Following a volatile day yesterday, European markets ended the session in the black. However, the benefits were difficult to achieve and lacked confidence.
In the US, efforts to go higher were also lacking in conviction. The only thing that can be stated is that we've seen a bit of a pause for breath following recent significant dips, as we approach the conclusion of the week and month.
After-hours, Meta Platforms' Q1 results were not as bad as markets had thought, sending shares up in what appears to be a “relief rally.” Asian markets have also risen on promises of more money from Chinese policymakers.
April has been a particularly bad month for stock markets in general, with the Nasdaq 100 touching one-year lows yesterday before concluding about the flat.
Focus has been on the Japanese yen's demise this month. After the euro fell below 1.0630 and its 2020 lows, the chances of a move below 1.0340 and a possible rise to parity have increased.
If this happens, it would be a huge issue for the European Central Bank, which is seeking to control market expectations about probable rate rises in the face of growing inflation.
The Bank of Japan is dealing with a similar issue of a lower currency, albeit it does not face the same inflationary pressures as the ECB. If only because of how quickly it has gone down, more than 10% this year.
The Bank of Japan held policy steady this morning and, perhaps surprisingly, reiterated that it expects “short-term and long-term policy rates to remain at their present, or lower, levels.” Those last three lines are key; unlike the Fed, the Bank of Japan is indicating that it has no intention of tightening policy at all, despite the yen's considerable loss this year, and seems unconcerned about further dips. The BOJ also said that it would acquire fixed-rate bonds every day to maintain its 10-year yield goal. This might pave the way for a move through the 130.00 level, towards 135.00 and the highs set in January 2002.
Today we get our first glimpse at how the US economy fared in the first quarter, against the background of a robust job market and sluggish consumer confidence.
At the end of March, the US Q4 GDP was revised from 7% to 6.9% due to adjustments to consumer spending and fewer exports; yet, it was still a good close to the year. Unfortunately, today's initial estimate for Q1 is anticipated to show a severe deceleration.
Consumer spending began to increase again in January, after stalling in December due to numerous COVID-related interruptions in the run-up to Christmas. We also saw a lot more inventory in Q4 because retailers went on big stock buildups to make sure they were well-stocked before the holidays.
This isn't likely to happen again in the first three months of the year, which would make the downturn even worse. Consumer spending rose in January, but it fell quickly in February and March.
The strength of the US currency may act as a drag on US export growth, while rising commodity prices may influence demand. We've already seen the effect of rising prices on consumer confidence, and the property market is also slowing dramatically. GDP is expected to be down 1% in the first quarter.
The number of weekly claims is expected to stay the same at 180,000. The number of ongoing claims is expected to fall below 1.4 million, but it's not clear by how much.
EUR/USD – has fallen below the March 2020 lows of 1.0635 and is now aiming for the 2017 lows of 1.0340. Along with the 1.0820 regions, the 1.0750 area has now become resistant.
GBP/USD – The pair is closing in on the 1.2490 level, which represents a 61.8 percent retracement of the advance from the 2020 lows at 1.1410 to the high last year at 1.4240. Below 1.2480, 1.2250 is the aim. Resistance is currently located at 1.2820/30.
EUR/GBP – failed yesterday at 0.8470/80, preserving the larger 0.8200/0.8500 range. The 0.8380 level provides support.
USD/JPY – has recovered from the 126.90 level and seems to be moving towards the 130.00 level. The advance past 129.40 has the potential to continue through 130.00 and on to 135.00. The major support is located at the 124.70/80 level.
