Euro sold again as EU summit fails to deliver

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Morning Comment          

Current mid-market inter-bank spot rates (as at 08:05 GMT) 

Major sterling  

Major US$  

Sterling emigrate  

Other sterling  

Euro crosses 

Data / Events due today 

Fundamental 

Sterling came under pressure yesterday morning following the release of a weak retail sales report and a more dovish set of Bank of England MPC minutes. Retail sales for April slumped by the fastest monthly rate in over two years as poor weather took its toll. Meanwhile, although the MPC voting pattern was unchanged, minutes showed the 8-1 decision to keep the asset purchase program at £325bn was ‘finely balanced’ suggesting potential for an increase in the coming months as the fallout from the Eurozone crisis continues to take its toll. Adding to the bad news was soft CBI industrial trends survey which saw the total order book balance fall sharply to    -17, a 5-month low.  

Ex Greek POM Papademos back-tracked on last night’s statement when he said there were no preparations in place for Greece leaving the euro and that he saw an exit as ‘unlikely to materialise’. 

German Fin Min Steffen was relatively positive as he stated confidence that Germany and France will agree on a fiscal pact and that there was still a focus on growth. However, he also noted Germany would not be flexible on the Eurobonds issue which will clearly upset, amongst others, new French President Hollande. 

In the States, new home sales rose 3.3% in April, well above expectations while house prices rose 0.6% in Q1, again much stronger than consensus. However, despite a late recovery in equity markets, currencies failed to respond as the day petered out with no announcement from the EU summit. 

As European leaders wrapped up a long day, it became clear there had been no progress on growth, Eurobonds or the handling of a Greek exit from the euro. A more formal gathering of EU leaders in late June comes after the scheduled Greek election. Financial markets will expect far more productivity in five weeks time. 

A busy calendar today with the early emphasis on flash estimate for Eurozone PMIs. Expectations are for little change so any material deviation from consensus could have a market impact. A similar story with regard to the latest German IFO survey which is seen coming in slightly lower than in April. Next up is the first revision to Q1 GDP in the UK but consensus suggest no change to the initial 0.2% decline. On a more positive note, business investment is expected to be up sharply from the same period last year. In the afternoon session, US durable goods are seen rebounding from a sharp decline in March while initial jobless claims are expected to hover around the 370k mark which would leave the 4-week moving average around the same level. 

Technical  

£-usd 

The pound crashed through 1.5735 yesterday morning and is now eying support at 1.5645. Sustained weakness would target 1.5605 then 1.5550 and 1.5490. Resistance now from former support at 1.5735 then 1.5805 and 1.5845/50. 

£-eur  

Sterling continued its recovery yesterday and had cleared the 1.2460 short term pivotal level which now acts as support. Next upside target at 1.2500 then 1.2520/25 and recent highs at 1.2575/80. Support on a break back below 1.2460 sits at 1.2445/40, 1.2420, 1.2405, 1.2380 and 1.2350/40. 

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