Yesterday’s market sentiment was affected by the bad US macroeconomic data. Investors focused on the ADP report (on the growth of employment in private sector) and the publication of the US ISM services. Today the key event will      be the ECB meeting, its decision on the interest rates and the press conference after the meeting. We think that the ECB will not change the interest rates. However,if Trichet signals the increase in June, the further strengthening of the euro is very probable.

Soft patch 2?

About a year ago, we also saw a  weaker data from the US economy. After a relatively short history of economic recovery, investors started talking about  the recession. The fear of the long downturn (Ben Bernanke used the name "soft patch") in connection with the problems of Greece resulted in a large correction in equity markets, culminating in August. The FED reacted very quickly by implementing QE2.

Gold – much better than silver.

The prices of the precious metals have been decreasing for the three days. However, while the silver market can be a speculative bubble, the situation on the gold looks much better. First of all, it should be noted that the price of gold at the beginning of the week reached a level resulting from the expansion of a previous impulse wave (1580 USD). Second, declines have been stopped at the trend line, which gives a chance to the recovery on the market.

Events to watch – ECB and US claims

ECB meeting is the key event today. Even though the rates are bound to stay unchanged this time, the market will await for the signal from Trichet during the conference (8.30 ET, 14.30 CET). Should Trichet signal another hike as soon as June, EURUSD bulls would get some extra fuel to continue the upward trend. The BoE decision is not as highly anticipated as we’re still some months before the first hike in UK. PMI services (4.28 ET, 10.28 CET, consensus 55,7 pts.) might be more relevant for the GBP.

In US there is a release of initial claims report (8.30 ET, 14.30 CET, consensus 410k) – the final item ahead of the monthly payrolls report. Bernanke is taking stage at 9.30 ET (15.30 CET) but his speech will be confined to regulatory issues, not the current monetary policy.    

Paweł Kordala

Disclaimer, investment risk warning
X-Trade Brokers Dom Maklerski S.A. does not take responsibility for investment decisions made under the influence of the information published on this website. more