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EUR/USD Above 1.4300 But Will the Recovery Continue?

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Top Stories

  • EZ GDP in Q1 better than forecast
  • EUR/USD breaks above 1.4300 on strong eco data at core
  • Nikkei off -0.70% Europe up 0.50%
  • Oil at $100/bll
  • Gold at $1513/oz.

Overnight Eco

  • CHF PPI 0.3% vs. 0.4%
  • EUR French Prelim GDP q/q 1.0% vs. 0.8%
  • EUR German Prelim GDP q/q 1.5% vs. 0.9%
  • EUR French Prelim Non-Farm Payrolls q/q 0.4% vs. 0.4%
  • EUR Italian Prelim GDP q/q 0.1% vs. 0.3%
  • EUR Flash GDP q/q 0.8% vs. 0.6%

Event Risk on Tap

  • CAD New Motor Vehicle Sales m/m expected at
  • USD Core CPI m/m expected at
  • USD CPI m/m expected at
  • USD Prelim UoM Consumer Sentiment expected at
  • USD Prelim UoM Inflation Expectations expected at

Price Action

  • USD/JPY drifts to 80.50
  • AUD/USD rallies to 1.0700 on firmer PM and growth
  • GBP/USD 1.6300 caps in quiet trade
  • EUR/USD break above 1.4300 on stronger GBP

The EUR/USD garnered a boost from much better than expected Q1 GDP readings from Germany and France rising above the 1.4300 barrier in early morning European trade. The data from EZ core economies showed robust growth at the start of year, but questions persist as to whether economic activity in the region may have already peaked.

German Q1 GDP data beat estimates printing at 1.5% versus 1.0% eyed as the country's economy expanded beyond the pre-2008 crash levels. Earlier French GDP data also surprised to the upside printing at 1.0% versus 0.6% forecast. Overall the strong readings from the core helped to lift the broader EZ GDP to 0.8% versus 0.6% forecast, but the results from edge economies were not nearly as robust with Spain GDP coming in line at 0.3% and Italian GDP printing softer at 0.1% versus 0.3% projected.

Although the breakdown of the data will not be available until the release of the final report on May 24th, the German GDP growth likely benefited from strong growth in exports and capital investment. The news suggests that German GDP could grow at 3% plus rate in 2011 which will likely prompt the ECB to continue normalize rates closer to historical levels. There is a danger however, that Q1 GDP may have recorded peak growth as the latest business survey data from the region indicates that soaring energy costs, higher exchange rate values and deceleration in global growth may all dampen demand going forward.

Although the economic picture in EZ looks relatively positive, the political situation is far less certain. The issue of Greek dent restructuring continues to dog the pair and next week the focus is likely to turn away from the eco calendar and towards the Eco Fin meeting scheduled for next Tuesday. Traders are likely to wait for some sort of a resolution to the conflict before bidding up the EUR/USD significantly higher as the issue of ECB tightening remains very much in doubt until the union creates some sort of workable solution for Greece.

In North America today the docket contains US CPI which may be a bit hotter than expected given the rise in energy and food costs, as well as the U of M reading at 13:55 GMT. Consumer sentiment remains depressed and market consensus is calling for only a small improvement to 70 form 69.8 the month prior. Should the data miss to the downside it could put fresh pressure on the risk trade especially if equities falter into the weekend. With USD/JPY trading near the 80.50 level a test of the key 80.00 barrier may be in store if risk aversion flows accelerate into the weekend.

FX Upcoming

Currency GMT EST Release Expected Prior
CAD 12:30 8:30 New Motor Vehicle Sales m/m -0.6%
USD 12:30 8:30 Core CPI m/m 0.1%
USD 12:30 8:30 CPI m/m 0.5%
USD 13:55 9:55 Prelim UoM Consumer Sentiment 69.8
USD 13:55 9:55 Prelim UoM Inflation Expectations 4.6%

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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