Risk appetite dominates ahead of long weekend

• 'US, China aim for early-May announcement on trade deal’. After a marked recovery in Chinese economic data yesterday, Beijing now finds itself in a stronger position. A quick resolution to the matter will be good for risk currencies and likely negative for the US Dollar. (Bloomberg)
• 'Euro steady on improved economic views, euro zone PMIs awaited’. The common currency continues to find upside from the demand for risk assets, although sustaining gains are likely to be dependent on improving Eurozone economic data. (Reuters)
• 'Two-thirds of American CFOs predict a recession by the summer of 2020, survey finds’. The quarterly study by Duke University shows a more optimistic outlook for the remainder of 2019, but views deteriorate dramatically thereafter. 84% believe a recession will be underway by the start of 2021. (MarketWatch)

US-China trade deal

There is mounting speculation that Washington and Beijing are now close to resolving their differences over trade. A summit between the two nations’ leaders to sign an accord could be held at the end of May and has the potential to keep fuelling demand for risk currencies. It’s important to note that a further deterioration in Eurozone economic data or fresh concerns over Brexit are entirely probable. Both scenarios carry negative connotations for the respective currencies.

Eurozone outlook

Opinions remain somewhat divided as to where the Eurozone economy will go next. A number of analysts may be working on the basis that the data from the currency bloc can’t get any worse from here, but there’s also concern from some at the European Central Bank that hopes of a rebound in the second half of the year are overly optimistic. Expect data points to be closely followed in the coming weeks as the market attempts to understand whether data has turned a corner. The Euro, especially against the US Dollar, remains capable of a meaningful move in either direction in the medium term.

GBP/USD

The Pound has been trading in a relatively tight range against the US Dollar since Tuesday afternoon. An absence of meaningful Brexit developments is likely hampering the pair, although mounting risk appetite may help limit downside exposure in the near term.

EUR/USD

The Euro has been trading sideways against the US Dollar all week. Concerns over the long term outlook does appear to be capping gains and thinner volumes, ahead of the long weekend, which could exacerbate volatility.

GBP/EUR

The Pound sold off yesterday against the Euro in the wake of marginally worse than expected UK inflation data. The move lower may have been short lived, but until there is more clarity over progress being made regarding Brexit, Sterling seems likely to remain very much on the back foot.