An unusual and yet strangely positive vibe infused the markets yesterday. The two sides to this coin appear to be vastly contrasting. On one hand share prices continue to rise, UK service sector data outperformed expectations and the Bank of England held interest rates and additional fiscal stimulus. The flip side of this coin is that euro zone services data failed to meet expectations, Mario Draghi once again uttered unusually hawkish tones following the ECB’s interest rate decision and the price of gold and oil has continued to slide.

An unusual and yet strangely positive vibe infused the markets yesterday. The two sides to this coin appear to be vastly contrasting. On one hand share prices continue to rise, UK service sector data outperformed expectations and the Bank of England held interest rates and additional fiscal stimulus. The flip side of this coin is that euro zone services data failed to meet expectations, Mario Draghi once again uttered unusually hawkish tones following the ECB’s interest rate decision and the price of gold and oil has continued to slide.

Under the circumstances, Draghi’s comments during the ECB press conference could have been much worse especially when you consider the euro gained 1% against the US dollar and traded in a very tight range against the pound, for the time being talk of an overvalued euro would once again appear to be here to stay.

In recent years, the feeling amongst investors has been very wary, almost fearful. The tone now appears to be increasingly bullish. Despite the Cypriot bailout and thoughts that the ECB may be ready to cut interest rates in the near future as well as considering additional fiscal policy to assist growth, the economic recovery is proving to be made of sterner stuff.

So what does this mean in terms of currencies? In the short term, currencies will inevitably still follow the fundamental patterns dictated by market news but in the longer term; the never ending debate on overvalued or undervalued currencies will continue.

Today’s calendar is devoid of UK data however the US non-farm payrolls figure will be eagerly anticipated especially considering the ADP employment figures on Wednesday were much worse than expected leading to the US Dollar losing half a cent against the pound. The employment situation in the US is definitely in the spot light following the sequestration at the start of March. Europe will publish its retail sales figures which, when you consider the recent volatility in Europe; specifically regarding Cyprus, any poor data here could help the pound regain more ground lost since the start of the year.

Finally, the news headlines are finding it very difficult to avoid the tensions in the Korean peninsula. Heightened political activity, particularly in the USA, could start to drive the strength of the dollar as the threats of war become more regular. A potentially devastating situation could soon draw the media’s attention above and beyond any recent economic issues that have monopolised the newsstands.

Key Announcements:

10.00am – EUR – Gross Domestic Product (Q1): Previous figures showed 0.6% contraction.

10.00am – EUR – Retail Sales (Feb): Expected to contract to 0.2%.

11.00am – EUR – German Factory Orders (Feb): Expected to rise to -1.5%.

13.30pm – USD – Nonfarm Payrolls (Mar): Expected to contract to 200,000.

13.30pm – USD – Unemployment Rate (Mar): Expected to stay at 7.7%.

13.30pm – USD – Trade Balance (Feb): The deficit is expected to worsen to US$44.60bn.

13.30pm – CAD – Unemployment Rate (Mar): Expected to increase to 7.1%