Daily Insight

The Dollar managed to consolidate against the majors yesterday after last week's sharp decline as the U.S currency rose 0.2% versus the Euro and a further 0.1% against the Pound, breaking through the major support at the $2.00 level. Despite the apparent lack of economic data released in the States, the U.S currency continued to build up momentum against Sterling and any dollar buyers would be well placed to insert a stop order in the market to protect against any further adverse movement. In terms of economic data, the Dollar may come under some pressure this afternoon as a report on the U.S housing market may show that existing home sales fell to the lowest level in three months. The dramatic and sustained downturn in the housing market has been a primary source of a slowdown in U.S economic growth and recent reports have indicated that the worst slump in over 17-years is showing few signs of abating. Home resales are expected to fall 4.3% in March to an annual rate of 6.40 million while separate reports have shown that subprime mortgage defaults are rising and that may swell the market with unsold properties as owners are reluctant to reduce prices. Elsewhere, the Dollar may come under further pressure this afternoon as a gauge of U.S consumer confidence is expected to show that the sentiment index dipped to a reading 105.0 from 107.2 in March. The U.S economy has been increasingly reliant on retail growth and a strong labour market but higher fuel prices may have had a negative impact on consumer spending over the past month.

The Euros rapid and unrelenting advance against the Dollar was halted yesterday as the single currency fell 0.2% versus its U.S counterpart amid a sparse supply of economic data released in the Euro-zone. However, the Euro has been making steady progress against the Pound and that trend may continue this morning as European industrial orders are expected to increase 1.1% in February. Despite the well publicised slowdown in the U.S, it seems that export growth will continue to drive the Euro-zone economy, which has been expanding at the fastest pace since 2000. Elsewhere, the French presidential election continues to dominate the news as the contest is refined to two contrasting political solutions to weak growth combined with high unemployment. French politicians have notoriously been vocal in their concerns over a strong Euro quashing export demand but that is seemingly having little influence on Euro-zone monetary policy with the ECB expected to raise rates to 4.00% in June.

After advancing to the highest level since June 1981, the Pound has endured three days of declines versus the U.S Dollar with many investors speculating that the Sterling rally may have peaked. However, recent reports have shown that UK inflation is at the highest level in over a decade at 3.1% and with house prices also rising in the first quarter, the Bank of England may need to raise interest rates beyond 5.50% next month. Elsewhere, average hourly earnings have also picked up over the past month as a strong labour market propels wage growth, which is likely to increase inflationary pressures within the economy. As a result, the Pound managed to push through the $2.00 barrier for the first time since September 1992 and continued rising to peak above 2.0100, which was adjudged to have been too rapid and the Pound looked relatively "over-bought". The subsequent reversal was well anticipated as we dropped to test the support around the $2.0000 level but with interest rates expected to rise in May, the Pound may receive further support and look to consolidate gains above that level. Nevertheless, the Pound may come under further pressure in the very near-term as a report this morning is expected to show that manufacturing remained fairly subdued in the first quarter. The monthly industrial trends survey is forecast to fall dramatically in April with the volume of output measure weakening to a reading of 5.0 from 8.0 the previous month according to Confederation of British Industry.

EU 10:00 Industrial Orders (February)

UK 11:00 CBI - Industrial Trends Survey (April)

U.S 15:00 Consumer Confidence (April)

U.S 15:00 Existing Home Sales (March)

written by Adam Solomon