Data set to pick up, can major currency pairs find direction?

Today’s macro highlights:

  • GBP - UK Jobless Claims (April)
  • EUR - Eurozone GDP (Q1 preliminary reading)
  • USD - Advance Retail Sales (April)

Data set to pick up, can major currency pairs find direction?

Data was thin in the ground during yesterday’s session although evolving political situations and comments from central bank members all served to provide some direction. Notably, the Euro appreciated as the market became a little more accepting of a populist right wing coalition forming the next Italian government. We also saw some hawkish tones coming out of the ECB with speculation that interest rate hikes could follow just months - as opposed to years - after the bank’s bond buying scheme concludes. However, an uptick in US treasury yields with the 10-year rate surging above 3% once again won the day and saw EUR/USD promptly tumble back to levels last seen before the weekend break.

We have a host of UK unemployment data set for release at 9.30am BST, with expectations set for a significant number of new jobs to have been created. More significant however will be signs of wage growth - this needs to keep outpacing underlying inflation if markets are to buy into the idea that the Bank of England could hike interest rates in August. Weekly earnings excluding bonuses are tipped to increase 2.9% year on year. If we see anything higher than that printed, then the Pound could find some meaningful support.

Q1 Eurozone GDP readings are set to be published to 10am BST and again these will be under close scrutiny. With ECB members sticking to an upbeat narrative yesterday and only a modest miss in the German GDP print this morning - now showing 1.6% for the year against expectation of 1.7% - there’s a lot riding on this print. EUR/USD has barely moved in response to the German number, but a bigger shortfall across the currency bloc could open up some real selling pressure on the pair.

US retail sales data is due to be published at 1.30pm BST and this could prove instrumental in arresting the dollar’s drift higher. We’ve already seen the US inflation data soften and forecasts are suggesting we’ll see month on month growth of 0.3%, down from 0.6%. On the basis that the dollar is increasingly seen as overbought off the back of an extended run of good economic data suggests that any reading below this has the potential to initiate some degree of profit taking.

GBP/USD
Cable crept a little higher during yesterday’s session, although a move above 1.36 proved short lived. With a day ahead that will be heavily reliant on the data, it’s difficult to see where the next move will be but rising inflationary pressures in the UK combined with slowing retail sales in the US could initiate the pair’s return towards the upper 1.30’s.

EUR/USD
Hawkish rhetoric from the ECB is lending support, with the pair now clear of last week’s lows. However, disappointment in the GDP reading this morning will raise fresh questions over the central bank’s stance and could open the way to fresh lows for the year below 1.18. 

GBP/EUR
The pair has been struggling to make any progress since last week’s BoE driven sell-off and has sat in a 50-point range since Thursday afternoon. This morning’s data could however provide something of a break out here with disappointing wage growth opening up the way for a return below 1.13 - a level last seen two months ago.