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German GDP Supports Euro while Sterling Struggles

May 13, 2011 8:15 AM ET
Forexyard profile picture
Forexyard's Blog
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On the back of stronger than expected German GDP data the euro found support as did commodities and European Equities prior to the US CPI release.


German Preliminary GDP q/q rose 1.5% from 0.4%, on consensus expectations of 0.9%. The strong output from Germany, the engine of the EU economy helped to increase risk appetite for commodities and stocks as well as supporting the euro.


Global equities are higher with the Hang Seng up 0.88% and the FTSE 100 up 0.79%. Silver reached as high as $36.44 before trading back to $35.50. Gold is higher as well at $1510.


The story remains the same with the German economy continuing to grow while the peripheral Europe continues to stumble amid sluggish growth and high unemployment. Spanish GDP rose a measured 0.3% as unemployment remains staggeringly high above 21%.


The EUR/USD traded as high as 1.4340 before falling back to 1.4280. The EUR/GBP rose to 0.8799 before trading back to 0.8778.  However, the initial strength of the euro may fade as the day progresses with the ongoing euro zone crisis. EUR/USD support comes in at 1.4120. A breach here would test 1.4020. To the upside, a move above 1.4420 would be constructive and target this week’s high at 1.4480.


Sterling continues to struggle despite Wednesday’s MPC announcement for the tightening of monetary policy. Yesterday’s paltry manufacturing production data continues to weigh on Sterling. The BOE walks a tightrope as it attempts to balance inflationary pressures without stifling the fragile UK economic recovery. Judging from Sterling’s price action, traders are not of the opinion that the BOE will be increasing rates in the near term, thus keeping Sterling on its back foot versus the dollar and the euro.


Cable traded as high as 1.6307 before falling to 1.6265. GBP/USD support comes in at 1.4250 from the trend line up from the January low. Resistance is found at 1.6520 off of Wednesday’s high.


US Core CPI is due shortly and stronger inflationary pressures could feed into USD selling. A disappointment from the inflation data or the US consumer sentiment report would extend the two week correction in the dollar most likely into the New York open.


Russell Glaser

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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