All eyes on Mario Draghi speech at 10.00am

With the most significant market data coming from the UK yesterday, attention was fixed on the Bank of England at 9:30am amid media speculation that an interest rate hike was on the cards. Of course, a change in the interest rate was not at all forthcoming. The overall unemployment figure has surpassed Mark Carney’s 7% target, however, consistent improvement in this area will be needed to pull the trigger and furthermore, as I have written before, the unemployment figure is heavily manipulated by record self-employment numbers. 9 out of 9 MPC members voted to keep rates unchanged at 0.5%. The minutes painted a positive picture for the UK economy but this didn’t do much to push Sterling higher. Yes, Britain’s economic recovery is gaining momentum but Bank of England policymakers hold different views about the amount of slack in the economy as well at the medium term inflation outlook. Q1 has showed growth of 1% this year but economists expect that growth to slow down in Q2. The outlook for the UK is still positive; however, reading what you see in the papers is only the tip of the iceberg. The MPC are categorically against moving interest rates based on short term improvement – Spring 2015 has been tipped as the time to see a rate hike, but now that is being questioned as being premature. As a result of the minutes, Sterling lost ground against the Euro. 1.22 did look to be on the cards very briefly but it will take a significant data release for it to push through. Yesterday reaching a low of 1.2124.

With only medium impact data released from Euro nations yesterday and Mario Draghi due to speak at 10am today, the Euro stayed tight lipped and stayed predominantly range bound against its most traded counterparts. Mixed results from Markit Services & Manufacturing PMI – with France posting figures far short of expectation and also shy of last month’s results. The European powerhouse that is Germany however posted strong PMI figures. Manufacturing PMI is a measure of business conditions in the manufacturing sector and with this being such a large part of German GDP it is a figure that is examined closely. Positive news for Europe’s largest economy as the number came in above consensus at 54.2. Markit Services PMI are not widely regarded as such an important piece of data, however it showed healthy economic results in the services sectors exceeding a consensus of 53.4 and coming out at 55.Eurozone Manufacturing and Services PMI also exceeded consensus coming in at 53.3 and 53.1 respectively. Today we see the release of German IFO Business Climate, Current Assessment and Expectations which surveys more than 7000 enterprises on business activity, short term forecasts and future expectations. Most importantly will be ECB President Mario Draghi speaking at 10am where he will highlight the ECB’s views on the current economic situation in the Eurozone. He normally talks the Euro up, so volatility can be expected.

Not a particularly good day for the Greenback with Markit Manufacturing missing consensus and coming in lower than previous at 55.4. Worse than that was the disappointing US New Home Sales figure for March which has weakened and slowed to an 8 month low of 0.384m compared to 0.449m in Feb. US new home sales dropped by 14.5% last month. This along with risk appetite revived EUR/USD which bounced off of session lows and resumed the upside, reaching a high of 1.3854.
Against the Pound and due to what is perceived as uncertainty in the BOE, the Dollar pushed Sterling to a one week low of 1.6762 yesterday. With Sterling not benefitting from risk appetite, USD is broadly seen as the safe haven currency with traders backing the Dollar based on long term US strength. Rumoured buy orders clustered at 1.6750/60 and sell orders through 1.6840/50 limiting the range. Today the most significant piece of actual data comes from the US by way of Durable Goods Order for March. Consensus sits at 2%. Durable Goods is the measure of the cost of orders received by manufacturers for goods such as motor vehicles and appliances. The goods often involve large investments and are sensitive to the US economic situation. A positive figure is likely to push Sterling back down the scale.