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    Real

    Q1 GDP buckets causing major weakness, despite not so doveish FOMC

    USD

    A dramatic fall in growth led to further dollar weakness on Wednesday ahead of the FOMC meeting.

    GDP in the first quarter of 2015 slowed to 0.2% – a massive 2.0% decline from the 2.2% a year ago; consensus estimates had been for a still quite substantial reduction to 1.0%, due to cold weather and the key port closures stymieing trade, but the real fall shocked even the naysayers and the dollar fell from above 1.1000 to 1.1187 versus the euro, on the news.

    It was the same story qoq with a fall of -0.1% recorded from 0.1% in the previous quarter;analysts had forecast a rise to 0.5%.

    The FOMC has saw a rebound in dollar positions after there was no change in inflation expectations which remained on track for 2.0% in the medium term. Whilst the Fed down-graded its outlook for the economy and jobs it continued to indicate the down-turn in Q1 might be due to transitory factors, which was relatively hawkish given the spectacular GDP Q1 undershoot of a few hours earlier.

    EUR

    The euro rose strongly on Wednesday from the 1.09s to the high 1.11s in a single day, as both retail and institutional traders felt a short squeeze on their euro shorts, and bailed.

    The fact German inflation data came out at 0.4% yoy as expected further supported the currency as it helped dispel fears of deflation.

    Although a highly speculative theory, foreign institutional investors short the euro due to having hedged the currency exposure on their large euro-zone sovereign debt positions built on the ECB releasing QE, possibly also contributed to the surge higher, as they may have scrambled to cover their hedges. Whatever the case, the generally high level of euro shorts may have started to weigh on accounts as it started to rapidly rise, and some panic covering may have taken effect.

    GBP

    The pound rose – albeit mainly against the dollar and the yen on Wednesday, as these currencies, especially the greenback lost ground on weak GDP data. Later in the evening a less-doveish-than-anticipated FOMC statement undid some of the gains temporarily, but it is still too early to say whether this will reverse the trend as Yellen’s press conference is still to come at time of writing, and could still cause more dollar weakness.

    There was little market-moving data for the pound. CBI Reported Sales fell to a 12 in April, from an 18 previously when a rise to 25 had been estimated.

    A higher-than-expected rise in house prices from Nationwide, may have supported the pound, after figures showed an increase to 5.2% from 5.1% yoy and 1.0% from 0.1% mom – both of which beat expectations.

    JPY

    With Japan on holiday on Wednesday there have been no releases to trigger trading, and the USD/JPY pairing has been in a tight 20 point range today.

    Investors will be focusing on tomorrow’s Bank of Japan meeting as well as data on industrial production, both month-on-month and year-on-year, as well as inflation and employment figures later this week.

    Information from the Nikkei this afternoon suggests that the BOJ is set to maintain forecast for gradual inflation, which if it is the case the central bank won’t cut and doesn’t plan to cut which is bullish for the yen.

    The yen was trading in the 118.600’s versus the dollar late in the New York session on Wednesday.

    USD

    A dramatic fall in growth led to further dollar weakness on Wednesday ahead of the FOMC meeting.

    GDP in the first quarter of 2015 slowed to 0.2% – a massive 2.0% decline from the 2.2% a year ago; consensus estimates had been for a still quite substantial reduction to 1.0%, due to cold weather and the key port closures stymieing trade, but the real fall shocked even the naysayers and the dollar fell from above 1.1000 to 1.1187 versus the euro, on the news.

    It was the same story qoq with a fall of -0.1% recorded from 0.1% in the previous quarter;analysts had forecast a rise to 0.5%.

    The FOMC has saw a rebound in dollar positions after there was no change in inflation expectations which remained on track for 2.0% in the medium term. Whilst the Fed down-graded its outlook for the economy and jobs it continued to indicate the down-turn in Q1 might be due to transitory factors, which was relatively hawkish given the spectacular GDP Q1 undershoot of a few hours earlier.

    EUR

    The euro rose strongly on Wednesday from the 1.09s to the high 1.11s in a single day, as both retail and institutional traders felt a short squeeze on their euro shorts, and bailed.

    The fact German inflation data came out at 0.4% yoy as expected further supported the currency as it helped dispel fears of deflation.

    Although a highly speculative theory, foreign institutional investors short the euro due to having hedged the currency exposure on their large euro-zone sovereign debt positions built on the ECB releasing QE, possibly also contributed to the surge higher, as they may have scrambled to cover their hedges. Whatever the case, the generally high level of euro shorts may have started to weigh on accounts as it started to rapidly rise, and some panic covering may have taken effect.

    GBP

    The pound rose – albeit mainly against the dollar and the yen on Wednesday, as these currencies, especially the greenback lost ground on weak GDP data. Later in the evening a less-doveish-than-anticipated FOMC statement undid some of the gains temporarily, but it is still too early to say whether this will reverse the trend as Yellen’s press conference is still to come at time of writing, and could still cause more dollar weakness.

    There was little market-moving data for the pound. CBI Reported Sales fell to a 12 in April, from an 18 previously when a rise to 25 had been estimated.

    A higher-than-expected rise in house prices from Nationwide, may have supported the pound, after figures showed an increase to 5.2% from 5.1% yoy and 1.0% from 0.1% mom – both of which beat expectations.

    JPY

    With Japan on holiday on Wednesday there have been no releases to trigger trading, and the USD/JPY pairing has been in a tight 20 point range today.

    Investors will be focusing on tomorrow’s Bank of Japan meeting as well as data on industrial production, both month-on-month and year-on-year, as well as inflation and employment figures later this week.

    Information from the Nikkei this afternoon suggests that the BOJ is set to maintain forecast for gradual inflation, which if it is the case the central bank won’t cut and doesn’t plan to cut which is bullish for the yen.

    The yen was trading in the 118.600’s versus the dollar late in the New York session on Wednesday.


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