GBP Rises Following Stronger Than Expected UK Retail Sales Data

• USD and JPY gain in Asian trade as EURUSD slips from Friday’s US closing level
• Asian equity markets mostly lower after fresh data suggests that China’s manufacturing may decline for a 6th straight month
• Gold continues to trade sideways as market enjoys another very quiet session overnight
• Markets looking forward to Wednesday for the release UK Q1 GDP and US FOMC interest rate decision
• Concerns mount over Dutch budget impasse and the implications for what a failure to agree policy could have on the country’s AAA rating.
• German manufacturing PMI shows fastest contraction in over 2 years-EURUSD falls back under 1.3150 on news
• Gold falls sharply on opening as equities fall back on weak EU data

Good morning. Well Friday saw the release of a much stronger than expected UK retail sales report for March. That helped boost the pound as GBPUSD rose above 1.6100 on the news.

However, given the strength of these numbers the move in both GBPUSD and EURGBP was actually quite disappointing in truth.

The increase of 1.5% on the month more than wiped out the adjusted 0.7% decline for February and on an annual basis, importantly without fuel sales, recorded growth of 2.8%.

Now pinch me if I am seeing things here, but given all the negativity in recent weeks out there, that’s pretty good isn’t it?

Just goes to show that journalists and reporters can try to talk things down but they don’t always have the desired impact. For the life of me I can’t understand why certain members of that tribe are always so pessimistic.

The simple truth to me is that things are improving and should continue to do so as the feel good factor of the Olympics begins to take more of a grip. Whether or not that will continue after the games is much harder to judge.

The move higher in the GBPUSD helped the EURUSD through 1.32 as well. I think that there were stops placed above 1.3210 (the high reached the previous week) and they were clearly the target for removal.

I think that way because once again the price just rallied above the level, reaching 1.3228 on Friday evening and that was as far as it got-as I said no follow through and that smacks of stop loss removal and not a genuine directional move.

The one thing that was bugging me all day on Friday and I think I mentioned it in the update as it had been on my mind for the past few days, was the failure of the Gold price to react with the EURUSD as it traded higher, or with equities.

The US markets have recovered a lot of ground in the past fortnight as the Dow heads back above 13,000 but Gold has so far simply failed to take a lead from anything that might have helped it to the upside. Perhaps there’s demand somewhere out there but I don’t see it.

It is also possible that there’s a more significant reason for the gold price not moving-more in a second on that.

The news out on Friday that the IMF managed to secure around $430 billion in fresh commitments from a number of governments was initially heralded as great news and a fillip for the G20 meeting that was used as the backdrop for the change. More like a US style fund raiser if you ask me.

However there are a couple of points to note on this. That number was actually well shy of the $600 billion that IMF managing director, Christine Lagarde had hoped to raise and more importantly the main protagonist at such a fund raising event refused to cough up.

The move by the UK’s Osborne to pledge £10 billion doesn’t seem like a shrewd political step either at home or abroad at this point either, especially when one views the US position and the proposals by Canada to make it extremely difficult for European countries to tap the increased resources.

I will say one thing for Osborne; at least all his comments and decisions seem entirely removed from any political dissuasion, judging by the number of times he’s shot himself in the foot politically-perhaps there’s more substance to this man than many give credit for.

Looking back at Gold and the IMF story-increased contributions imply potential central bank sales? No talk yet, but don’t be surprised if there’s some hint of that capping the price of that at the moment.

The JPY is a little stronger this morning, helped by a poor equity market performance in Asia overnight.

That was kicked off by reported concerns over the growth prospects for the Chinese economy once again as well as some reported concern over the outcome of the French elections.

I don’t see the markets really giving that outcome much focus at the moment despite Sarkozy coming second after the first round.

More worryingly to me are the developments in Holland. The potential for a budget impasse here that could see a risk to the country’s AAA rating is live according to many analysts if the spending limits are not brought into line with EU mandate requirements.

We should watch the developments here closely. Dutch spreads have already widened nearly 20bp above Germany since last week. If that continues then it’s just another reason to avoid the currency.

There has been much talk as to why the EUR has been so resilient in the past year. There is no denying that it has, and given all that it has had thrown at it, it has done remarkably well to still be knocking around the 1.32 mark.

Several pundits have been drawn to the conclusion of where the price would be now if the situation in Europe wasn’t where it was.

Well, whilst that’s a valid argument it’s a bit like saying that I would be alive if I wasn’t dead already- pointless. One could say the same about the EURCHF couldn’t one? We are where we are and it’s where we are headed from here that matters not what might have been.

I continue to see no earthly reason to buy the single currency and from all that I can see it still overvalued versus the GBP and the USD in particular. Now this week’s US FOMC decision could put the spotlight back onto the US economy.

The recent slippage in the US economic data is something that the FOMC will be watching closely so we need to watch any accompanying statement from the committee when they leave their benchmark unchanged on Wednesday.

This morning the release of the weakest set of German manufacturing PMI data in over 2 years has severely impacted the markets. Gold has fallen sharply as stops have been triggered on the news.

That move endorses what I said earlier about the metal’s inability to rally in recent sessions on the back of what was a better risk environment. The same news has also impacted the EURUSD, which has fallen back underneath 1.3150.

The whole mood this morning has therefore shifted once again. Risk is coming off and that’s had a further impact on the JPY which has strengthened further, testing 81.00 as EURJPY slips back. EURGBP is holding on to the 0.8160 region still as reported bids are still said to lie around that area.

Despite this latest news the EURUSD is still rather inconclusive inside the wider 1.30-1.32 range. A break back underneath 1.3100 would sour the mood further but ahead of that there is support around the 1.3130 region.