Don't forget that you can now follow's research team on Twitter:

PMI's in Europe and China along with weak growth data for New Zealand have gripped the markets and dominated price action so far today. The HSBC reading of Chinese CPI for March fell to 48.1 from 49.6 in February. This disappointed the markets as some had been looking for a reading above 50 indicating expansion in the world's second largest economy. This is important for the markets as China's soft landing is necessary to propel global risk markets higher in our view, and today's data suggests that uncertainty around China's growth outlook will continue to persist as we move into the second quarter.

China wasn't the only disappointment; Europe also had weak PMI data for March. The composite PMI for the currency bloc that includes readings for both the manufacturing and services sector for all members, weakened in March to 48.7 from 49.3 in February.  Growth is likely to have contracted in the first quarter of this year after two consecutive sub-50 readings. This will remind investors that the global economy is not out of the woods yet. If Europe can't grow then peripheral countries may not be able to meet strict fiscal targets, which could cause a flare up of sovereign concerns just as signs of stabilisation have started to come through.

Portugal is on strike against austerity today and Spain is garnering a lot of attention as growth remains weak and concerns remain about its banking sector especially as the ECB seems to have ended its LTRO programme. Its 10-year bond yield has been rising sharply this weak and is back to the top of its recent range at 5.5%. A move above here could ignite concerns about Europe's fourth largest economy as it tries to sell EUR 24bn of debt next month.

US strengthens in isolation


The US seems like the outlier right now as its economy strengthens in isolation. It's interesting to look at the different conditions that are helping the US to outperform its economic rivals. Europe has embarked on a tough period of austerity and in China monetary policy hasn't been loosened in the face of a slowing economy to ensure inflation pressures remain contained. In contrast the US hasn't tried to reign in its fiscal deficit with too much gusto and the Fed has pledged to keep monetary policy loose until 2014. But what does this mean for the markets? In an election year the incumbent President can't afford for growth to weaken, so expect no move to tighten the fiscal screws in the US any time soon and also don't think the Fed will be too quick at taking its foot off the QE pedal anytime soon.

This could mean that the surge higher in Treasury yields is more muted than some expect. Although we do believe that the trajectory is higher for US yields, we think they will meander higher rather than experience short, sharp bolts north. Thus, dollar strength may not become broad-based right now, and instead we could see pockets of greenback strength based on relative bond spreads.

This is particularly negative for the yen. However, Japanese data has been the one bright spot today after its trade balance moved back into surplus. This caused a drop in USDJPY, which is now below 83.00. We are a bit concerned that USDJPY has been so sticky around 84.00, however right now this is a normal pull-back, especially with the mixed Japanese trade data. We tend to think that the Bank of Japan won't change its extremely loose monetary policy stance on the back of the change in the trade surplus, since this data is likely to be volatile for the rest of the year. As we move into summer the demand for air conditioning will boost Japan's energy needs. Since its nuclear power facilities remain off line oil imports will have to make up for the short fall, which could erode trade surpluses later this year.

Elsewhere, New Zealand didn't get much of a boost to growth from the Rugby World Cup after its economy rose half as much as economists predicted in Q4, rising a mere 0.3%. This doesn't bode well for the UK later this year and the Olympics. Will costs be covered? Overall, New Zealand made a slight loss on the World Cup last year...

UK data has continued to deteriorate for a second day. Retail sales for February were at the weakest level since May 2011 falling 0.8% on the month and January figures were revised down to 0.6% from their 1.2% initial reading. It appears that strong petrol prices are constraining the UK consumer.

Price action is reflective of the risk off tone in the markets this morning. EURUSD broke through 200-hr sma support at 1.3150, which opens the way to 1.3100. USDJPY is below 83.00 as the yen makes some headway. EURJPY is falling sharply the next support is 108.50. We would note that the RSI suggests that EURUSD is looking over-sold on a short-term basis so we could bounce around 1.3130/40 as investors take a breather.

Best Regards,

Kathleen Brooks| Research Director UK EMEA |

d: +44.(0).20.7429.7924 | f: +44.(0).20.7929.2010 | M: +44 (0) 7919.411.957  | e:| w:

23 College Hill | 3rd Floor | London EC4R 2RT

Now you can follow us on Twitter:

Disclaimer: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that is not rendering investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. is regulated by the Commodity Futures Trading Commission (CFTC) in the US, by the Financial Services Authority (FSA) in the UK, the Australian Securities and Investment Commission (ASIC) in Australia, and the Financial Services Agency (FSA) in Japan.