The high yielding currencies have stabilized after recent losses against the US Dollar as markets are weary of the potentially negative results from today’s bond auctions in Italy and Spain (where bonds equal to 12 billion and 5 billion Euros are being offered). In addition to this, Eurozone macro data (the Industrial Production report) will be released and the ECB will hold its monetary policy meeting, so the combination of these event risks could easily lead to increased volatility in the Euro against the majors. The European Central Bank will give its decision on interest rates today, and this will be followed by a similar decision from the Bank of England.
In the UK today, macro data will come in the form of the NIESR GDP figures and the BoE Manufacturing Production numbers. In terms of the policy meeting, the market is not expecting any change in interest rates, so most of the attention will be centered on the accompanying statement that follows the initial interest rate decision. In corporate earnings, Sandvine Corp. is the main release from the region today.
In Asian markets, equities are closing in negative territory despite the latest inflation report out of China, which showed that consumer prices rose by only 4.1 percent for the month. These lower inflation levels will allow the central bank in China to focus more on stimulating growth rather than worrying about the drastic consumer price instability that was seen previously. Markets shrugged off the news, however, as attention remains firmly focused on developments in the Eurozone and today’s ECB policy meeting.
At time of writing, US equity markets are showing an unchanged open in the futures trade and today will see volatility based on the results of the Advanced Retail Sales report, Initial Jobless Claims and Business Inventory survey which will be seen before the New York open. As we have written previously, attention will start to shift to earnings data and but today’s reports are mostly second-tier, with Washington Federal, Material Sciences, and Essex Properties scheduled to post earnings numbers.
Yesterday’s release of the Federal Reserve’s Beige Book showed that the FOMC has moved to a more positive stance on the economy, saying that the economy progressed at a “moderate to moderate” in the second half of 2011 and analysts are using this as a basis for arguing against another round of quantitative easing from the FOMC. But the main guidance today will come from the ECB, where the possibility does exist for interest rate surprises, so be watchful of the market reaction to the decisions posted today.
The GBP/USD has broken the support level at 1.5420 that we have been talking about and losses accelerated here to reach new lows at 1.5260. This is also a historical level, and it is not surprising to see some stalling here, especially with the MACD indicator flatting out at the zero line. We also have the 61.8% Fibonacci support from the bull move from the low 1.40s, so a break and daily close below the Fibonacci support will be an extremely bearish signal.
The DAX continues to pressure resistance in the 6170 area. This is now the third time we are seeing this area being tested, so it looks like it’s just a matter of time before we see an upside break. This is also supported by the consistent higher highs and the bullish MACD indicator. Only a break back below the psychological 6000 area will remove the bullish bias.