Stuck in the middle with Euro

Today's Highlights

• The bears are in charge

• Pound weaker despite strong employment

• Australian Dollar up on Chinese growth

Current Market Overview

The Euro is stuck in a rut against its currency partners and lacking movement, despite Germany, the EU’s largest economy weakening. German Bundesbank President, Jens Weidmann, warned last week that growth German economic growth could slow down throughout 2019. Meanwhile, the USA is also threatening the EU with hefty tariffs and the German-US 10-year yield spread is falling deeper into negative territory. Even though the ZEW economic sentiment survey showed concerns about the region's economic outlook fading, softer German industrial production results has left policymakers and markets worried about the current conditions in Germany and across the EU.

The bears are in charge

Caution and negative sentiment pervade the markets, but in a holiday week like this one, we could see some surprise spikes in the exchange rate – ‘false breaks’. There is also a chance that the trade and inflation reports expected on Thursday 18th April could be more positive than expected – this could serve to strengthen the Euro and keep GBPEUR within the 1.1250-1.1325 trading range.

Pound weaker despite strong employment

Sterling weakened overnight, despite better than expected employment data. Wage growth was on a par with expectations in February and has been revised higher for January. While Jobless Claims increased, employment figures rose 179K, to a new record high. The International Labour Organization (ILO) unemployment remained steady at 3.9%, the lowest in nearly 45 years.
Today’s consumer price report should support Sterling, as strong wage growth, rising commodity prices and increasing shop prices all point to higher inflation. There has been a distinct lack of new information about Brexit before UK parliament broke up for the Easter recess, so the Pound could remain in a holding pattern over the bank holiday break.

Australian Dollar up on Chinese growth

The Australian Dollar got an overnight surprise, rising to a two-month high after growth data from China showed improvement on forecasts. The Australian Dollar is tied closely to the Chinese economy, as Australia is a major trading partner for China. China’s economy grew at a rate of 6.4% in Q1, much higher than anticipated by the market. The figures were boosted by increased productivity in Chinese factories. The Australian Dollar is approaching 0.7200 versus the US Dollar and looks set to increase its gains in the short term, as recent data from China indicates that the slowdown may be over and that recovery is imminent.

Big data today and tomorrow

There is a large swathe of data due to be released today with Inflation data from the UK this morning followed by trade and import data in the US this afternoon. Tomorrow's US Trade Balance and Beige Book reports are key indicators of economic strength and could boost the US Dollar, so there is the plenty to move the markets, along with the usual holiday currency volatility risk.