Not so super Mario swerves key questions, hammers Euro

Today’s macro highlights:

  • EUR - German unemployment (April)
  • GBP - UK Q1 GDP
  • USD - US Q1 GDP

Not so super Mario swerves key questions, hammers Euro

Yesterday’s ECB monetary policy announcement presented few surprises, with no change in rates or the bond buying program being announced. However, Mario Draghi’s willingness not to commit to an end date for QE heaped fresh pressure onto the Euro. EUR/USD has lost three cents from last week’s highs and more protracted selling could leave the pair facing its worst week in almost 18 months.

A little more surprising was the US durable goods order reading which came in significantly higher than had been forecast. Growth of 2.6% was recorded against expectation of 1.6%, although strip out transport and the number was rather less impressive. Aircraft are big-ticket items and have already found themselves to be front of the line in trade disputes. Will this prove to be the canary in the coal mine when it comes to US trade relationships?

As we run into the weekend break, there are key economic releases from all sides, starting with German unemployment at 8.55am BST. The unemployment rate is tipped to hold steady at 5.3% but Europe’s economic powerhouse is facing some challenges. However, with the forward-looking IFO surveys from earlier in the week having fallen short of expectations, this adds weight to suggestions that the country is losing momentum so a jump in the number without jobs will take another swipe at the common currency

We have the Q1 GDP reading from the UK due at 9.30am BST. Some contraction is expected from the previous quarter, but this is arguably already priced in and can be explained away by those bouts of exceptionally cold and snowy weather. We’re probably going to have to see something below 0.2% if there is to be any lasting impact on sterling as a result.

There’s a flurry of readings from across the Atlantic before we wrap up for the weekend break, but again the Q1 GDP print is probably the one worth focusing on. The US economy is undergoing some fundamental changes right now as it responds to the dual drivers of significant tax overhauls and mounting trade tensions. Today’s reading is tipped to show notable contraction, with annualised growth forecast to tumble from 2.9% to 2%. With the dollar having posted steady gains all week, a number this low could initiate some profit taking before the weekend break, but the reality is we probably need to accept that more volatility will be seen in these numbers as the US economy adapts to a new normal.

The pair briefly broke below those mid-March lows early in Thursday’s session before adding a cent - then giving back those gains. We’ve been rangebound since with that drop off in US bond yields providing some support but assuming 10 year treasuries retake 3% then the downside pressures could well return. 

The pair has broken below those early March lows and further losses today could leave EUR/USD nursing its worst weekly fall since Trump was voted into office back in 2016.

The uptrend is continuing, with the pair now sitting around 1.15. In other words, the Pound has recovered more than half of the losses we saw posted in the wake of Mark Carney’s comments over interest rate policy last week. More downbeat data from the Eurozone could pave the way to levels not seen in almost a year.

Did you know…

The UK currently produces three main key GDP releases for each quarter. The preliminary, or flash, reading is what we will see released today, four weeks after the end of the quarter. However, owing to the challenges of data collection, this only draws on around 40% of the information necessary to come up with the exact calculation. To improve the accuracy, the Office of National Statistics has elected to move to producing only two GDP readings per quarter, with these first readings expected to be published in August and September of this year.