Daily Market Report 17/05/13

The US dollar lost ground in yesterday afternoon’s trade following soft data from the world’s largest economy.

Both EURUSD and GBPUSD traded higher as 360,000 people in the US filed for jobless claims in the week ending May 10th against an expectation for 330,000. The rate of inflation in the US fell for the second consecutive month, with a fall of 0.4% in April against an expected fall of 0.2% and the Federal Reserve Bank of Philadelphia revealed that its manufacturing index fell to -5.2 in May from 1.3 in April.

The US dollar lost ground in yesterday afternoon’s trade following soft data from the world’s largest economy.

Both EURUSD and GBPUSD traded higher as 360,000 people in the US filed for jobless claims in the week ending May 10th against an expectation for 330,000. The rate of inflation in the US fell for the second consecutive month, with a fall of 0.4% in April against an expected fall of 0.2% and the Federal Reserve Bank of Philadelphia revealed that its manufacturing index fell to -5.2 in May from 1.3 in April.

However the losses in the US dollar were swiftly erased in the evening following comments made by Federal Reserve Bank of San Francisco President John Williams. In his official speech last night, Williams commented that despite disappointing economic data, the Federal Reserve may begin to taper off the current quantitative easing (QE) program as early as the summer.

With a lot of focus right now on the QE program in the US, US dollar movements will be very sensitive to any remarks about the possibility of tapering QE. With speculation continuing to mount of a greater possibility of a reduction in QE, at least by the end of the year, risks for GBPUSD, EURUSD continue to remain on the downside.

The euro continued to be under pressure following data from the euro zone on Wednesday that the single-bloc area contracted even further than markets anticipated adding to speculation that the ECB may take action in the form of further rate cuts to boost growth. Inflation figures released yesterday showed a fall to 1% in April from 1.5% in March, fuelling speculation further of a rate cut by the ECB. GBPEUR rose by 0.4% yesterday but still struggles to breach key resistance levels.

Elsewhere the biggest moves of the day came in the GBPNZD and GBPAUD currency pairs. In the last six months both the Australian dollar and New Zealand dollar have performed quite admirably. However negative comments on growth prospects by the respective Reserve Banks have dampened demand for both currencies recently and we could well be seeing the beginnings of a potential breakout of the longer term downtrend on both pairs.

Today looks set to be a quiet day on the economic data from with the only notable data coming in the form of inflation figures from Canada and also Reuters Michigan consumer sentiment from the US. A higher sentiment reading from the US could push GBPUSD through key support levels and open the cross up to further losses.

Key Announcements:

13.30pm – CAD – Consumer Price Index (YoY) (Apr): Expected to fall to 0.6%.

14.55pm – USD – Reuters/Michigan Consumer Sentiment Index (May): Expected to increase to 78.