Fed officials in no rush to cut rates

The USD edged higher against its counterparts yesterday as financial data from the US, tended to provide some mixed signals. Characteristically the PPI rate for March accelerated yet not as much as expected, implying that there is maybe less depth in inflationary pressures than initially forecasted and that tended to weigh on the USD at the time of the release. At the same time the weekly initial jobless claims figure dropped more than expected implying a tightness of the US employment market which may have eased the bearish tendencies of the greenback.

Today we note the release of the preliminary UoM consumer sentiment for April and a possible rise of the indicator’s reading could support the USD. On the monetary front, Fed policymakers yesterday did not seem to be in any rush to start cutting rates in their statements and that may have been the factor that allowed the USD to rebound somewhat and edge higher.

We note the wide number of Fed speakers today and should they continue to sound less dovish than market expectations, we may see the USD gaining more ground. US stock markets on the other hand are focusing on the release of the earnings reports of major banks and we note City Group (#C), JPMorgan (#JPM) and Wells Fargo (#WFC). In a more aggregated manner, the releases could also be used to gauge the health of the US financial sector and as they are practically the first high-profile companies to kick off the new earnings season we may see them setting the expectations of the market partially for what is to follow.

Back in the FX market, we note that the tick down of the UK GDP rate for February may have darkened a bit the outlook for the UK economy and consecutively weighed on the pound. On the other hand, the ECB yesterday remained on hold yesterday, sending some mixed signals as it seems to prepare the markets for a potential rate cut in its following meeting in June, yet on the flip side did not want to commit to such a cut just yet. We note that the slowdown of the HICP rates for March was verified this morning, which may add more selling pressure on the common currency today. Also, we reiterate our worries for the Chinese economic outlook as despite an improvement in the manufacturing PMI figures for March the trade data for the same period were disappointing.

EUR/USD maintained its downward motion yesterday placing some distance between its price action and the 1.0740 (R1) resistance line. Given that the lower boundary of the pair’s past sideways motion has been clearly broken we switch our bias for a sideways movement in favour of a bearish outlook for the time being. Please note that the RSI indicator is also diving lower aiming for the reading of 30 and implying the building up of a bearish sentiment among market participants further supporting our bearish outlook. Should the bears actually maintain control over the pair’s direction, we may see it breaking the 1.0615 (S1) support line and aiming of the 1.0450 (S2) support barrier. Should the bulls find a break and take over, we may see EUR/USD reversing its direction breaking the 1.0740 (R1) resistance line and aiming for the 1.0890 (R2) level.

GBP/USD corrected a bit higher yesterday yet during today’s Asian and early European session the bearish tendencies restarted to guide cable, aiming for the 1.2460 (S1) support line. We tend have a bearish outlook for the pair noting also that the RSI indicator remains at low levels, yet still above the reading of 30. Should the selling interest be maintained, we may see the pair breaking the 1.2460 (S1) support line and aiming for the 1.2375 (S2) support barrier. On the flip side should buyers be in charge of the pair’s direction, we may see cable, reversing course, breaking the 1.2600 (R1) resistance line and aiming for the 1.2750 (R2) level.

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Today, we note the release of Sweden’s CPI rates for March and note that ECB’s Elderson is scheduled to speak. During Monday’s Asian session we get Japan’s Machinery orders growth rate for February.