UK and German data in focus ahead of US payrolls

UK PPI expected to rise again, German Industrial production to slip back, Commodity slide sees key levels tested and US dollar rebound.

Yesterdays decision to hold UK rates at 0.5% was no doubt borne out of the weaker than expected economic data seen throughout this week, however the decision will continue to be thrown into sharp focus this morning when April producer price data is due out, with year on year input prices expected to rise to an eye watering 16.4% from Marchs 14.6%.

Nevertheless, despite slipping back initially, and making new 52 week lows against the euro, the pound rebounded strongly after a surprise 4% plunge in German Industrial orders for March, which had been expected to rise 0.1%.

Against the US dollar the pound slipped back and last nights fall below 1.6430 could well now see a test towards the 55 day MA at 1.6260 which remains the key support having acted as support for the pound in April. A break below the 55 day MA would in all probability open up the major support level on the downside of the current range around 1.5965, the February and March lows.

This weakness may have contributed to the overly dovish tone adopted by Trichet at yesterdays press conference where he omitted the phrase strong vigilance in his summing up which suggests that further rate hikes could be some way off.

Further weakness in todays March German industrial production figures, which is expected to slip back to 10.3% from Februarys 14.8% could well see euro pulling back further.

Key levels to watch for in EURGBP are a break below 0.8860 trend line support from the 0.8355 February lows which could well target 0.8780. This would be a 38.2% retracement of the up move from the lows at 0.8355 to the recent peaks around 0.9040.

On the EURUSD, if the single currency closes below 1.4550, then the weekly candle will post a bearish engulfing week, and we could well have seen the highs in the short term.

Yesterdays commodity price slide has seen the Canadian and Australian dollar slip back as gold, oil and copper prices have slid back over fears that deteriorating economic data and rising interest rates could well choke off the global recovery and as such stifle demand as growth forecasts get revised down. The Aussie was able to recover some ground after the RBA stated that higher rates would be required at some point for inflation to remain consistent.

Copper hit its 200 day MA for the first time since August last year while gold hit trend line support from this years lows at $1,465. A break of either could well signal further declines in commodity prices and as such in commodity currencies.

Nevertheless the main event of the day is US non-farm payrolls for April, and given that we have seen a weak ADP report as well as sharp rise in weekly jobless claims to 474k there is a concern that the April payrolls number could miss by some distance.

By KM _ AshrafLaidi.com Staff