UK
Yesterday, UK BRC Retail Sales Monitor data fell to -3.3% in April y/y. The April RICS House Price Balance also fell 19% versus an expected drop of 11%.GBPEUR held above the 1.24 level for much of the session yesterday. Hitting a low of 1.2386 early in the morning and touched a high of 1.2444 during the Asian session overnight. Possible further bad news on the horizon for Europe could push the pair to the top of the range at 1.25 in the coming sessions, only a close back under 1.2345 will relieve immediate pressure.
GBPUSD again traded within relatively thin trading ranges, hitting a low of 1.6124 and a high of 1.6165 during the last 24 hours trading.
Key support now comes in at 1.6075 and a break and close below this level will confirm and accelerate declines towards 1.5800 medium term. Any rallies look to be well capped at 1.6300.
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WORLDWIDE
Continuing uncertainty in Greece following the elections is clearly weighing on the euro and the market reacted by seeing EURUSD drop below the 1.3000 level to hit a low of 1.2963 overnight. For the past 7 trading days, the EURUSD has steadily dropped, and with the current Greek political situation there is likely to be very little relief.
Today’s current account and trade balance reports may confirm more bad news and finally drive the EURUSD to close below 1.30 – opening the door for deeper setbacks over the coming days and weeks towards the 2012 lows from January at 1.2620.
In contrast to European politicians, the ECB has so far categorically rejected the possibility that a country can withdraw from the euro. Yesterday Jörg Asmussen, a ECB executive board member, broke with this line. He told the German newspaper Handelsblatt that Greece should be aware that there is no alternative to the agreed reform program if the country wants to remain a member of the euro zone.
Stronger than expected German data failed to lend any support to the euro. German Industrial Production was stronger than expected in March. Production rose 2.8% on the month, more than the -0.3% markets had expected. Europe’s largest economy remains its strongest, although Monday’s election results from France and Greece threaten to test Berlin’s mettle in demanding tough reforms across the Eurozone.
This morning, German exports and imports rose in March to their highest levels on record, widening the country’s current account surplus as the Trade Balance printed slightly above expectation.
Italian Banks’ ECB Borrowings increase to a record high in April. Total borrowing by Italian banks rose to €271bn from €270bn in March.
Bonds in the Eurozone periphery came under pressure, pushing yields higher. The yield on the Greek bond due 2023 was up nine basis points to 22.89%.
The NOK continues its rapid depreciation in spite of having much more solid economic backdrops than the EUR or the USD. Commodity currencies such as the CAD and NOK are vulnerable to the weaker oil price. For the time being these currencies will remain closely linked to global growth concerns rather than independent economic factors.
The RBA released its annual report, cutting its growth forecast for the present year to 3.0% from 3.5%, attributing the move to the likeliness of a slowdown in China, India and the EU economies, which will hit Australia’s exports sector. GBPAUD hit a high of 1.6047 overnight, the highest rate seen since November 2011.
RBNZ released their Financial Stability Report last night, Bollard mentioned the tools to control NZD appreciation are very limited and that he expects the NZD exchange rate to track with the competitiveness of their economy.
Canadian housing starts came in well ahead of expectations in April. Housing starts jumped 14% to an annual rate of 244,900 in April, expectations were for 204,000. GBPCAD traded between a low of 1.6063 and 1.6135 during the session and USDCAD dropped to parity for the first time in 3 weeks.
