Markets Staying In Range As Focus Turns To UK GDP And FOMC: April 25, 2012

Markets continue to stay in tight range in Asian session today. Stocks were lifted by solid earnings from 3M and Apple. Both dollar and yen are mildly softer on risk appetite but loss is so far limited. UK GDP will be the main focus in European session today. Markets are expecting GDP to return to growth of 0.1% qoq in Q1 2011, after contracting -0.3% qoq in Q4 of 2011. Some analysts said that small positive or negative number won't matter much in economic terms. However, a return to positive number would at least means UK avoided a technical recession of GDP contraction in two consecutive quarters. And, that should provide some psychological boost. Sterling has been the firmer European major currency recently after BoE minutes showed reduced chance of additional easing. But so far, GBP/USD struggles to take out a technically important resistance level of 1.6165 and today's GDP data will likely have a make or break impact in GBP/USD's near term outlook.

Meanwhile BoE dove David Miles said yesterday that he wouldn't be surprised if today's GDP is a "small negative number". Miles was the only BoE member who voted for expanding the asset purchase program this month after David Posen reversed his call. Miles noted that growth in the UK economy is still "pretty weak" even though it could be "marginally positive". Miles also noted that "the weakness of demand, given the amount of spare capacity in the economy, still made a strategy of having monetary policy even more expansionary the right one."

Mark Rutte remained acting premier in the Netherlands after surprised resignation earlier this week following the collapse on austerity talk with major opposition parties. The situation didn't ease after parliamentary meeting on Tuesday and Rutte would struggle to meet EU's deadline of April 30 for submitting the 2013 budget plan. Meanwhile, Rutte also noted that there is no automatic majority for immediate elections and elections would most likely be held on September 12.

FOMC meeting will be the focus in US session. A somehow mixed message will be sent after the FOMC meeting. While Fed Chairman Ben Bernanke and the post-meeting statement would focus on the softened macroeconomic data since the March meeting, the staff projections would likely show more hawkishness when compared with the previous projection in January. The Fed would retain the reference that the Fed funds rate would stay at exceptionally low level at least until mid-2014. At the press conference, the Chairman would possibly not hint the direction of the monetary policy. The statement would probably touch on the recent deterioration in Eurozone sovereign debt crisis. The reference that the 'strains in global financial markets have eased' might be removed and cautions would be made on the downside risks to the economic outlook due to the global financial markets. Some minor changes would be made on the economic developments in light the softening since the previous meeting. The decline in energy prices would also be addressed. More in Fed And RBNZ To Keep Rates On Hold. Durable goods orders will also be released from US today.