It has been a busy morning in Europe for fundamental news on the economic calendar, with five items of interest, as the markets now await the Preliminary GDP numbers from the US which may well set the tone for the remainder of the trading session for the euro to dollar currency pair. The morning started early with German retail sales which came in better than expected at 0.5% against a forecast of 0.3%, and in contrast to the German economic data that has been released in the last few weeks, with sales rising for the first time in four months. This was closely followed by the M3 money supply which again was better than expected at 4.9% against the forecast of 4.5%, followed by Private loans, which showed once again that loans to households and companies in Europe grew at the slowest pace on record in April, as banks tightened their credit standards and demand for debt fell. In contrast to the positive news above, the CPI flash estimate for Europe can out worse than expected at a flat 0% against a forecast of 0.2%,it’s lowest level in 13 years, as energy costs and the worst recession in more than 50 years forced many companies to cut their prices, raising once again the spectre of deflation. The Italian CPI data came in as expected on target at 0.2%. The morning rounded off for Europe with a speech by European Central Bank president Jean Claude Trichet addressing a 50th Anniversary celebration of Bank Al-Maghrib, in Marrakech, entitled “The role of central banks in times of crisis” – very appropriate!!
As outlined above the currency markets are now waiting nervously for the GDP data from the US – as this is the Preliminary ( which is the second of the three releases ) it tends to have less of an impact than the Advance which has already been released to the markets. Nevertheless, it an spring a surprise and the forecast for this afternoon is for -5.5% against a previous of -6.1%.GDP measures the a annualized change in the value of all goods and services produced by the economy, and if the actual is better than forecast then this is generally good for the US dollar. There are 3 versions of GDP released a month apart – Advance, Preliminary, and Final. The Advance release is the earliest and thus tends to have the most impact.
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