EUROPEAN session review: Euro continues to fall

Data released: 

07:00 GMT France Markit Manufacturing PMI (May) Preliminar 49.3 51.0 51.2 

07:00 GMT France Markit Services PMI (Mar) Preliminar 49.2 50.2 50.4 

07:30 GMT Germany Markit Manufacturing PMI (May) Preliminar 52.9 54.0 54.1 

07:30 GMT Germany Markit Services PMI (May) Preliminar 56.4 54.5 54.7 

08:00 GMT EMU Markit Manufacturing PMI (May) Preliminar 52.5 53.2 53.4 

08:00 GMT EMU Markit PMI Composite (May) Preliminar 53.9 53.9 54.0 

08:00 GMT EMU Markit Services PMI (May) Preliminar 53.5 53.0 53.1 

08:30 GMT UK Gross Domestic Product (YoY) (Q1) Preliminar 3.1% 3.1% 3.1% 

08:30 GMT UK Gross Domestic Product (QoQ) (Q1) Preliminar 0.8% 0.8% 0.7% 

08:30 GMT UK Index of Services (3M/3M) (Mar) 0.9% 0.9% 0.9% 

08:30 GMT UK Public Sector Net Borrowing (Apr) £9.631B £3.500B £6.073B 

The euro continues to drop. The Eurozone current account fell further, confirming that the stabilization in Spain, Italy and other peripheral countries brings stronger import demand and reduces the support for the euro. 

The fall of the euro during the Wednesday trading session was however more driven by worries about the European elections next weekend and other soft factors. Nevertheless, it is a nice confirmation that the downtrend in EUR/USD remains intact 

EURO 

While manufacturing PMI in France, Germany and the Eurozone as a whole came in below expectations, services PMI were firmer. German manufacturing PMI fell to 52.9 vs 54 expected, while Eurozone mfg PMI dropped to 52.5 against 53.2 forecasted. 

Today’s data are a reminder of the fragility and unevenness of the recovery. With inflation low and a sustained Eurozone recovery not yet assured, further ECB easing in June looks all but certain. At a minimum, we would expect a 10bp cut in both the refi rate and the deposit rate. 

EUR/USD stays around $1.3660. Initial resistance remains at $1.3770/80. Support comes at May 21 lows on $1.3630 (also Feb 24 lows). Break lower will open the way down to $1.3560 (Feb 12 lows). 

POUND 

On a quarterly basis UK GDP increased 0.8% in Q1, up from the 0.7% rise registered the previous quarter, according to data released. This result is in line with market consensus. Year-over-year GDP climbed 3.1% in Q1, as well as in Q4, as projected. 

GBP/USD trades at $1.6870, despite the data met expectations. Initial resistance comes at $1.6920 (May 21 high). Strong support is near $1.6750 (trend line from Nov 11’2013). Below support comes at $1.6660 (Apr 15 lows). 

YEN 

The yen fell for a second day versus the dollar as data signaling an improving outlook for Chinese manufacturing boosted stocks and damped demand for the Japanese currency as a haven. 

China’s preliminary Purchasing Managers’ Index was 49.7 for May, up from 48.1 the previous month and the highest reading this year, according to HSBC Holdings Plc and Markit Economics. HSBC and Markit’s PMI reading for China exceeded the median estimate of 48.3. 

USD/JPY stays at Y101.60. Further resistance is around Y102.00 with a break above targets Y102.75 and Y103.40. Stronger one remains at Y104.30/80. Support comes at recent lows on Y100.80/70 (Feb 7 lows). Below losses may widen to Y99.50 (Nov 19’2013 lows). 

DATA AHEAD 

Canada reports Mar Retail Sales at 12:30 GMT. 

US data at 12:30 GMT include Initial Jobless Claims. 

Later, at 14:00 GMT Apr Existing Home Sales will be at focus.

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