Euro significantly strengthened on Friday - 3.3.2014

Euro significantly strengthened on Friday up to 0.8% (growth on the EURUSD chart) after inflation increase reports for February. This reduced the likelihood of rate cuts by the ECB on Thursday meeting. The British Pound (GBPUSD) fell after the EU inflation data. Weakening of the U.S. Dollar was caused by the (Q4) U.S. GDP growth revision to 2.4 %, slightly below the forecast of 2.5% and much lower than in the third quarter (4.1%). Now investors believe that in the first quarter of this year the U.S. economy will grow by less than 2% in annual terms. Recall that in general, U.S. GDP increased in 2013 by 1.9 %, compared to growth by 2.8% in 2012.

Today at 9-00 GMT, we expect the PMI in the Eurozone to come out. It can affect the Euro if it does not coincide with a neutral preliminary outlook.

Today we will see important macroeconomic data from the U.S. such as ISM manufacturing PMI and construction costs coming out at 15-00 GMT. Prior to that, personal income and spending data will be released at 13-30 GMT. Preliminary forecasts are negative for the U.S. Dollar. In our opinion, the main attention should be paid to the following U.S. economy indicators: on Wednesday-the business activity index concerning the non-manufacturing sector (ISM non-manufacturing), on Thursday - Industrial orders and on Friday - unemployment data. Note that the RBA meeting is to be held tomorrow. It is expected that it will keep interest rates at the current, historically lowest level of 2.5%. The increase in inflation, calculated by Melbourne Institute (TD Securities-Melbourne) from 2.5% to 2.7 % in February (YoY) helps it.

The Canadian Dollar strengthened (fall on the USDCAD chart) after reports of GDP growth in the fourth quarter by 2.9%. The meeting of the Bank of Canada is to be held on Wednesday. it is projected that the discount rate will remain at the current level of 1%.

The Chinese PMI Manufacturing in February was the lowest in the last eight months and amounted to 50.2 points. Slowing down in Chinese economy caused the weakening of the Australian Dollar (AUDUSD) and lowering the Copper prices as well as strengthening of the Japanese Yen (USDJPY). Last year the growth of Chinese GDP was the lowest since 1999 and equaled to 7.7% . The government forecasts that this year it will slow down to 7.5%. Chinese Parliament annual meeting is to be held on March 5th.

Complication of the political situation in Ukraine took the Wheat, Gold (Gold), Natural Gas (Natgas) and Oil (Oil) prices higher and caused strengthening of the Swiss Franc ( fall on the USDCHF chart ). Recall that Russia supports the Russian inhabitants of Crimean Peninsula. Ukrainian authorities considered it as an aggression and asked the Euro-Atlantic NATO military alliance for help. Ukraine and Russia are the biggest wheat exporters, supplying the world market with 10 million tons and 16.5 million tons respectively. Russia is also the largest Oil and Gas exporter .

The Coffee prices may go down due to better weather in Brazil. Previously, coffee rose by 41.7% in February because of fears that crop can be reduced. This has been the maximum increase in prices since June 1994. Since the beginning of this year the growth in coffee prices has amounted to 60%.