The month of April is over, and it will be recorded as one of the worst for the dollar for almost 2 years. My concern about an ‘outside month’ (also called a bullish engulfing pattern) for cable (GBP/USD) didn’t come to pass in the end with the monthend close at 1.5348 (below the key level 1.5430), but one could argue that the price action for EUR/USD indicates that further dollar weakness is in store for us this month. In fact the monthly chart for EUR/USD illustrates something we should all have known anyway – the market has been far more negatively disposed to the euro than to pound sterling. It is likely, in my opinion, that EUR/GBP will continue to recover over the next few weeks as the market retrenches from extreme short EUR positions. 0.7485 would be my first target for EUR/GBP, but even 0.7800 is a possibility before all is said and done.
Another sign of tightening labour markets in the United States was evident yesterday, following the publication of the Initial Jobless Claims report. The number was the lowest in 15 years, suggesting that the jobs market is regaining some of its swagger after cooling over the winter months. Of course a few months of falling unemployment rates would further increase confidence in this observation but it does look like something very positive is happening in the US labour market. As I’ve said many times before this is the most important issue that will occupy US policy makers in making a determination about when to start normalising interest rates. It appears the FOMC was right to give themselves maximum wiggle room for future policy meetings.
We should all keep an eye out for happenings in Greece, as the government there is finding it difficult to meet their pension obligations. There are pictures of queuing pensioners outside banks, waiting to pick up their payments. The government has claimed that there have been technical glitches delaying payments, whatever it is they need to fix this quickly, as with most European countries demographics make the elderly a significant proportion of the population, Syriza could find itself in an ugly situation boxed in between angry pensioners and intractable creditors. Who knows what extremes a fatally wounded government might attempt? Talks with the IMF are ongoing. It is interesting to note that this is all happening with a backdrop of a strongly recovering euro. If that doesn’t illustrate extreme market positioning I don’t know what does, after all, time was such scenes would have led to panic euro selling. Given the recent retreat of bund yields from the zero bound, I am forced to ponder if some giant macro funds have been unwinding short euro, long bund trades. Or have bund sales, as the FT has queried, a sign of confidence in ECB QE, I’ll leave the search for answers to those far smarter than myself (or at least those paid to do so!).
We’ve looked westwards to the United States, and now at our continental neighbours, time to look far towards the east. There has been some relief in the Japanese government (I question whether the elderly feel the same way) about the uptick in inflation reported earlier on today. Prime Minister Abe’s attempt to encourage an inflationary mindset is still on track it seems. I have to shake my head and wonder at a policy that will devalue the massive state debts that the Japanese people have been encouraged to put their life savings into. We give governments the benefit of the doubt far too easily!
Also in Asia, Chinese manufacturing index data showed some stability, albeit at a barely expansionary level. This seems more like postponing when we need to really get concerned, but perhaps the attempts by the central government to stimulate the economy will be fit for purpose. Still the heady days of 10+ % growth are well and truly over. Call me cynical, but if we are getting 7% GDP growth data being published these days, real growth may be closer to 4 – 5%. Let’s hope the transition from export led growth to a less mercantilist structure are successful. This is important for not just China but the rest of the world.
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