Macro Morning: Euro pain

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It’s all about Europe overnight with the British GDP data printing better than expected at +0.3% for Q1 and 0.6% year on year. In Europe the truly appalling unemployment numbers for France where unemployed hit a new record of 3.25 million and Spain where the unemployment rate hit 27% or 6.2 million knocked the euro off its perch near 1.31 amid increased expectations that the ECB will have to cut. Across the Atlantic the better than forecast jobless claims in the US proved positive as well with no heed being paid to the weakness in the Kansas City Fed index.

At the close The Dow rose 25 points or 0.17%, the Nasdaq was up 0.62% and the S&P rose 6 points or 0.39% to 1585 which is a great reaction away from the key 1520 level we identified last week and the S&P continues to keep keeping on and sits just below its all-time highs.

In Europe the FTSE had every right to rally but didn’t really get on with it only rising 0.17%. In Germany the DAX was up 0.95% but the CAC paid a little bit of attention to the weak employment numbers as did stocks in Spain with falls of 0.08% and 0.29% respectively. In Milan stocks were up a little more than half a percent.

The state of the European economy and the unemployment levels in particular are appalling for the populations of the continent and stands testament to the ludicrous notion that you can austerity yourself to growth and helps explain why there has been so much academic aggression toward Professors Reinhart and Rogoff’s poor excel skills which caused them and by implication the IMF and Europe to draw incorrect conclusions about the relationship between debt and growth at the sovereign level.

But whatever path Europe chooses for its future lower rates and at some point more bond buying across the zone seem part of its future. Which paints a picture of a weaker euro even if the data in the US has been a bit more disappointing recently.

eur, eurusd, euro, euro (eur) price quote

The chart above of the EURUSD gives a clear picture of a currency that is rolling over but a break of the low of this week and the 200 day moving average that comes in at 1.2946 today is required to confirm this outlook.

Turning to the UK and the pound, the better than expected UK data drove GBP higher and EURGBP lower. Sterling fairly roared from 1.5262 to a high of 1.5480 and its sits at 1.5430 this morning.

gbpusd daily

The chart above shows that GBP has continued to respect the uptrend since the low in March and the Fibonacci extension now that GBP has taken out the high from this month is for a move to 1.5627 which seems a long way from the 1.42 we had been expecting that GBP would head toward back in March when it broke down through 1.52.

eurgbp daily

Key to the GBP’s move and the euro’s sell off from a high of 1.3093 overnight against the USD is the move in EURGBP. We don’t often talk about this cross although we watch it every day. What you see in the chart above is an excellent set up for a crash in the EURGBP rate if it can close below the .8404 low of last night. Target is .8265 and then .8082 if that level gives way.

aud, audusd, australian dollar, australian dollar price quote, audusd 4 hour

The Aussie did well over the past day and a half as well and has recovered nicely of the lows of earlier this week and from the post CPI lows on Wednesday where it dipped into the 1.0220’s. Over the course of ANZAC day the Aussie rallied to a high of 1.0339 in tune with USD weakness and the euro’s aborted strength. It sits at the moment at 1.0289 mid range for the past two days. The high yesterday is actually the third touch on a tentative trend line on the 4 hour charts. This line comes in at 1.0325 at the moment. On the downside last nights low at 1.0268 and the 1.0260/70 zone which has been an important level both up and down is seen as an important level for the Aussie to hold.

Commodity market moves help explain why the Aussie rallied with crude up 1.96%, gold up 2.7%, silver up a ludicrous 5.74% while copper rose 2.53%. These moves suggest both US dollar weakness and a different take on global growth but the volatility in the moves recently remains disquieting.

Data 

New Zealand Trade is out this morning and then Japanese CPI and a BoJ meeting results. Tonight we get the preliminary US GDP report.

Twitter: Greg McKenna

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Comments

  1. Wonder if physical PM demand is starting to manifest in the paper price?

    And can the PM prices find a new base?

    Have a feeling part of the rally was traders pulling out of PM shorts – what do you think?

    If the price keeps nudginf higher, I have a feeling that history will have to either this the world’s shortest “bear market” or simply a “false break” – but I won’t say anything else yet!!