The economic reports released in the Thursday session were initially dollar positive, with the greenback bouncing to 1.57 against the euro and rising to 104 versus the yen. Although the headline reading for durable goods orders was slightly weaker than expected at -0.3%, versus calls for a flat reading, it still marked an improvement from the -1.1% drop in February. The excluding transports durable goods orders posted a sharp improvement from the prior month, increasing by 1.5% in March, compared with a 2.4% decline. Weekly jobless claims also improved, falling to 342k down from 372k a week earlier. However, March new home sales posted a larger than expected drop, plunging by 8.5% to 526k units, versus 590k units in February.
The housing market continues to weigh on the economy Fed funds futures are currently pricing in an 82% probability for a 25-basis point rate cut to 2.00% when the FOMC meets next week. We expect the Fed to ease policy next week but possibly signal a pause in any further moves.
The euro pulled back sharply, breaching the 1.57-level to 1.5639 prompted on a combination of upbeat US reports and weaker than expected Eurozone data. Germany's Ifo index disappointed consensus forecasts, with the current conditions index falling by more than expected to 108.4 from 111.5. The expectations component fell to 96.8 versus 98.4. The Eurozone current account balance improved, posting a 4.3 billion euro surplus versus a deficit of 10.6 billion euros in February.
EURUSD will find support at 1.5640, backed by 1.56 and 1.5550. Additional floors are seen at 1.55, followed by 1.5460 and 1.5420. Gains will target interim resistance 1.57, followed by 1.5740, followed by 1.5780. Subsequent ceilings are seen at 1.58, backed by 1.5830 and 1.5860.
Sterling holds on data
The sterling held steady following a report on UK retail sales revealed a smaller than expected decline. Consensus estimates were calling annualized retail sales in March for fall to 4.3% from 5.5%, instead the figure fell to 4.6%. Meanwhile, on a monthly basis, retail sales posted a 0.4% decline from 1.0% in February.
Nonetheless, we still expect the Bank of England to cut rates in by 25-basis points in the coming months and as such, look for the sterling to continue to underperform against the dollar and euro.