Market News & Insights
25 April 2014

Russia Downgrade Stokes Market Fears

EUR/USD             1.3838

GBP/USD             1.6794

GBP/EUR             1.2137 (0.8240)

EUR/CHF              1.2191

GBP/CHF             1.4793

GBP/AUD            1.8105


Overnight risk remained subdued as stocks through Asia struggled to follow the US and Europe higher after yesterday’s session. Yesterday was one of the busiest days for Q1 earnings releases and better than expected figures, especially from Apple, helped lift stocks higher. The situation in the Ukraine continues to escalate and we are unlikely to see this wind down any time soon and with that we are seeing pressure put on riskier assets. The German Dax has opened the day lower due to its exposure to the Russian/Ukraine situation following an S&P Downgrade to Russia to one level above junk. JPY is holding on to its safe haven status achieving further gains against the USD which appears to be benefiting little from haven flows.


Despite the lack of demand for the USD as a safe haven there were more positive signs from the US economy where Durable Goods orders rose 2.6% versus 2% expected. This was the strongest durable goods reading in 4 months and would suggest that March saw the US shake off the weather effects which dogged much of Q1 output. Even more encouraging was the figure excluding transport items which reached a one year high.


Durable goods are items that would generally have a longer life cycle, in excess of three years, so are larger purchase items. These are often used as a good barometer for consumer spending trends, increases like this should lead to a pick-up in factory orders and help address some of the slack remaining in the US economy. Another area of slack the Fed are looking at, is employment and while weekly jobless claims rose more than expected yesterday, continuing claims fell by 55k more than expected. Both have the ability to impact Fed policy and current accommodative stance, but for now we await the Feds March meeting for further guidance. US yields rose yesterday but there was little carry through in strength on USD pairs.


Other central bank traders are eagerly watching the ECB and looking for possible clues on further easing. President Mario Draghi was speaking yesterday in Amsterdam and markets were looking for any new clues on ECB policy. Sadly there was very little new on that front with much of his rhetoric simply a repeats of comments made over the last month. He continues to highlight the “ECB remain ready to act” should the inflation situation deteriorate, while also highlighting the importance of the EUR (and its value). There is little data due out today from Europe, EURUSD remains in a 80 pip range for the last 13 days, support below at 1.3785, resistance at 1.3865. EURGBP remains supported at .8200 with short term resistance to moves higher at .8250.


Data was light from the UK yesterday, we spoke about the tight range in GBPUSD also yesterday and these levels remain unchanged. The longer this pair trades in such a narrow range the increased potential for a larger break out, for now GBP is getting sold once we get above 1.6800 but the potential for a topside break remains as much of the weaker data from the UK is ignored. Retail sales are due for release this morning with March figures expected to have declined .5% from February, although up 3.8% year on year. Only a bumper figure here will give scope for a topside break.