Eurogroup meeting search for Greek resolution as USD declines

Retail Sales figures stole the headlines in terms of UK fundamental data yesterday, printing well behind the forecasted figure of 0.4% at a disappointing -0.5%. This saw the pound lose ground almost immediately to its major counterparts, with almost 70 points lost against the euro and 50 points against the dollar in the immediate wake of the release at 09:30 yesterday morning.
Over the course of the trading day, the break of 1.40 interbank (IB) against the euro that was seen on Wednesday gradually seemed to slip away and become more of a distant memory, as rates in this pair deteriorated to the level at close of 1.3925 (IB). The key level of 1.40 has for some time now been viewed as one of the most important psychological levels seen in the market, as speculation over the pending Greek issue continues. A sustained break above this level will surely open the door to test higher levels at 1.41/42 (IB), however, getting that sustainability in this market is the difficulty. Despite, the negative data and the early losses, the pound did close the day higher against the dollar, once again finding itself above the 1.50 (IB) level, trading in a 111 point range, closing the day at 1.5062 (IB). Such levels are certainly against expectation, with most forecasts pointing towards a stronger dollar this year, with estimates at Q3 1.39, Q4 1.38 and as such, opportunities to buy above 1.50 are a welcome surprise to the market. No data is due from the UK today and subsequently any movements in the market will be reliant on events elsewhere. Key data is due form both Europe and the US and as such movement is expected. Key levels to watch are 1.40 (IB) against the euro and 1.50 (IB) against the dollar.

There was a string of manufacturing data releases on Thursday from Europe, with French and German Flash Manufacturing PMI data both disappointing against expectation, printing at 48.4 and 51.9 respectively, leading on to the same component for Europe, also disappointing at 51.9. Manufacturing in Germany is especially seen as key due to the impact that this component has on their GDP. Figures from Germany have been strong of late and so this will be seen as a dent to the recovery that has been spurred on by the newly injected QE program. However, they were not alone as manufacturing data printed at the disappointing levels below 50 (showing contraction) in Japan, China, France and the US also, pointing to a potential global issue of demand. In addition to this, the situation in Greece still appears somewhat desperate as talks continue to try and restructure Greek debt. Greek PM, Alexis Tsipras, met with German Chancellor Angela Merkel yesterday during a European summit on migration and will have no doubt attempted to reassure her that Greece has done, and will do, everything that it can.
fAttention will move today to the Eurogroup meeting talks held in Riga, Latvia between euro-area finance ministers as they attempt to persuade Greece to commit to economic reforms so that aid payments can be released before the country runs out of money. German IFO Business Climate data is the key data event today - due at 09:00 - giving an insight into the expectations of the business community towards future business and economic conditions, expected to print at 108.5 against last month’s 107.9. In addition to this, the focus will be on the Eurogroup meetings as previously mentioned.

The US saw another day of disappointing data yesterday as Unemployment Claims data came in over expectation at 295K, and Flash Manufacturing PMI came below expectation at 54.2.
Federal officials have stated that they would like to see a marked improvement in the labour market before they can start to entertain the idea of an interest rate rise, which had been expected as early as June this year. However, unemployment claims can be volatile around this time of year, because moving holidays such as Easter and school spring breaks disrupt the model the US government will use to smooth the data for seasonal fluctuations. This comes in addition to the bad weather conditions that contributed to the poor non-farm payrolls data at the start of the month. Either way, the dollar is experiencing a difficult time of late as the rally appears to have hit a metaphorical sand bank. Poor data from the US is certainly not helping their prospects of an interest rate rise, but beyond this we have seen the dollar lose almost 500 points since the high against the pound of 1.4564 earlier this month. There is an argument that many feel the dollar is overcooked at 1.45 GBP/USD (IB) and that some businesses would prefer a weaker dollar to increase the appeal of exports. However, as mentioned previously, forecasts on dollar prices this year favour a stronger finish and with the threat of a ‘Grexit’ and the uncertainty over UK elections it is easy to see why. Durable Goods Orders m/m both core and non-core are the highlight in terms of data today – the forecasts here are for growth, something that would be welcomed by the US. Events in Europe will no doubt affect prices once more, as ever, any updates on Greece will undoubtedly cause some movement, with the Q3 forecast on EUR/USD set at parity and Q4 at 0.98 (IB).