Forex - Euro rises vs. dollar after CPI data

The euro rose to session highs against the dollar on Monday after data showing that the annual rate of inflation in the euro zone fell to the lowest level since November 2009 in March fuelled expectations for further easing measures by the European Central Bank.

Euro moves higher as weak euro zone inflation data boosts stimulus outlook

EUR/USD briefly touched lows of 1.3724 before advancing 0.17% to 1.3774, up from 1.3750 ahead of the data.

The pair was likely to find support at 1.3704 and resistance at 1.3800.

Eurostat said the annual rate of consumer inflation slowed to 0.5% this month from 0.7% in February, undershooting expectations for a reading of 0.6%. The ECB targets an inflation rate of just under 2%.

The report showed that core inflation rose 0.8% in March, in line with forecasts, but down from 1.0% in February.

The euro fell to one-month lows against the dollar last week after ECB officials indicated that they are considering fresh policy options to stave off the risk of deflation in the region.

ECB governing council member and Bundesbank head Jens Weidmann said that a negative deposit rate could be an appropriate way to address the impact of strong gains in the euro.

The same day ECB President Mario Draghi that the central bank stood ready to act if inflation slipped lower than the ECB expected.

The weak data fuelled expectations that the ECB could take steps to bolster the fragile recovery in the euro area at its upcoming policy meeting on Thursday. Last month the central bank left rates on hold, but indicated that it was prepared to take decisive action if the inflation outlook continued to deteriorate.

The euro also strengthened against the euro and the yen, withEUR/GBP rising 0.21% to 0.8280 and EUR/JPY advancing 0.51% to 142.11.

In the U.K., the Bank of England said Monday that mortgage approvals fell to 70,309 in February from 76,753 in January.

The BoE also said net lending rose by ₤2.3 billion last month, in line with forecasts and up from ₤2.1 billion in January.

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Euro zone CPI slows to 0.5% in March

Consumer price inflation in the euro zone slowed to the weakest level since November 2009 in March, underlining concerns over the threat of deflation in the region, official preliminary data showed on Monday.

Euro zone CPI slows to 0.5% this month

In a report, Eurostat said consumer price inflation increased by a seasonally adjusted 0.5% this month, down from 0.7% in February and missing expectations for a reading of 0.6%.

The rate stands well below the European Central Bank's target of near but just under 2%.

Core CPI, which excludes food, energy, alcohol, and tobacco costs rose by a seasonally adjusted 0.8% in March, slowing from 1% in February and in line with expectations.

Following the release of the data, the euro added to losses against the U.S. dollar, with EUR/USD shedding 0.08% to trade at 1.3741, compared to 1.3749 ahead of the data.

Meanwhile, European stock markets remained higher. The Euro Stoxx 50 rose 0.2%, France’s CAC 40 added 0.1%, London’s FTSE 100picked up 0.4%, while Germany's DAX gained 0.2%.

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GBP/USD Outlook Mar 31-Apr 4

GBP/USD reversed directions last week, gaining 140 points. The pair closed the week at 1.6636. This week’s highlights are the PMI releases. Here is an outlook for the main events moving the pound, and an updated technical analysis for GBP/USD.

US Unemployment Claims and GDP looked solid last week, but housing numbers failed to meet expectations. In the UK, CPI continues to lose ground but Retail Sales was very sharp and helped push the pound higher.

Updates:

GBP/USD graph with support and resistance lines on it. Click to enlarge: 

1. Net Lending To Individuals: Monday, 8:30. This indicator is an important gauge of consumer spending, as borrowing by consumers usually translates into consumer spending. The January release came in at 2.1 billion pounds, short of the estimate of 2.5 billion. The estimate for the February release stands at 2.3 billion.
2. BOE Governor Mark Carney Speaks: Monday, 17:15. Carney will speak at a Bank of England press conference in London . The markets will be looking for hints as to the BOE’s future monetary policy.
3. Manufacturing PMI: Tuesday, 8:30. Manufacturing PMI has been fairly steady, with the February indicator coming in at 56.9 points, matching the forecast. The markets are not expecting much change in the upcoming release.
4. Nationwide HPI: Wednesday, 6:00. This housing price index is an important gauge of activity in the housing sector as well as consumer confidence and spending. The previous release posted a 0.6% gain, matching the estimate. The estimate for the upcoming release is 0.7%.
5. Construction PMI: Wednesday, 8:30. This index has looked strong, with four consecutive readings above the 60 point level, indicating strong expansion in the construction industry. The previous release came in at 62.6 points, short of the estimate of 63.3 points. The estimate for the March release stands at 63.1 points.
6. 30-year Bond Auction: Wednesday, Tentative. The 30-year bond has been steady, with the previous yield coming in at 3.59%. Little change is expected in the upcoming release.
7. BOE Deputy Governor Jon Cunliffe Speaks: Wednesday, 11:45. Cunliffe will speak at an event in Birmingham. A speech that is more hawkish than expected is bullish for the pound.
8. Services PMI: Thursday, 8:30. Services PMI has been losing ground since October, although the readings remain at high levels. The previous release came in at 58.2 points, just above the forecast of 58.0 points. The estimate for the March release stands at 58.2 points.
9. BOE Credit Conditions Survey: Thursday, 8:30. This report is released by the BOE on a quarterly basis. It is linked to spending in the private sector, as an increase in debt generally translates into more spending.
10. Halifax HPI: Friday, 4th -8th. The index has moved up sharply in 2014 and posted a strong gain of 2.4% last month. The markets are expecting a smaller gain in February, with an estimate of 0.7%.

* All times are GMT

GBP/USD Technical Analysis

GBP/USD opened the week at 1.6494. The pair quickly touched a low of 1.6466, breaking below support at 1.6475 (discussed last week). GBP/USD then reversed directions and climbed to a high of 1.6651. GBP/USD closed the week at 1.6636.

Live chart of GBP/USD:

Technical lines from top to bottom

We begin with resistance at 1.7180, which has served in a resistance role since October 2008.

1.6990 is next. This line is protecting the key psychological level of 1.70.

1.6823 has remained intact since November 2009 and is a strong line of resistance.

1.6705 continues in a resistance role. This line has weakened following strong gains by the pound last week.

The round number of 1.6600 was breached last week and has reverted to a support line. It is a  weak line and could see action early in the week.

1.6475 held firm and has some breathing room as GBP/USD trades above the 1.66. line.

1.6343 is the next support level. This line saw some activity in early February but has provided strong support since that time. The next support line is 1.6247.

1.6163 was a key resistance line in October and November 2012.

The round number of 1.60 is the final support level for now. This psychologically important level has remained firm since November.

I am neutral on GBP/USD.

GBP/USD reversed directions and posted strong gains, recovering the losses sustained a week earlier? Which British pound will show up this week? Much will depend on the PMI releases, which remain strong but have tapered off somewhat. In the US, the markets will be keeping a close eye on employment releases, highlighted by Nonfarm Payrolls.

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Dollar rises against yen, euro steady ahead of inflation report

The dollar rose to more than two-week highs against the yen on Monday as hopes for stimulus measures from China bolstered risk appetite, while the euro remained steady ahead of euro zone inflation data later in the trading day.

Dollar gains against yen, euro steady

USD/JPY was up 0.15% to 102.97, the highest level since March 12.

Market sentiment received a boost after Chinese premier Li Keqiang said Friday the country has policies in place to support economic growth. The remarks eased concerns over recent signs of a slowdown in the world’s second-largest economy.

Data on Friday showing that U.S. consumer spending rose 0.3% last month after a downwardly revised gain of 0.2% in January also supported the dollar.

EUR/USD edged up 0.05% to 1.3758, not far from a one-month trough of 1.3704 struck on Friday.

The single currency remained under pressure after European Central Bank officials last week highlighted growing concerns over the threat of deflation in the region.

Data on Friday showing that the annual rate of inflation in Spain declined 0.2% in March fuelled concerns that deflation could threaten the economic recovery in the euro area. A separate report showed that the annual rate of inflation in Germany slowed in March.

The pound was unchanged against the dollar, with GBP/USD trading at 1.6638, while USD/CHF dipped 0.07% to 0.8861.

NZD/USD remained supported at 0.8658, holding just below the two-and-a-half year peaks of 0.8696 struck on Friday.

The Australian dollar backed off Friday’s four month highs, withAUD/USD sliding 0.16% to 0.9232, while USD/CAD was little changed at 1.1062.

The US Dollar Index, which tracks the performance of the greenback versus a basket of six other major currencies, was unchanged at 80.35.

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U.S. oil futures swing between gains and losses in listless trade

U.S. oil futures swung between small gains and losses to hold near a three-week high on Monday, as hopes for fresh economic stimulus in China and a continued U.S. economic recovery lent support.

WTI oil fluctuates in listless trade as quarter nears end

On the New York Mercantile Exchange, West Texas Intermediate crude oil for delivery in May held in a range between $101.35 a barrel and $101.71 a barrel.

Nymex oil last traded at $101.61 a barrel during European morning hours, down 0.06%, or 7 cents.

The May contract rose to $102.24 a barrel on Friday, the highest since March 10, before trimming gains to settle at $101.67 a barrel, up 0.39%, or 39 cents.

Futures were likely to find support at $100.03 a barrel, the low from March 27 and resistance at $102.24 a barrel, the high from March 28.

Oil remained supported amid indications that China’s government is prepared to do more to shore up the cooling economy after China's premier Li Keqiang said Friday that the country has policies in place to counter economic volatility.

The remarks helped ease concerns over recent signs of a slowdown in the world’s second-largest economy.

China is the world's second largest oil consumer after the U.S. and has been the engine of strengthening demand.

Investors are looking ahead to Friday’s U.S. nonfarm payrolls report for March, amid expectations for jobs growth of 200,000, after 175,000 jobs were added in February.

A recent batch of upbeat U.S. economic data added to hopes that the slowdown in economic activity seen at the start of the year would be temporary.

Elsewhere, on the ICE Futures Exchange in London, Brent oil futures for May delivery eased down 0.23%, or 25 cents, to trade at $107.82 a barrel, while the spread between the Brent and U.S. crude contracts stood at $6.21 a barrel.

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