The pound has seen choppy price action following conflicting results form the U.K. GDP and the retail sales reports as it fell to as low as 1.4600 before finding support. Growth in the first quarter contracted by 1.9% which was the most since 1979 and the third straight quarter of declines.
[U][B]Talking Points[/B][/U][B]
• Japanese Yen: Testing Support at 97.00
• Pound: GDP Contracts By Most Since 1979
• Euro: German IFO Improves More Than Expected
• US Dollar: Durable Goods Orders On Tap [/B]
[U][B]Pound Choppy As Positive Retail Sales Offset Largest GDP contraction Since 1979 [/B][/U]
The pound has seen choppy price action following conflicting results form the U.K. GDP and the retail sales reports as it fell to as low as 1.4600 before finding support. Growth in the first quarter contracted by 1.9% which was the most since 1979 and the third straight quarter of declines. A 6.2% drop in manufacturing production led across the board declines including a 1.2% drop in the service sector which accounts for 70% of GDP. However, retail sales rising 0.3% versus expectations of -0.3% has limited the pessimism generated by the growth report. The consumption figures from March could give hope that the economy has bottomed negating the steep drop in growth to start the year.
The increase in purchases by Britons was led by a 1.5% gain in apparel sales following a 4% drop in the sector in February. The component has been volatile over the past few months which could make the results a bit misleading. Nevertheless, improving domestic demand will be a positive and a source of growth for the economy which has seen demand for its exports continue to fall. Indeed, the fall in manufacturing in the first quarter was the most since at least 1948 and may remain weak throughout the remainder of the year. The GBP/USD had broken above the 20-Day SMA at 1.4687 on improving risk appetite but the mixed data has dragged the pair back below the technical level which could provide resistance today.
The Euro found support from a rebound in German business sentiment and the prevailing risk appetite which sent it to its highest level in over a week at 1.3273. The German IFO survey of over 7,000 executives beat expectations of 82.3 as it rose from a 26-year low of 82.2 to 83.7. The optimism was derived from further easing from the ECB and government stimulus plans taking effect. The data builds upon the improvement seen yesterday in the PMI and industrial new order figures which also beat expectations. However, if we see price action fall back below the 100-Day SMA at 1.3217 the downside risk for the pair may increase.
The dollar has found some renewed support on the back of the weak UK growth figures as the outlook for the global economy dimmed. The greenback had been under pressure on the back of bullish momentum in the equity markets. Indeed, European indices continue to trade higher following the positive gains from the U.S. session yesterday. However, the U.S. durable goods report today could add to the dour global outlook as they are expected to have fallen by 1.5% in March following the unexpected 3.5% jump the month prior. Additionally, the new home sales report could add the weaker than expected existing home sales that we saw yesterday which could reverse sentiment that he sector was reaching a bottom. The methodology for the banks stress test will be revealed tonight and we could see limited volatility ahead of the report. The government’s tools used to determine which banks are viable will be scrutinized until the actual results are revealed in early May as analysts will try and surmise which financial institutions could possible fall below the standards.
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[I]To discuss this report contact John Rivera Currency Analyst:[/I] [email protected]
