Risk aversion is the name of the game these days: US GDP was revised to the downside and jobless claims were higher than expected – the result from these bad numbers – another rise in the dollar across the board. Could this start a fall of the Euro to new lows?
Gross domestic product for the first quarter of 2010 was revised from 3.2% to 3%. Economists had expected an upwards revision to 3.5%. While this figure relates to a time period that ended almost two months ago, this release is quite disappointing for the American economy.
In Q4, the economy grew at a stellar rate of 5.6%. Q1’s number is very far from it, and Q2 will definitely be worse.
The second number for today – jobless claims, dropped from 470K to 460K. While this drop is always a blessing, it fell short of early expectations – 450K. This slight disappointment adds to the GDP.
This weekly indicator struggled with breaking below the 430-440K region. The current numbers still indicate a rise in Non-Farm Payrolls next week, but no ground-breaking change.
Forex reaction
The dollar reacted with a rise across the board. EUR/USD dropped from 1.2280 to 1.2240 immediately after the releases. GBP/USD made a move upwards before the releases, but this move stopped immediately after the release. AUD/USD was making a similar move, and this halted as well. Other currencies had the same behavior. Gold, that was falling before the release, came back up.
The risk factor is working extra hours since the escalation of the European debt crisis at the beginning of May. Since December, when American Non-Farm Payrolls showed positive signs, the risk factor was rather muted. The market usually behaved “normally”, meaning that good American figures meant a rise in the dollar, and bad American figures meant a drop in the dollar.
Since the beginning of May, the dollar returned to the position of a “safe haven” currency, meaning that bad figures sent it up, even if the bad figures were in the US, and that good figures sent it down.
EUR/USD focus
The heavy debt of PIIGS countries took stock markets and the Euro down in the past weeks. This week saw some stability, with no new multi-year lows for the common currency. EUR/USD is trading in a range throughout the week – above the record 1.2142 low and under 1.24. All in all, the trend is down.
Will these figures turn into new record lows before the end of the week? Tomorrow’s American figures are mostly second tier numbers, nothing major like GDP or jobless claims. There are no important European releases. So, the edgy markets are awaiting more news concerning the European debt crisis, and the chances of something major coming out now are slim. The Euro will probably continue trading at the low part of the range, but not make a breakout.
But next week is loaded with economic releases, including the Non-Farm Payrolls and many European events is expected to be more decisive for the long term direction of the Euro.
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