Markets Remain On The Sidelines

With European policymakers desperately trying revive their economy, the ECB Chief yesterday reiterated that the prospect of a negative deposit rate remains on the cards. This statement weighed on the Euro to some extent, in an otherwise lacklustre trading session yesterday. Across the Atlantic, Friday’s strong non-farm payrolls data has stoked speculation that the unwinding of the Fed’s current stimulus could be sooner than envisaged. With a relatively quiet trading session expected today, German factory orders data due later today might bring some volatility. Going forward during the week, industrial production and trade balance data from the UK will attract the attention of those trying to decipher the trend for the Pound.

Pound Sterling – UK Markets

Downbeat comments from the ECB President helped the Pound to move higher against the Euro in yesterday’s trading session. However, Sterling is trading in a tight range against both the Euro and the US Dollar this morning due to lack of decisive triggers to risk appetite. AS well as positive GDP data coupled with manufacturing and construction surveys, Friday’s services PMI data has provided further evidence that the UK economy is finally gaining some ground. Further adding to signs of an improving labour market in the UK, data released earlier today indicated that the Lloyds employment confidence index improved for April. Additionally, the BRC shop price inflation in the UK eased to the lowest level since November 2009, offering some signs of easing inflationary pressures in the economy. Against this backdrop, the BRC retail sales data due overnight will be closely watched to ascertain the impact of cooling prices on the retail sector. Markets are also expected to stay watchful of external events for further cues to risk appetite.

US Dollar – US Markets

A better than expected pickup in hiring in the US offered signs of recovery in the labour market. However, with the unemployment rate steadily falling closer to the Fed’s target rate, it remains to be seen whether the central bank continues to maintain its accommodative stance for a prolonged period. Meanwhile, the US Dollar managed to trade close to its recent highs against the single currency yesterday after Mario Draghi hinted that the central bank stands ready to lower its interest rates further, if the economic outlook worsens. In the absence of any major domestic economic events today, markets are expected to keep a tab on US consumer credit data due later today to determine the impact of the recent surge in consumer confidence. Additionally, a raft of key Chinese economic releases due later this week will hold significance in determining market sentiment. Although the week ahead is very light on the US macro front, speeches by the Fed officials are likely to grab market focus for seeking further direction to currency markets.

Euro – European Markets

Although the revised services PMI readings released yesterday showed some improvement for April, they continued to remain in contraction territory. Further adding to these woes, Eurozone retail sales slipped for March, in line with the dire German retail sales data released last week. On Friday, the European Commission cut its growth forecasts for the 17-nations and revealed that it now expects GDP to shrink 0.4% this year, versus prior expectations of a 0.3% contraction. With the economic landscape offering little reason to rejoice, the ECB President indicated that the central bank stands ready to cut interest rates further, if required, leading the single currency to nudge below the 1.31 mark against the greenback in yesterday’s trading session. With the Eurozone’s largest economy sailing through rough waters recently, German factory orders data due today will be keenly eyed for any hints of recovery. With a seemingly quiet week ahead, markets are expected to keep a tab on the ECB monthly report and German trade balance data due later in the week for further direction to the Euro against the majors.

Other Currencies – Highlights

The performance of the Australian construction index released earlier today indicated that construction activity slipped further into contraction territory. Moreover, yesterday’s retail sales surprisingly declined for March. In the aftermath of soft economic releases, the Reserve Bank of Australia lowered its key interest rate by 25 basis points to 2.75% in its monetary policy meeting held earlier today. With the Australian central bank following the footprint of other major global central banks in adopting a loose policy stance to spur growth, the Australian Dollar has dropped sharply against its US counterpart in today’s trading session. Meanwhile, trade balance report revealed that Australia unexpectedly posted a trade surplus for March, despite a stronger Australian Dollar. With little in store in terms of domestic macro news today, markets are likely to keep a tab on tomorrow’s Chinese trade data for further direction to the Australian Dollar. Additionally, the Australian employment report on Thursday will be closely watched to ascertain the pace of the nation’s recovery.