Growth & Currency can’t ignore confidence

<p>All of today’s releases of eurozone confidence indices (economic, consumer and industrial) showed marked deterioration in April. Industrial confidence hit 25-month lows at -9 from […]</p>

All of today’s releases of eurozone confidence indices (economic, consumer and industrial) showed marked deterioration in April.

Industrial confidence hit 25-month lows at -9 from -7. Economic confidence index declined to 92.8 from 94.5, lowest since December, while the consumer confidence index fell to -19.9 from -19.1.

The clash between austerity measures and economic growth is already causing political disarray in the Netherlands and raising issues between Spain’s government and the autonomous regions. Meanwhile, French presidential candidate Francois Hollande vows to add a “growth” pact to the existing eurozone if he wins the second round of elections. Although Germany insists there will be no renegotiation of the newly disciplined fiscal treaty, Hollande vows to not ratify the Treaty without changes. Hollande’s proposal for a “growth” includes Eurobonds issuance for infrastructure and investments, financing from the European Investment Bank and a financial transactions tax. To what extent will a disagreement between Hollande and Chancellor Merkel lead to a widening North-South stalemate in the eurozone remains an important question. Recall that seven years ago next month, France and the Netherlands’ rejection of an important EU referendum contributed to a eroding confidence in the eurozone, driving down EUR/USD by 10% that year.

FOMC: NFP-Dependent 
The FOMC statement was one of the least market-moving Fed events in a very long time. Minor changes involved in the shift by two FOMC members from the camp of those expecting a tightening in 2016 to those expecting tightening in 2014. But markets showed little reaction since there were no additional members voting for tightening in 2012 or 2013.

The slightly upward revision in GDP forecasts to 2.4% to 2.9% (from January’s 2.2% to 2.7%) and lower unemployment projections to 7.8% to 8.0% (from January’s 8.2% to 8.5%), were in line with the Fed’s improved outlook. Will this mean the end to further asset stimulus? Not at all.

The US April and May reports on non-farm payrolls (due in early May and June respectively) will be key for the always eventful June FOMC meeting, which should shed light on any decision on new asset purchases. We expect a second round of “Operation Twist” from the Fed to maintain USD supported after an initial pullback following the announcement effect. Until then, $1.31 support for EUR/USD will once again be tested, while any upside is expected to taper off near $1.33.

Gold continues to survive the four-year trendline support at 1620 as the combination of USD-selling courtesy of an unchanged Fed with the latest IMF data revealing ongoing central bank gold purchases providing fresh support.

US crude testing the March 1st trendline resistance at 104.20, a close above which would retarget 106.0 for now. The weekly picture continues to show an inverted Head-&-Shoulder formation, with support (right shoulder) at 98 underpinning renewed momentum towards 114-115.

Build your confidence risk free
Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.