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By Gaurav Kashyap, Head of DGCX Desk at Alpari ME DMCC
The latest Commitment of Traders report, which gives the markets a better picture of how traders are positioned in a particular asset class, showed that the net shorts positions in the EURUSD cross is at it's highest level in over a year - signaling how entrenched the bearish sentiment truly is. And judging by the weak economic docket from the Euro-zone this weak, the release of the COT report shouldn't have sprung any surprises.
German manufacturing, IFO plunge
The key run of data this week out of Europe were a host of manufacturing related indices which showed manufacturing activity slowed across the Euro-zone to 45.0 (Exp 46.0, Prev 45.9). A reading below 50 signifies a contraction of manufacturing activity. With the EU figure expected to be weaker due to the sluggish demand across the continent, more alarming was the drop in German manufacturing, coming in at 45.0 (Exp 46.8, Prev 46.2). The more forward looking German IFO for the business climate, current assessment and future expectations also plunged accelerating the downward moves in the Euro.
On a political note, although were no major developments out of Greece - Wednesday's "informal" EU summit and the lack of solutions from the meet in Brussels also weighed heavily on risk sentiment. With the agenda of the meet covering topics of stimulating growth in the EU and the Greek saga, markets were left wanting and were resigned to contingency plans should Greece exit the union. The focus once again remains on the Greek elections with any outcome possible. Many expect the Greek population to support the notion of Greece remaining in the EU, and until June's elections, markets will be driven by uncertainty. The Euro closed the week more than 250 points lower against the Greenback, at its lowest level in almost two years.
UK sees negative GDP growth
It was a busy week for British Pound traders who had a host of economic drivers keeping the volatility in the currency high, and in a bearish mood. Thursday's UK GDP reading confirmed that the UK economy slips deeper into recession when the figure showed a larger than expected contraction. On the back of weakening construction output, year on year GDP growth came in at -0.1%, while the quarter on quarter figure came in at -0.3%.
With several countries' growth forecasts being adjusted downwards as a result of sluggish demand from the Euro-zone region, it came as no surprise that growth has been negative in the UK - a country which conducts it's largest trade with the EU. Couple this with the views from the BOE's minutes on Wednesday and the picture doesn't look pretty for the British Pound - with several of the key indicators in the UK pointing to a slowdown, the MPC remain "finely balance" with regards to further stimulus and it could be on the way "if the outlook warranted it."
With recent inflation data from earlier in the week toning down (prices dropped to 3.0% from 3.5% on the YoY while core prices fell to 2.1% form 2.5% previously), it gives the MPC more room to introduce more measures and we could see a fresh round as early as June's meeting. The current environment, dominated by the risk off trade, will continue to weigh heavily on GBPUSD and EURGBP prospects.
US non-farm payrolls report due Friday
Looking ahead to the coming trading week, we move across the Atlantic with a rather important economic calendar for the US. As is the custom for the first week of the month, we will await the US Nonfarm payrolls report on Friday, which is expected to show a gain of 150K new jobs (Prev 115K) with the overall unemployment rate to remain unchanged at 8.1%. We have had a three consecutively weaker jobs reports from the US and once again this week's report will be key in gauging future actions from the Fed. Thus far the board has been steering clear of easing, but a jobs report falling short of 150K will definitely respark speculation that the Fed could join the ECB and BOE in introducing measures at some point in the summer. Also expected on Friday is the US ISM report for manufacturing which is expected at 54 (Prev 54.8).
Staff
