Intraday Market Thoughts

Pound Hit by BoE Forecast Cut, Gold Fears FOMC Minutes

by Patrik Urban
May 16, 2012 13:08

UK labor market improves; GBP drops as BoE slashes growth forecast to 0.8% from 1.2%; Eurozone CPI unchanged; German and French bond auctions; gold at key support. Market turns to building permits, housing starts, industrial production, Draghi's speech and FOMC meeting minutes. The Premium gold & AUDUSD shorts hit all targets, while USDCAD long was stopped out. EURUSD not quite hit the 1.2680 target. More detail on the 6 Premium charts and other ideas is found below.

The greenback trades higher against GBP but unchanged against most other majors. European equities are trading within -1% and +0.2%.

UK labor market improved marginally as the claimant count declined 13.7K in April after rising 3.6K in March, the claimant count rate remained at 4.9% and the ILO unemployment rate ticked down to 8.2% from previous 8.3%. Nevertheless, the GBP declined after the inflation report was released and BOE governor King started his press conference. The BOE now expects inflation to decline to the 2% target in mid 2013 which is six months later than originally projected while the GDP will not reach pre crises levels till 2014. The BOE also noted that the Eurozone crisis continues to be the biggest threat to the UK recovery and it sees the possibility of a "disorderly" outcome for which contingency plans are being discussed. GBPUSD fell to 4 week low at 1.5889.

Eurozone April CPI was unchanged at 2.6% (core remained at 1.6%) and March trade surplus widened to EUR 4.3 bln from EUR 4.0 bln as imports were unchanged while exports rose 4%.

Spanish 10 year yield rose to 6.51% earlier during the session but has declined to current 6.32%. German 10 year bond auction resulted in a lower yield (1.47% vs. previous 1.77%) and improved cover (1.5 vs. 1.1) but fell short of a target (EUR 4.1 bln vs. 5 bln). France reached the upper end of its EUR 7-8 bln target as it sold bonds totaling EUR 7.99 bln.

Gold trades in the middle of a key support zone 1520-1550 where a sovereign interest is expected. Silver too trades at a similarly important zone around 27.40.

The US session starts at 8:30 am ET with April building permits that are seen lower at 0.73M from previous 0.75M and housing starts that are expected to rise to 0.69M from 0.65M.

Capacity utilization and industrial production are due at 9:15 am ET and they are both seen higher in April at 78.9% from 78.6% and at 0.6% from 0% respectively.

Markets are also likely to respond to the ECB president Mario Draghi's speech on monetary policy that starts at 10:00 am.

The key event will be the FOMC meeting minutes that are due at 2:00 pm. Considering the statement and the press conference on 4/25 it is unlikely that the markets will be surprised. Given the slightly improved FED projections, today's minutes are not likely to reverse the recent USD uptrend.

Tuesdays Intermarket Insights 6 charts are on EURUSD Option Volatility, EUR Volat vs EUR cash, S&P500, Dax Weekly, Gold Monthly vs. Weekly. Shorts in US crude are in progress. Subscribers can click here for direct access: Nonsubscrobers can click here:


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