Intraday Market Thoughts

GBP Hit by Deepening Recession, US New Home Sales Next

by Patrik Urban
Jul 25, 2012 13:10

Banking license for ESM; German IFO disappointed; UK GDP droppd to 3-yr lows, Spanish 10 year yield eased. Market turns to new home sales and later by the end of the session to RBNZ rate decision. Gold, Aussie & GBPUSD shorts hit all targets.

The greenback is lower in the ongoing session against most majors. European equities are gaining about 0.5% and the relative strength winners are AUD and NZD.

The USD gave up some ground after the ECB council member Ewald Nowotny said that he sees arguments for granting the ESM a banking license which would give it access to ECB lending. However, optimism quickly faded as the attention grabbing headline was taken out of context as he said that there are arguments for it and also against it.

European data disappointed again as German IFO business climate fell in July to 103.3 from 105.2, the current assessment declined to 111.6 from 113.9 and finally the expectations component slumped to 95.6 from 97.2. Despite the weak data, EURUSD was able to break above yesterday's high and continues to trade near session highs around 1.2145.

GBPUSD dropped from 1.5530 to 1.5470 after Q2 GDP came in significantly below expectations at -0.7% from previous -0.3% q/q which is the weakest quarterly growth since Q1 2009. The annual figure showed 0.8% contraction after falling 0.2% in Q1. Additional holidays due to queen jubilee and the wettest quarter on record probably had an impact but the statistics office could not quantify the effect yet. GBPUSD retraced a part of the loss and trades around the 1.55 handle.

Spanish 10 year yield initially pushed higher to 7.74% but declined later and trades around 7.51%.

Germany sold 30 year benchmark bond totaling EUR 2.322 bln vs. 3 bln target. The average yield dropped to 2.17% from previous 2.62% and cover rose to 1.5 from 1.1.

US data calendar is limited today to new home sales due at 10:00 am ET that are anticipated to rise marginally to 372K in June from 369K in May.

By the end of the session at 5:00 pm the RBNZ will announce its cash rate decision. Rates are expected to remain unchanged at 2.5%.

Gold, GBPUSD and AUDUSD hit all targets, while 1 of the 2 EURUSD Monday shorts hit targets, with the other now filled. US crude and USDJPY remain in progress . 1 of 2 USDCAD in progress, the other stopped out. DIRECT ACCESS click here: Non subscribers click here: A new set of trades will be issued later today.


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