Market News & Insights
13 June 2013

World Bank Downgrades Global Growth

EUR/USD 1.3344
GBP/USD 1.5656
GBP/EUR 1.1732 (0.8523)
EUR/CHF 1.2255
GBP/CHF 1.4379
GBP/AUD 1.6500

Stronger jobs data from the UK yesterday gave the pound some further support as it pushed to fresh highs against the USD, the headline figures beat expectations and showed signs of improvement but had little impact on the unemployment rate which remained at 7.8%. Overall the number of unemployed fell, with 24k jobs added to the economy in the three months through April, with some 8.6k coming off the jobless claims figure for May.

The pound was on average stronger yesterday but struggled to hold fresh three week lows against the EUR, its advance against the USD was led predominantly by the USD liquidation that continued in the market yesterday. It is a quiet day on the data front from the UK and we will be watching GBP crosses closely to see if they can hold on the recent gains as the pound approaches overbought territory, we would not be surprised to see a correction shortly.

Eurozone data was somewhat mixed yesterday, CPI (inflation) data from Germany was lower than expected highlighting growth concerns, although industrial production data advanced for the third consecutive month with growth of .4% in April versus 0% expected. The European calendar is also light on major data today but the ECB monthly report will garnish a lot of attention, particularly as markets look for signs of improvement, or suggestions of a shift towards negative rates or other possible easing measures.

There is definitely some concern creeping into markets, firstly the threat of removal of stimulus has been impacting global equities, with markets cautious and liquidity low, any indication of further easing/less easing can cause rapid movements across all global markets, this is something we have seen throughout continents over the last three weeks, in the US, Japan, Australia, Europe and the UK. Volatile times are set to continue for currencies.

The second concern is global growth. Pimco, the world’s largest bond fund warned yesterday of the potential for a global recession in the next 3-5 years. The World Bank cut global growth forecasts with 2013 growth revised down to 2.2% from 2.3%, 2014 revised down to 3.0% from 3.1%. US growth for 2013 was revised up to 2% from 1.9% with the Euro area forecast revised down to -.6% from -.1%.

Global risk trends are reflecting the above concerns with equity markets struggling, the Nikkei is down 20% from last month’s highs and now technically showing a bear market, European equities have followed overnight, Asian markets lower and the JPY, a known safe haven has rallied firmly to the expense of all other majors.

The USD has been under heavy selling pressure but should the risk environment remain low we’d expect the other known safe haven, the USD, begin to catch up and take back recent losses. Jobless claims and Retail sales from the US later could kick start this USD revival.

GBPUSD is a steam train going higher, touching off 1.5700 overnight just short of the 100 day moving average but has since pulled back these levels. This is a tough one to call and although we feel we are close to a top here, we remain neutral for now, again we’ll be looking for a USD revival to pull this pair back lower.

EURGBP momentarily broke back below .8475 but failed to hold. It remains in its recent range between .8600 – .8475, although recent moves higher have been capped at .8550. EURUSD has also been enjoying the USD liquidation breaking to fresh three month highs at 1.3388, support below comes in around 1.3300.