Intraday Market Thoughts

ZEW Disappoints, Germany Helps Ezone Avoid Tech Recession, US Preview

by Patrik Urban
May 15, 2012 12:08

Germany grows faster than anticipated; Eurozone growth flat; German and Eurozone ZEW declined; UK trade deficit unchanged; RBA minutes. Market turns to CPI, retail sales, Empire state manufacturing and business inventories. Monday nights Intermarket Insights include strategies of buying the dips in GBPUSD, while shifting focus to short-term tactics in EURUSD. More on USDCAD and AUDUSD below.

European equities are gaining about 0.75% and the relative strength winner is AUD while GBP is the weakest.

Unexpectedly strong German GDP helped the common currency to recover a portion of its recent losses at the beginning of the London session. The German economy grew 0.5% in Q1 q/q and 1.2% y/y which bested expectations and helped the Eurozone to avoid a technical recession as Eurozone Q1 GDP remained unchanged both q/q and y/y after declining 0.3% q/q in Q4. However, the EU outlook remains negative due to worsening labor market and above target inflation. EURUSD trades near session highs around 1.2860.

Meanwhile, the ZEW economic sentiment fell in Germany to 10.8 in May from previous 23.4 and in the Eurozone it declined to -2.4 from previous 13.1. The uncertainty surrounding Greek and French elections combined with reappearing rumors of a Greek EMU exit contributed to the declines.

GBP came under pressure after the UK trade deficit remained at GBP 8.6 bln in March which was worse than estimated 8.4 bln. On the positive note, exports to growing countries (US, China, Germany and other non EU countries) rose. EURGBP retraced regained 0.8000 but daily chart continues to look weak suggesting further downside.

Yesterday's RBA minutes did not provide any surprises as the RBA noted slowing inflation and below trend growth. Nevertheless, AUDUSD pushed slightly higher during the Asian session and trades only a few points below the parity level.

The busy New York calendar starts at 8:30 am ET with April CPI that is expected to ease to 2.4% from 2.7% while the core annual CPI is seen steady at 2.3%. Retail sales and May empire state manufacturing index are due at the same time and they are anticipated lower at 0.2% from March's 0.8% and at 9.3 from 6.6 respectively.

March net TIC purchases are due at 9:00 am ET and they are seen higher at USD 19.4 bln from previous USD 10.1bln. Business inventories which are the last report today are due at 10:00 am and are seen lower in March at 0.5% from 0.6%.

The trades in Mondays Intermarket Insights are all in progress, with shorts in AUDUSD & longs in GBPUSD. More ideas on EURUSD, USDCAD and gold. Direct Access is found here: Nonsubscribers can click here


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