read the full report at Alpari News Room[/B][/U]

[Alpari_UK]

[B]US indices to open higher ahead of Bernanke speech[/B]

Today’s US opening call provides an update on:

[ul]
[li]BT Group lead gains in the FTSE after reporting better full year profits;
[/li][li]Trade balance data shows further imbalances in the eurozone;
[/li][li]UK trade deficit marginally shrinks in March, but misses expectations;
[/li][li]G7 meeting likely to be a non-event;
[/li][li]Bernanke speaks in Chicago, a week after the much improved jobs report.
[/li][/ul]

European markets are trading higher again on Friday, continuing what has been a very good week in the equity markets.

BT Group are leading the gains in the FTSE this morning after reporting higher than expected profits for the year ending 31 March. The company also increased its dividend by 14% which has clearly helped boost its share price this morning. Investors will also be encouraged by the company’s attempts to lure in new customers by offering free premier league football as part of its package, something that Sky currently charges a premium for.

Apart from that, it’s been a relatively quiet start to the session on Friday. A lack of market driving news early in session, combined with very little in terms of economic data has left the markets with no clear direction. European indices had looked like opening marginally lower before the open but clearly investors still see some scope for more upside before the end of the week.

The little economic data that we have had out this morning has caused few surprises. Germany’s trade surplus fell marginally in March to EUR17.6 billion, although this is still a far better figure than what we’re seeing from the other eurozone countries, highlighting the imbalance in the region which is generally getting worse rather than better.

The UK’s trade deficit fell slightly to GBP9.1 billion in March, although this was a worse figure than had been forecast which is probably why we’re seeing sterling continue to struggle this morning, in particular against the US dollar. UK Chancellor, George Osborne’s efforts to fix this imbalance clearly aren’t having the desired effects so far, although this should improve in the coming years with the government efforts to improve trade with more emerging economies.

The G7 meeting over the next two days is likely to be a bit of a non-event. Finance ministers are due to discuss a number of issues including ways to get the global economy moving again, as well as the controversial topic of central banks. So far, they have attempted to distance themselves from suggestions that certain central banks are intentionally devaluing their currencies in order to increase competitiveness, but with more central banks cutting rates and announcing large stimulus programs, it could only be a matter of time until we see their tone change.

Finally today, we’ll hear from Fed Chairman, Ben Bernanke, when he speaks at the Fed annual conference in Chicago. At the last press conference, Bernanke left the door open to a possible increase in the Fed’s asset purchase program if the economic data warrants it. It will be interesting to see if this is still an option they’re considering, or if the improvement in the jobs data on Friday has changed that.

Ahead of the open we expect to see…

[U][B]Read the full report at Alpari News Room[/B][/U]

[Alpari_UK]

0:09 BT Group leads FTSE 100 higher
0:38Dollar stand out performer as USDJPY breaks key level
1:28 UK and German trade data in line with expectations
3:07 G7 to discuss growth and central banks
4:17 Bernanke speaks at Fed annual conference later

Forex research: Global markets daily

[Alpari_UK]

[B]China kicks things off as attention shifts to economic data[/B]

Today’s UK opening call provides an update on:

• G7 continues to support BoJ efforts to end deflation;
• More emphasis on data this week;
• Chinese retail sales and industrial production watched closely;
• US retail sales could suffer as a result of payroll tax and rising energy costs.

The G7 conference over the weekend was, as expected, a lot of hype about nothing. Once again, the G7 came out in support of Japan’s loose monetary policy, despite the huge weakness seen in the yen in recent months. This didn’t come as a surprise though, the G7 have backed themselves into a corner slightly by supporting Japan’s efforts at recent meetings. To come out now just because the yen has weakened to levels everyone was expected would not send the right message. Especially at a time when central banks around the world are also easing aggressively.

There’s going to be a lot more emphasis on economic data this week, with the US, UK, eurozone, China and Japan all due to release some hugely important figures. Monday is going to be a little quieter compared to the rest of the week, with a couple of pieces of data out of China and the US the only noteworthy releases.

China will get things underway this morning with the release of its retail sales figures for April. Retail sales are expected to have increased by 12.8% last month, a small improvement on March’s figure but still significantly below the kinds of improvement we became accustomed over the last few years.

Chinese industrial production figures will also be watched very closely. These figures have come in well below market expectations over the last couple of months, which suggests that the slowdown globally is continuing to have a negative impact on Chinese growth. This month, expectations are far lower, which should mean that the data has less chance of disappointing. What it probably means though is that if it does miss, the disappointment in the markets will be that much greater.

Fixed asset investment is another thing that’s been closely monitored recently, with China suggesting that this will be reduced in the coming years as the economy shifts its focus from investment and exports to domestic activity. We haven’t really seen any signs of this yet, although the process is likely to be very gradual and therefore the impact on this figure is likely to be minimal. As a result, I don’t expect any surprises here, with markets currently expecting an increase of 21.1%.

The first half of the European session should be a lot more calm, with sentiment likely being driven by the figures out of China. At the moment, futures are pointing to a slightly higher open in most European markets, however this can all change very quickly if the Chinese data shows further signs of a slowdown in the global economy.

With no data out of Europe this morning, the focus will therefore quickly shift to the US, where we’ll get some retail sales figures for April shortly before the opening bell. Retail sales are expected to have fallen slightly again in April, which could once again raise concerns about the impact of the payroll tax at the end of the year and the sequester.

Falling energy prices have helped cushion the blow of the increase in the payroll tax so far this year, which is why we’ve seen little impact so far in the data. However, these prices did bottom out in mid-April which means the figures we see in April and May are unlikely to be as easy on the eye. If the data starts to take a turn for the worse, we could see that pull back in the markets that most people have been concerned about for so long.

[B]EURUSD[/B]

The euro is trading higher against the dollar this morning, although the overall tone in the pair is a bearish one. The pair broke below a key support level on Friday, around 1.3040, the neckline of the double top on the daily chart. Based on the size of the formation, this should now prompt a move back towards 1.28, which is the neckline of the much longer term head and shoulders on the weekly chart. Adding to the bearish outlook in the pair, it also broke below the middle bollinger band on the daily chart towards the end of last week, as well as the 200 day SMA, which is acting as resistance so far this morning. If we do see the pair edge lower again today, it should find support around 1.2935, Friday’s lows, followed by 1.2950 and 1.29.

[B]GBPUSD[/B]

Despite a strong performance over the last couple of months, this pair is looking pretty bearish on the weekly chart, with last weeks losses leading to the formation of a bearish engulfing pattern. The pair also found strong resistance around 1.56, the 50 fib level, over the last couple of weeks which suggests the recent sterling strength was nothing more than a retracement of the longer term downward trend. That said, there is clear support in this pair around 1.53, so as long as this remains in tact, we could still see another move to the upside. On the daily chart, the pair has found strong support from the bottom of the ascending channel, which could prompt a move higher again. If we do see this, it could find resistance around 1.54, the middle bollinger band on the daily chart, and 1.5530, the mid-point of the ascending channel. If the pair breaks below the channel then we could see a significant move lower towards this years’ lows around 1.4830.

[B]USDJPY[/B]

The yen began its second wave of weakening last week, when the pair broke above the key 100.0 resistance level. It didn’t take long for the pair to hit 101.50, the next major resistance level, and we could even see it break through here with relative ease following the G7 meeting over the weekend when the leaders once again supported the Bank of Japan’s large stimulus program. The pair started the week above this level and now appears to be finding support here, so we could now see the first move towards 110.0. The next big resistance level though should come around 103.76, which was previously a big support level for the pair. In the shorter term, the pair should find resistance around 102.42 and 103.0.

Ahead of the open we expect to see…

[U][B]Read the full report at Alpari News Room[/B][/U]

[Alpari_UK]

[B]Payroll tax to weigh on US retail sales[/B]

Today’s US opening call provides an update on:

[ul]
[li]Disappointing Chinese data weighs on European stocks;
[/li][li]Italy completes successful debt auction;
[/li][li]US retail sales in focus this afternoon.
[/li][/ul]

European indices are in the red across the board on Monday, putting an end to a four day winning streak, after the release of some disappointing Chinese data.

The Chinese figures this morning weren’t the end of the world, they were only marginally below market expectations. However, we’ve just had a four-day winning streak in most European indices, so investors will have been looking for an excuse to lock in profits. Now, as it has been for months now, it’s just going to be a case of waiting for the next dip before we see more buying.

Chinese retail sales were in line with expectations of a 12.8% increase, but this is still a fair way below the increases that we were seeing last year. When you combine that with below forecast industrial production and fixed asset investment, it’s no surprise that we had the reaction that we did. It’s not an encouraging sign.

The Chinese data has completely overshadowed the Italian bond auction this morning, which saw three-year yields at the auction come in at their lowest since January. Italy managed to raise its maximum target of EUR8 billion at the auction which also came with strong demand.

I think this largely reflects investors relief at the fact that we now have a grand coalition in place, even if many are sceptical about how long it can last. The progress that we’re seeing here may be slow, but it’s better than what we had in the two months following the election.

Next up we have US retail sales shortly before the opening bell. Consumers spending has been surprisingly strong so far this year, despite the increase in the payroll tax. This may be due to the drop in energy prices though, which will go some way to easing the pressure on people’s disposable income.

Now that we’re seeing energy prices rising again, with WTI crude up almost 10% in the last month, we could see consumers really feel the squeeze. This should be seen in the retail sales figures in the coming months, although I doubt we’ll see it in April’s figure this afternoon.

Ahead of the open we expect to see…

[U][B]Read the full report at Alpari News Room[/B][/U]

[Alpari_UK]

James Hughes discuss the major points ahead of a busy week on the economic calendar. He looks at this morning’s Chinese data and previews the eurozone finance ministers meeting in Brussels as well as looking at some charts.

Forex research: Global markets daily

[Alpari_UK]

[B]Eurozone data to highlight need for more ECB action[/B]

Today’s UK opening call provides an update on:

• S&P hits record highs after retail sales exceed expectations;
• Eurozone and German ZEW figures expected to improve in May;
• Further disinflation in the eurozone may prompt another ECB rate cut.

European indices are expected to open marginally higher on Tuesday, boosted by better than expected US retail sales on Monday.

The S&P closed at record highs once again following the release of the retail sales figure, which showed a small increase of 0.1%, against expectations of a 0.3% drop in April. While I still expect to see these figures come down in the months ahead as a result of rising energy prices and the impact of the payroll tax on disposable income, it’s good to see that consumers have thus far been unaffected, to an extent, by the tax hike which came into effect on 1 January.

There’s likely to be a lot more focus on economic data this week, although this will pick up more and more as the week goes on. We’ve had a few pieces of data out so far, but as always, the bigger figures are saved for later in the week, with Wednesday bringing GDP figures for the eurozone and unemployment data for the UK.

The ZEW economic sentiment surveys for the eurozone and Germany will be watched closely this morning, after both came in significantly below market expectations last month. Expectations this month are for a small improvement in both of these figures, with the eurozone rising to 27.3 and Germany to 39.5.

The improvement in both of these is likely due to a combination of the ECB rate cut earlier this month and the formation of the coalition government in Italy that ended two months of political uncertainty. In reality, very little has actually changed, in that the data hasn’t improved, the rate cut is unlikely to have any positive impact whatsoever on the real economy and people appear no more optimistic about the eurozone than they did a month ago. As a result, we may well be setting ourselves up for disappointment once again.

Another focus in the eurozone today will be the inflation data out of Germany, Spain and Italy. Given the ECBs focus on price stability, the ZEW data is unlikely to have an impact on the rate decision next month, however these CPI figures could. It is worth noting that these figures are for April, so will be impacted in no way by the rate decision earlier this month. That said, if we see more signs of disinflation in these countries, it may suggest that a 25 basis point cut is not enough and therefore prompt a second consecutive rate cut in June, something ECB Governor Mario Draghi is no stranger to.

[B]EURUSD[/B]

While this pair still looks bearish in the longer term, with the next target being 1.28, it looks like we could see a push higher in the shorter term, with the pair retesting the neckline of the double top formation, that it broke below on Friday. There are a few bullish signals on the daily chart alone, for example the doji candlestick yesterday suggests we could see a reversal of the recent downtrend. The fact that this has been followed by a strong rally in the euro means we could see a morning star form, as long as today’s green candle is at least two thirds the size of Friday’s red candle. On top of that, both the RSI and stochastic are now pointing higher which suggests the pair is looking more bullish. On the other hand, the pair has found clear resistance over the last couple of days from the 50 and 200 day SMAs, around 1.30, which is also a key psychological level. If we continue to see that today, it could mark the end of the rally already and prompt the continuation of the downtrend.

[B]GBPUSD[/B]

The pound has turned quite bearish again, after the pair broke below the ascending channel yesterday. We are seeing it trade higher again this morning, however this could only be a temporary retracement of the longer term downtrend. We could now see the pair test the bottom of the channel as a new level of resistance before continuing its move lower. If the pair does turn bearish, it should find support around 1.5250, from the 50 day SMA. Below here is should find additional support around 1.5230 and 1.52. On the weekly chart, you can see that the pair actually formed a perfect flag formation, which it has now broken below. Based on the size of the flag, we should now see a move back towards 1.5040, although I think it could fall back to 1.4830 in the coming months.

[B]USDJPY[/B]

The dollar is paring some of its recent gains against the yen this morning, following a strong rally that saw it push above 100.0 before finding resistance around 102. I still think there’s a long way to go in this pair, with 110 being the next major target. As a result, I think today’s selling is merely a retracement rather than a trend reversal. As always, the Fibonacci retracement levels tend to give a good idea about how far we can expect the pair to retrace. The one that stands out for me is the 61.8 fib level, given that it’s within a few pips of 100, which was previously a major level of resistance.

Ahead of the open we expect to see…

[U][B]Read the full report at Alpari News Room[/B][/U]

[Alpari_UK]

[B]Eurozone data to highlight need for more ECB action[/B]

Today’s UK opening call provides an update on:

[ul]
[li]S&P hits record highs after retail sales exceed expectations;
[/li][li]Eurozone and German ZEW figures expected to improve in May;
[/li][li]Further disinflation in the eurozone may prompt another ECB rate cut.
[/li][/ul]

European indices are expected to open marginally higher on Tuesday, boosted by better than expected US retail sales on Monday.

The S&P closed at record highs once again following the release of the retail sales figure, which showed a small increase of 0.1%, against expectations of a 0.3% drop in April. While I still expect to see these figures come down in the months ahead as a result of rising energy prices and the impact of the payroll tax on disposable income, it’s good to see that consumers have thus far been unaffected, to an extent, by the tax hike which came into effect on 1 January.

There’s likely to be a lot more focus on economic data this week, although this will pick up more and more as the week goes on. We’ve had a few pieces of data out so far, but as always, the bigger figures are saved for later in the week, with Wednesday bringing GDP figures for the eurozone and unemployment data for the UK.

The ZEW economic sentiment surveys for the eurozone and Germany will be watched closely this morning, after both came in significantly below market expectations last month. Expectations this month are for a small improvement in both of these figures, with the eurozone rising to 27.3 and Germany to 39.5.

The improvement in both of these is likely due to a combination of the ECB rate cut earlier this month and the formation of the coalition government in Italy that ended two months of political uncertainty. In reality, very little has actually changed, in that the data hasn’t improved, the rate cut is unlikely to have any positive impact whatsoever on the real economy and people appear no more optimistic about the eurozone than they did a month ago. As a result, we may well be setting ourselves up for disappointment once again.

Another focus in the eurozone today will be the inflation data out of Germany, Spain and Italy. Given the ECBs focus on price stability, the ZEW data is unlikely to have an impact on the rate decision next month, however these CPI figures could. It is worth noting that these figures are for April, so will be impacted in no way by the rate decision earlier this month. That said, if we see more signs of disinflation in these countries, it may suggest that a 25 basis point cut is not enough and therefore prompt a second consecutive rate cut in June, something ECB Governor Mario Draghi is no stranger to.

Ahead of the open we expect to see…

[U][B]Read the full report at Alpari News Room[/B][/U]

[Alpari_UK]

0:10 German ZEW economic confidence figure
0:56 Eurozone industrial production
1:39 Eurozone ZEW economic confidence figure
2:10 EURUSD charts
3:16 GBPUSD charts
4:20 EURGBP charts

Forex research: Global markets daily

[Alpari_UK]

[B]Eurozone GDP and UK unemployment in focus today[/B]

Today’s UK opening call provides an update on:

• Eurozone expected to remain in recession;
• France to enter recession in the first quarter;
• UK jobless claims to fall for sixth consecutive month, while wage growth remains an issue;
• Sir Mervyn King to hold one of his final press conferences as BoE Governor.

European stock indices are expected to open higher on Wednesday, ahead of the release of eurozone GDP figures and UK unemployment data.

Data released this morning is expected to confirm that the eurozone remained in recession in the first quarter, after contracting by 0.1%. The fact that only a marginal contraction is expected means we could actually see the eurozone move out of recession, with no or a small amount of growth, which would undoubtedly prompt a very positive reaction in European stocks and the euro.

That said, I think it’s far more likely that the contraction will be bigger than is currently forecast, meaning the eurozone is actually deeper in recession than we thought. While some of the recent German data has been encouraging, the same can’t be said of that from most of the other eurozone countries. Therefore, anything other than a contraction figure here is extremely unlikely.

We also have many individual eurozone countries releasing GDP figures throughout the morning, although we’re unlikely to see many surprises here. The German figure has the potential to surprise to the upside, after what was in the main, a pretty good quarter for the country, under the circumstances. I think growth expectations of 0.3% may be overly conservative here, especially following a 0.6% contraction. I’ll be very surprised if this doesn’t come in above market expectations, providing a boost early in the session.

I don’t see the other figures giving us too much to be optimistic about. France is expected to be confirmed as back in recession after a woeful first quarter. Expectations are for growth of around -0.1%, which could actually prove to be overly optimistic given the rest of the data we saw in the first three months of the year. Meanwhile, Italy, Greece and Portugal are expected to remain deep in recession, with little hope of returning to growth this year.

In the UK, unemployment is expected to remain at 7.9%, while the number of jobless claims are expected to fall for the sixth consecutive month. Despite being much higher than pre-financial crisis levels, the unemployment rate in the UK isn’t actually too bad, especially when compared to many of the countries in the eurozone. One of the biggest concerns in the UK at the minute is real incomes which are being hit by high inflation and minimal wage increases. Data released this morning is expected to show this is still the case, with average earnings growing only 0.7% in the last three months, compared to a year ago.

Sir Mervyn King will make one of his final appearances as Bank of England Governor, when he holds a press conference with other MPC members later on this morning. At the same time, the BoE inflation report will be released. This is unlikely to fill us with optimism about the outlook for the UK, despite seeing some promising signs as of late.

These projections have proven to be incredibly inaccurate over the last few years so you should really take them with a pinch of salt. On top of that, we have a new BoE Governor starting in July, which will probably change the inflation projections entirely, depending on how the central bank addresses the issue of low growth and high inflation. The press conference is likely to be used as an opportunity to find out how the voting went at the last meeting, with King so far being unable to convince the other policy makers to vote in favour of an additional GBP25 billion of asset purchases, probably due to the fact that he retires after the next meeting.

Later on in the US, the focus is likely to remain on economic data, with the empire state manufacturing index and industrial production figures attracting particular attention. We also have crude oil inventories out later, which are expected to rise slightly to 0.5 million.

[B]EURUSD[/B]

The euro failed again yesterday to close back above 1.30 and the 200-day SMA. The fact that we’ve now had two failed attempts to close above here since breaking below goes some way to supporting the bearish outlook for this pair, at least in the short term. The next target for me is still around 1.28, due to the size of the double top that the pair broke below on Friday. This is a major level for the pair, as it is the neckline of the head and shoulders which has formed over the last eight months. If we see a break here, it could prompt a move back towards 1.18, based on the size of the formation. Alternatively, we could see this act as support, prompting a move higher. If the pair does continue to slide, it should find support around 1.2910, 1.2876, 1.2863 and 1.2843. If it continues to edge higher, the next resistance levels should come around 1.2954, 1.2988 and 1.30.

[B]GBPUSD[/B]

Sterling is continuing to slide against the dollar, since bouncing off the 50 fib level earlier this month. Since then, the pair has broken below the middle bollinger band last week, followed by the ascending channel on Monday. Yesterday, the pair closed below the 50-day SMA for the first time since breaking above it back at the start of April, which only added to the bearish outlook for the pound. The pair is trading slightly higher this morning, although I don’t expect it to gain any real momentum. We could see it test the 50-day SMA as a new level of resistance before continuing to head south. What we now have on the weekly chart is a textbook flag formation, which again supports the bearish outlook, especially since it broke below the flag. Now that the pair appears to have broken those big support levels around 1.53, I see no reason why it won’t target this year’s lows of 1.4830, finding support along the way around 1.52, 1.5088, 1.5030 and 1.50.

[B]USDJPY[/B]

The dollar is continuing to push higher against the yen this morning. The rally in the pair, since breaking above 100, doesn’t appear to be running out of steam, which is surprising since it’s currently trading above a level that was previously a major level of support. That suggests we could see it reach 105.57, the 61.8 fib level, earlier than expected. That said, I would be very surprised if we don’t have a significant pull back before then. The pair is currently finding resistance around 102.60, a previous support level, with the next big resistance level being around 103.75.

Ahead of the open we expect to see…

[U][B]Read the full report at Alpari News Room[/B][/U]