US GDP data sends euro sharply higher, Dax breaks lower

UK stocks ended the session lower after a weaker than expected reading on US GDP sent cable and the euro hurtling higher, in turn weighing on the equity space.

Economic activity Stateside slowed to an annualised 0.2% pace, comfortably below the 1.0% advance which markets had been forecasting.

Analysts badly miscalculated the impact which the collapse in the oil price would have on investments by the US tight-oil industry over the first three months of the year.

Indeed, some economists ventured that the latest GDP report might even lead the US Federal Reserve to push back the timing of the first interest rate hike in this cycle.

As of 17:05 cable was up by 1% to 1.5484 and the euro/dollar could be seen higher by another 1.78% at 1.1170.

Spot euro/dollar took out what Bill Hubard, chief economist at Bankor, on Wednesday identified as a “key” level of technical resistance on the weekly – not daily - charts at 1.10. In theory at least that means that a break-out cannot be "confirmed" until Friday's session.

We expect the re-balancing of hedges to lead to selling

Weak sell signal detected for USD

To take note of as well, on Wednesday evening Barclays analyst Aroop Chatterjee said in a report sent to clients that: "We expect the rebalancing of hedges at month-end to lead to small amounts of USD selling versus the major currencies. [...] Our month-end model shows a small USD sell signal versus all currencies except the JPY, against which the model has a neutral signal."

Weakness in the single currency was also feeding into some other asset classes on Wednesday evening. West Texas intermediate crude futures were higher by 2.82% to $58.66 per barrel in NYMEX trading.

The Dax-30 dropped 3.21% to 11.432.72 points - its largest one-day loss since 2008 - apparently confirming a head and shoulders technical pattern, as Hubard also pointed out on Wednesday.

Gold futures for June delivery on the other hand were actually lower, slipping by 0.35% to 1,209.70 over on COMEX.

Acting as a backdrop, the European Court of Justice set 16 June as the date when it will deliver its verdict on the legality of the European Central Bank’s sovereign bond purchase scheme, known as the Open Market Transactions (OMT) programme.

The announcement of OMT in 2012 was instrumental in providing a backstop for the entire single currency area, not least Greece, Christian Schulz, Senior Economist at Berenberg, wrote to clients in a research note.

“That date, as well as the timing of the announcement, is well chosen. Two weeks after the ruling, Greece’s bail-out formally ends. With Greece facing bond redemptions of €3.5bn in July and €3.2bn in August to the ECB, Greece will face default and potentially euro exit if it fails to secure a new funding package”, Schulz added.