Pound Strength Hinges On GDP Report, FOMC Threatens Euro And Yen

By Ilya Spivak, Currency Strategist

Talking Points
  • British Pound Looks to Q1 GDP Report to Fuel Continued Advance
  • FOMC Outcome Likely to be Supportive for US Dollar vs Euro, Yen
  • Australian Dollar to Underperform Comm Bloc on Upbeat Fed Tone

UK Gross DomesticProduct figures headline the economic calendar inEuropean hours. Expectations call for output to rise 0.1percent in the three months through March after shrinking in thefourth quarter, avoiding the onset of a technical recession. Theprobability of such an outcome has been enhanced by an equivalentreading on a closely-watched private sector estimate from NIESR, aLondon-based consultancy.

Validation of a return to growth is likely tooffer further support to front-end UK bond yields – the leading driver of price action at the moment – reinforcing diminishingQE expectations and pushing the British Pound higher . Data from Credit Suisse suggests priced-in betson additional BOE stimulus moderated after last week’s surprisingly hawkish BOE meeting minutes and strong set of good economic data ( CPI , jobs , retail sales ) , helping Sterling outperform the spectrum ofmajor currencies. Needless to say a downside surprise would go a long way towarddeflating the currency’s momentum.

Later in the session, all eyes turn tothe Federal Reservemonetary policy announcement . As we detail in our weekly fundamental trends monitor , the path of least resistance seems to favorno changes in the overall policy mix. The market-moving component of the outing is likelyto be found in an updated roundup of forecasts for interest rates and key economicperformance metrics from FOMC members. Traders will be particularly keen to see if any policymakers now expectrates to rise earlier than the official late-2014 time frame.Bernanke’s post-announcement press conference may likewisespark volatility in the event that any of the Chairman’sremarks catch the markets off-guard.

On balance, the revelation of a comparativelyoptimistic Fed is likely to see the US Dollar rise againstcurrencies where the yield outlook is materially less robust,particularly the Japanese Yen (where USDJPY continues to track 10-year Treasury yields ). The Euro is also likely to renew its drive lower,although correlation studies point a stalemate between rates expectationsand risk trends as drivers of price action, meaning directionalmomentum may be somewhat subdued.

The implications of an upbeat FOMC forgrowth-linked currencies are a bit mixed in that a stronger USrecovery would be supportive for risk appetite. We suspectthe Canadian and New ZealandDollar will broadly hold recent ranges as recedingfears of further USD dilution clash with moderation in globalslowdown fears. By contrast, the AustralianDollar is likely to find itself under pressure howeveras rate cut expectations build in the wake of a dismal first-quarter CPI print .

Asia Session : What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

5:00

JPY

Small Business Confidence (APR)

47.6

-

48.7

6:00

JPY

Machine Tool Orders (YoY) (MAR F)

1.6%

-

2.4%

E uro Session: What to Expect

GMT

CCY

EVENT

EXP

PREV

IMPACT

8:30

GBP

Gross Domestic Product (QoQ) (1Q A)

0.1%

-0.3%

High

8:30

GBP

Gross Domestic Product (YoY) (1Q A)

0.3%

0.5%

High

8:30

GBP

Index of Services (MoM) (FEB)

0.2%

0.2%

Low

8:30

GBP

Index of Services (3M/3M) (FEB)

0.5%

0.3%

Low

10:00

GBP

CBI Trends Total Orders (APR)

-6

-8

Low

10:00

GBP

CBI Trends Selling Prices (APR)

26

24

Low

10:00

GBP

CBI Business Optimism (APR)

-18

-25

Low

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.3155

1.3229

GBPUSD

1.6085

1.6193

--- Written by Ilya Spivak, Currency Strategist for Dailyfx.com

To contact Ilya , e-mail ispivak@dailyfx.com . Follow me on Twitter at @IlyaSpivak

To be added to Ilya 's e-mail distribution list, send a note with subject line "Distribution List" to ispivak@dailyfx.com
DailyFX is the forex news and research arm of FXCM, Inc (NYSE: FXCM), which provides currency trading and brokerage services and is an advertiser on TheStreet websites. Any opinions, news, research, analyses, prices, or other information is provided as general market commentary, and does not constitute investment advice. Dailyfx will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information. Currency trading involves significant risk of loss. Individual authors may hold positions in the currencies discussed in the article.

Original Article: http://www.dailyfx.com/forex/fundamental/daily_briefing/session_briefing/euro_open/2012/04/25/Pound_Strength_Hinges_on_GDP_Report_FOMC_Threatens_Euro_and_Yen.html

DailyFX is the forex news and research arm of FXCM (NYSE: FXCM), which provides currency trading and brokerage services and is an advertiser on TheStreet websites. Any opinions, news, research, analyses, prices, or other information is provided as general market commentary, and does not constitute investment advice. Dailyfx will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information. Currency trading involves significant risk of loss. Individual authors may hold positions in the currencies discussed in the article.

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