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German consumer confidence dipped sharply to -26.5 for May from -15.7 previously which was below consensus forecasts of -16.0 and the weakest reading on record.

Confidence in the Euro-zone outlook continued to deteriorate during Wednesday with a particular focus on the energy sector. Following Russia’s move to stop gas shipments to Poland and Bulgaria, there were fears over further disruption to supplies while political pressure countries such as Germany also continued to increase.

Fears over an escalation of the Ukraine conflict also undermined confidence in the Euro. After a break below the important 1.0635 area in early Europe, sentiment continued to deteriorate and the single currency dipped sharply again to fresh 5-year lows below 1.0550 against the dollar.

The US goods trade deficit widened to a record $125.3bn for March from $106.4bn the previous month. Exports increased 7.2% on the month, but imports surged 11.5%. The widening trade deficit will tend to undermine GDP growth for the first quarter with the risk that there will be a further downgrading of expectations which are currently centred on 1.1%. There has been some speculation over a negative figure which would tend to trigger fresh stagflation concerns.

The Euro retreated to lows at 1.0515 against the dollar, but found some respite into the European close.

ECB President Lagarde stated that the central bank is firm in its commitment to meeting the price target and the Euro recovered to around 1.0565.

The German inflation data will be released on Thursday with the Euro-zone data due on Friday and markets will be watching the data closely given the importance for ECB policy expectations. The Euro was unable to secure sustained relief on Thursday and briefly dipped to fresh 5-year lows below 1.0500 against the dollar.




There was choppy trading in Treasuries at Wednesday’s New York open with the 10-year yield fluctuating around the 2.75% level. Wall Street equities rallied and the dollar was able to make net gains to above the 128.0 level. Equities continued to rally alter in the session and US yields also regained ground with the dollar advancing to just above 128.50 before fading as choppy trading continued.

The Bank Japan maintained interest rates at -0.1% following the latest policy decision and also pledged to maintain the ceiling of 0.25% for 10-year bond yields. The bank also stated that it will maintain daily operations to cap yields and reiterated that it will ease policy without hesitation if needed. The bank maintained a very dovish stance despite raising the inflation forecast for this fiscal year.

There had been some speculation that the bank would moderate its stance and the very dovish statement triggered heavy yen losses. Asian equity markets were able to make limited net headway after a rebound on Wall Street. The dollar surged to highs just above the 130.00 level with the Euro above 136.50. 




The UK CBI retail sales index slumped to -35 for April from 9 the previous month and below consensus forecasts of -3 and the first negative reading for 13 months. Retailers also expect sales to decline in May, although at a slower rate as overall consumer confidence remained vulnerable. The survey reinforced concerns over the UK consumer spending outlook and overall confidence in Sterling also remained very fragile.

Sterling retreated further to lows just above 1.2500 against the dollar before a limited correction. The recovery in equities provided an element of relief and Sterling rallied to the 1.2560 area. The Euro dipped to lows just below 0.8390 before a tentative recovery to 0.8415.

Month-end position adjustment will have a significant impact, especially with a UK market holiday on Monday and Bank of England policy decision next week. Dollar strength continued to dominate on Thursday with Sterling testing 1.2500 against the US currency before a slight recovery with the Euro around 0.8400.




The Swiss ZEW economic expectations index dipped sharply to -51.6 for April from -27.8 previously, reinforcing reservations over the near-term outlook.

Global yield trends undermined the franc and a rebound in equities also tended to limit potential defensive buying. There were, however, still important reservations over the Ukraine situation which limited any potential selling on the franc with overall volatility liable to increase.

The Euro settled around 1.0220 after finding support close to 1.0200 with the dollar posting a high at 0.9700 before a limited correction. Yield trends dominated on Thursday, especially with the dovish Bank of Japan policy and the dollar edged to fresh 22-month highs above 0.9700.

Technical Levels




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