Intraday Market Thoughts

Market awaits US CPI figures; EUR weekly close critical

by Ashraf Laidi
May 13, 2011 12:47

EURUSD gained a full cent on the back of good GDP numbers but has since slipped back slightly. GBPUSD continues to trade heavy near the lows of the day.

Euro was supported during the London session after both French and German Q1 GDP numbers came out much better than expected at 1.5% and 1.0% respectively. Market expected only a modest growth at 0.9% and 0.6%. Whole Eurozone preliminary GDP q/q also came out better than expected at 0.8% vs. 0.6% expected.

EURUSD gained a full cent and reached a high of 1.4340 but has slipped back sligthly. Cable continues to be the relative strength loser and trades near the lows of the day. Risk on atmosphere underpinned silver (up 2 USD/oz on the day) and gold (up nearly 15 USD/oz).

Trading during the US session is likely to be determined by core CPI released at 8:30 EDT. Market expects an increase to 0.2% m/m from last 0.1%. Higher then expected reading could send the greenback sharply higher as this would support hawkish voices inside of the FED. A sustained rise in the year on year consumer inflation level would make a future increase in Fed Funds Rate or a decision to start shrinking FEDs balance sheet more likely and it would virtually eliminate the posibility of QE3. Obviously, lower then expected core CPI reading will have the opposite effect. Headline CPI reading is expected at 0.4% m/m after last months 0.5%.

More details on QE2 exit strategy can be found in yesterdays IMT.

Second and last data release of the day is University of Michigan Consumer Sentiment Index released at 9:55 EDT. Traders expect an improvement from last reading of 69.8 to 70.0. Unless we see a significant improvement/disappointment, this release is not likely to change a direction that markets will take after the more important core CPI number.

Should EURUSD close above 1.4250s, then we could see a range bound market for the next few trading sessions. If the US inflation data comes higher and EURUSD closes daily as well as weekly candle near the lows, path to 1.40 continues to be open.

PU - Staff


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