dipped briefly below 1.25 last week on back of slowing PMIs and Catalonia signalling that the former stronghold in Spain is in serious financial trouble and has run out of new ways to financing themselves, triggering 10yr rates in Spain to touch the 6.5%-mark. The markets are impatient waiting for more clarification with regards to Greece. This week has initially been positive triggered by a Euro-positive survey from the Greek region, but the question is whether or not it will materialise on June 17.
Markets are still in jeopardy and the fundamental state of the Euro zone is not doing well. Global growth is stalling and the regional PMIs last week did not show any signs of improvement – all extending the contraction (indicated by being below the 50 mark.) Despite the weak figures from the Euro zone, stock indices were able to take home gains last week (though Spain fell 0.4% for the week.)
This week, the data intensifies as we are getting closer to the weekend. From the Euro zone, data is pretty muted apart from the PMI and unemployment on Friday. Consensus points towards a further drop in the PMI and an increase in the unemployment level to 11.0% from 10.9%.
Data from the other side of the Atlantic is pretty significant this week. Since Monday was Memorial Day, the ADP report is moved from the usual Wednesday to Thursday. The ADP report will give the proxy for the change in Nonfarm payrolls and is expected at 135k vs. 119k prior. Thursday also reveals the temperature of the US economy as the 2nd release of the GDP, which is expected to drop to 1.9% from 2.2% prior. Naturally the GDP Price Index will also attract a lot of attention as inflation also is part of the Fed’s parameters when setting the monetary policy. This is expected unchanged at 1.5%.
Friday will show the US job report from May. The key will be the change in Nonfarm payrolls (exp at +150 vs. 115k prior) and the unemployment rate expected unchanged at 8.1%. The US markets are still speculating whether or not another round of quantitative easing (QE) will be introduced and a strong fundamental release from the US will decrease the probability of QE, which will send equity markets on the retreat and strengthen the greenback. Hence, it is difficult to predict the market outcome of US data when there is being acted on speculation of monetary stimulus.
So far in the market has made a throwback to the prior breakout level at 1.2625, but was rejected and is now fading lower. Last week, there were rumours of month end option barriers at 1.25, so maybe the market will let it go after May 31st. Current support at 1.2480 and then 1.2350. Resistance after prior break-out at 1.2825.