Daily Market Report,
Good morning all and welcome to Thursday morning in London town.
Cable once again failed to test the psychological 1.3000 handle earlier in Asia, sparking the current leg lower amidst some recovery in the greenback.
In fact, despite the political turmoil in the US, the buck managed to regain some buying interest after tumbling to fresh multi-month lows around 97.30 when tracked by the US Dollar Index (DXY).
However, the losses remain capped amid latest headlines on the UK PM May, as reported in The Telegraph, cited that Theresa May is likely to pledge that corporation tax will fall to 17% by 2020.
Later in the European session, UK’s Retail Sales are due, with consensus expecting headline sales to have expanded at a monthly 1.0%, reverting the previous contraction.
In the US, the usual weekly report on the labour market is due followed by the key Philly Fed Manufacturing index and the speech by Cleveland Fed L.Mester (2018 voter, hawkish).
The heightened political uncertainty in the US has taken a toll on the June Fed rate hike odds. The EUR/USD pair clocked a fresh six-month high yesterday.
A week back, the probability of a 25 basis point rate hike in June stood near 90%. As of now, the probability stands at 64%. Fed usually hikes rates only if the market puts the probability of the move at least above 60%. This was the Fed ensures the move is well priced-in and there are no unwanted side effects. Another round of sell-off in the USD could be seen if the probability dips below 60%.
Focus on the ECB minutes
The Eurozone economy is firing on all cylinders and the region is looking relatively stable on the political front as well. Thus, investors would scan the minutes of the latest ECB meeting for clues regarding the timing of the QE taper/rate hike.
The rally in the EUR/USD witnessed so far is largely due to the unwinding of the Trump trade – switch from US assets to Eurozone assets. Hawkish (positive) sounding ECB minutes could easily add fuel to the fire.
The only risk to the rally in the EUR/USD is a sudden change in the headlines, i.e. the focus may shift from the political turmoil to Trump’s foreign visits. Trump is set to visit Saudi Arabia later this week. The next stop would be Israel, Palestine, Rome and the Vatican.
The change of focus may open doors for a technical correction in the US dollar/pull back on the EUR/USD pair.
Statistics to watch out for today
From the UK at 9.30am we have the Retail Sales for April. (The retail Sales released by the National Statistics measures the total receipts of retail stores. Monthly percent changes reflect the rate of changes of such sales. Changes in Retail Sales are widely followed as an indicator of consumer spending. Generally speaking, a high reading is seen as positive, or bullish for the GBP, while a low reading is seen as negative or bearish).
From the Euro Zone at 12.30pm we have the ECB Monetary Policy Meeting Accounts. (ECB Monetary Policy Meeting Accounts contain an overview of financial market, economic and monetary developments. It’s followed by a summary of the discussion, in an unattributed form, on the economic and monetary analyses and on the monetary policy stance. The accounts offer a fair and balanced reflection of policy deliberations. The aim is to provide the rationale behind monetary policy decisions and enable members of the public to improve their understanding of the Governing Council’s assessment of the economy and its policy responses in the light of evolving conditions).
Have a great day all.