UK data saw GBPUSD extend the new highs for 2015

Yesterday’s market action

Yesterday saw a huge amount of economic data announced from both Europe and the US. Eurozone Q1 GDP came in-line at +0.4% with the trend being worse than expected growth for the core offset by better than expected numbers from the periphery. German inflation ticked marginally higher to 0.5% m/m. UK labour market data showed the unemployment rate drop to 5.4% and Average Hourly Wages rise fast than expected to 1.9% annualised. The UK data saw GBPUSD extend the new highs for 2015 adding to the post election boost. However, the BoE quarterly inflation press conference then reversed this GBP strength as Carney left inflation forecasts unchanged, lowered GDP forecasts and said markets have interest rate expectations priced in ‘about right’. The big US data came by way of yet another weak Retails Sales figure. Only one month in the last five has seen retail sales growth. The Dollar weakened notably off this news with EURUSD punching strongly above the 1.13 handle extending the four week long rally. The S&P had a mixed response with the negative economic ramifications being offset by the theory that this will lead to an extended period of loose monetary policy. The S&P chopped to positive back to negative territory 19 times which pretty much sums things up as the index closed unchanged on the day. Crude yet again failed to rally off bullish DoE inventory data, exactly as it did last week and this sets up our bearish outlook for crude today.

Today's View

After yesterday’s barrage of economic data, today things calm with just Initial Jobless Claims and PPI data from the US scheduled for this afternoon. Draghi and Lagarde are due to speak this afternoon. But outside of this there is little else scheduled that you might call a potentially market moving event. This morning we have been reviewing the currency/equity correlations. Yesterday’s session saw the Dax close 1.4% lower on the day and the S&P close unchanged. This has been a feature of the last few weeks with European equity downside coinciding with the S&P being stubbornly anchored to the 2100 handle. This is mainly due to the reversal of the EURSD 9 month downtrend as EURUSD has trended back higher in recent weeks. This is a move that benefits US exporters to the detriment of Eurozone exporters. Any further strong upside for EURUSD today should see European equities again coming under pressure, but do not necessarily expect the S&P to follow the move down with any enthusiasm. Having said that we are still medium term bearish on US equities and continue with our short bias on the S&P today. We have a long position for the EURUSD following the bullish technical break this morning above last week’s high. T-Notes failed to sustain any upside yesterday despite bad US data and a strong 10yr auction. This indicates to us that the sellers are in control and we therefore have a short strategy for this afternoon. As mentioned above we have a short bias for crude as we expect the same pattern we saw last Thursday to repeat again today.