Euro Could Fall on German Business Confidence
The Euro has failed to extend its gains beyond 1.60 and we believe that another day of losses may be in store for the single currency. More signs of weakness in the Eurozone economy are beginning to reveal themselves. Even though service sector PMI improved in the month of April, manufacturing sector PMI deteriorated. This suggests that German business confidence could have also decreased this month as indicated by the ZEW survey. A little watched report called the Belgium Business Sentiment Index also tends to have a strong correlation with German IFO (chart). The index fell to a 2.5 year low in the month of April with the drop being the steepest on record. A large decline in German business confidence would be exactly what the Euro needs for a more meaningful turn. Meanwhile ECB member Noyer backtracked the comments that he made yesterday, which drove the EUR/USD to a record high. He said that the market misinterpreted his words and that the ECB is not looking to hike interest rates. For the time being, don't expect them to lower rates either.
British Pound Slips ahead of Retail Sales Report
Over the next 2 trading days, the big action should be in the British pound. We are expecting retail sales tomorrow followed by the first quarter GDP report on Friday. The deterioration in the UK housing market and the UK economy in general will weigh on consumer spending, while the GDP numbers may be partially dependent upon how bad retail sales fared in March. Unfortunately the minutes from the latest monetary policy meeting failed to provide any clarity on how the central bank may vote at the next meeting because the committee was split 3 ways. Six of the nine members voted in favor of the 25bp rate cut, 2 members voted for no cut at all while 1 member voted for a 50bp cut. As a group, they were concerned about everything from growth to credit markets to inflation. Looking ahead, the only things that will shed more light on where the BoE stands would be tomorrow's retail sales report.
The Euro has failed to extend its gains beyond 1.60 and we believe that another day of losses may be in store for the single currency. More signs of weakness in the Eurozone economy are beginning to reveal themselves. Even though service sector PMI improved in the month of April, manufacturing sector PMI deteriorated. This suggests that German business confidence could have also decreased this month as indicated by the ZEW survey. A little watched report called the Belgium Business Sentiment Index also tends to have a strong correlation with German IFO (chart). The index fell to a 2.5 year low in the month of April with the drop being the steepest on record. A large decline in German business confidence would be exactly what the Euro needs for a more meaningful turn. Meanwhile ECB member Noyer backtracked the comments that he made yesterday, which drove the EUR/USD to a record high. He said that the market misinterpreted his words and that the ECB is not looking to hike interest rates. For the time being, don't expect them to lower rates either.
British Pound Slips ahead of Retail Sales Report
Over the next 2 trading days, the big action should be in the British pound. We are expecting retail sales tomorrow followed by the first quarter GDP report on Friday. The deterioration in the UK housing market and the UK economy in general will weigh on consumer spending, while the GDP numbers may be partially dependent upon how bad retail sales fared in March. Unfortunately the minutes from the latest monetary policy meeting failed to provide any clarity on how the central bank may vote at the next meeting because the committee was split 3 ways. Six of the nine members voted in favor of the 25bp rate cut, 2 members voted for no cut at all while 1 member voted for a 50bp cut. As a group, they were concerned about everything from growth to credit markets to inflation. Looking ahead, the only things that will shed more light on where the BoE stands would be tomorrow's retail sales report.