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GBP broadly higher after GDP; US ADP Employment Change in focus

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The dollar was mixed against its G10 counterparts during the European morning. The best performing major currency was GBP while NZD recorded the major losses against the USD.

The euro continued its decline against its main rivals on Tuesday as the discussions for the Greek economy are still on the table after the last Eurogroup. Moreover, Eurozone is in deflation, despite the forecasts that the second half of the year the inflation rate will be positive.

The EURUSD pair closed lower than its opening at the yesterday’s European day. The euro depreciated 0.95% against the dollar, with the pair trading once more below the psychological level of 1.0800 and ahead of the all-important US NFP report due on Friday. At the early morning, the shared currency was falling and continuing its previous losses against the greenback after the German Retail Sales release. However, the downward move was halted after the release of the Germany’s Unemployment Rate for February and the Eurozone’s Preliminary CPI for March. The year over year Retail Sales came 3.6% slightly below the expectation of 3.7%, reversing the previous extremely good figures of 5.0%. German unemployment rate seasonally adjusted for March was anticipated to come in line with the last month’s figure of 6.5% but decreased to 6.4%. This dragged down the harmonised unemployment rate, at 4.8%, reaching a 33-Year-Low level. The Unemployment Change showed that 15,000 unemployed people found a job.

In Eurozone, the yoy preliminary CPI for March came in line with the expectations of -0.1%. Eurozone’s inflation is on a downward trend from end 2011 and turned into deflation from last December. However, it shows a small uptrend the last three months. The Unemployment Rate in Europe has decreased slightly to 11.3% in February from 11.4% before.

The pound was broadly higher against the other major currencies after the encouraging UK final GDP released. The UK economy has expanded by 3.0% in the last quarter of 2014, above the expectations of 2.7%. The fastest growth from the third quarter of 2007! Few days ago, Gfk survey showed that Consumer Confidence in UK is at its higher level in almost 13 years. The GBPUSD pair found strong support at the 1.4756 level and moved higher. Furthermore, the last couple of weeks the pair is trading in a range between the 1.5000 and the 1.4640 levels.

In other news, US Consumer Confidence came out yesterday, showing a better-than-expected increase in the consumers’ morale, at 101.3 versus 96.0 expected. Despite the good news the dollar remained stable vs its majors.

The Australian and New Zealand were weaker, with AUDUSD dropping 0.61% to 0.7604 and NZDUSD falling 0.91% to 0.7440. The New Zealand dollar showed little reaction to data earlier showing that the ANZ business confidence index for New Zealand rose to 35.8 this month from a reading of 34.4 in February.

The dollar fell immediately against the yen after the release of the Tankan Surveys for Q1 but few hours later the buck recovered. The Tankan Large Manufacturing Outlook for the first quarter increased to 10 from 9 the previous quarter but missed the expectations of 16. The Tankan Manufacturing index remained 12, lower than anticipated of 17. The Tankan All Industry Capex slowed down to -1.2% versus expectations of 0.5%.

Currently the USDJPY pair is trading slightly below the psychological level of 120.00. This level is a significant as it includes the 40-period SMA as well as the 200-period SMA on the 1-hour chart. Furthermore, I believe that the dollar will further appreciate vs the Japanese yen, since the bears failed to break below the significant level of 118.50. Therefore, I would expect the pair to test 122.00, in the short-term.

Economic Indicators

Today, the final Markit Manufacturing PMI for US, UK, Germany, France, Italy and Greece are coming out. All of them are expected to have increased, however, none of these is likely to be particularly market-affecting.

Investors will keep a close eye on the US ADP Employment Change which is expected to show that the pace of hiring in the private sector have increased in March to 225k. That would be in line with the consensus forecast of around 244k for Friday’s Non-farm Payrolls. Remember though that the ADP report is an imperfect predictor of the NFP figure; last month, the ADP was at 212k while the NFP was 295k.

US ISM manufacturing index is forecast to decline to 52.5 in March from 52.9, which would be a contrast with the improvement shown in other countries and could weaken USD, somewhat. The weekly MBA Mortgage Applications is coming out; no consensus is available. Last week, the indicator was 9.5% while the figures eight weeks before were negative or slightly positive. The US Construction Spending for February is expected to have improved to 0.0% from -1.1% prior.

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