Brave New World

Currency Review 15/05/2009

News

• EUR: German GDP grew by -3.8% q/q (-6.9% y/y) in Q1, vs expected -3.0% (-6.0 y/y)
• EUR: European GDP grew -2.5% q/q (-4.6%y/y) in Q1 vs expected -2.0% vs (-4.1% y/y) 
• EUR:  Consumer Price Index for April was 0.6% y/y
• JPY: Wholesale prices fell 3.8% y/y vs expected -3.0%
• CNY: FDI fell 22.5% y/y in April

Commentary

Headline GDP figures tend not to create much of an impression in the markets, given that the components of the figures tend to be factored in in the months leading up to the figure. As a result, it is also rare for the headline figure to be much outside the consensus forecast. It is therefore quite a shock that q1 German and Eurozone GDP figures were so much worse than expected. The most important component, German GDP posted a dismal -3.8% fall in output in the first quarter alone; the worst reading since 1945. It is perhaps surprising therefore that the currency market response was not more dramatic. EURUSD initially fell to just below the 1.3600 level from an overnight high of 1.3650. Enough green shoots appear to have emerged for the market to be more focused on forward looking data, consigning the first quarter of this year to the rubbish bin. Important US data out later today- including Industrial production, Empire State Manufacturing Index and the University of Michigan survey will determine how much longer the good news story seizes market sentiment. As I have stated before the wheels will come off this recent rally. When that happens the USD and increasingly the JPY will benefit.