UK, EU data disappoints again, but is negative sentiment fully priced in for now?

Today’s macro highlights:

  • EUR - Eurozone Retail Sales (March)
  • USD - Non-Farm Payrolls (April)

UK, EU data disappoints again, but is negative sentiment fully priced in for now?

It was a familiar pattern yesterday, with economic data from the UK and Europe proving underwhelming once again, whilst prints from the US were rather more upbeat. UK services PMI ticked a little higher but still fell short of expectations, this perhaps being the final nail in the coffin when it comes to a BoE rate hike in 2018, whilst Eurozone CPI dipped to 1.2% against a forecast of 1.3%. Both respective crosses against the dollar however produced only a muted reaction, with the heavy selling of the last few weeks seemingly leaving little space on the downside. The fact that US factory orders jumped whilst the composite ISM figure came in a little softer than expected also capped upside potential for the greenback. For now anyway, the sell-off does seem to be pausing for breath.

Eurozone retail sales figures will be published at 10am BST. There’s an expectation that the figure will tick higher and in light of the run of downbeat economic data we’ve seen from the currency bloc of late - plus the sustained selling on EUR/USD - anything that comes in higher than forecast has the potential to lend some meaningful support to the Euro.

1.30pm BST sees the high-profile US Non-Farm Payrolls for April being released. The private ADP reading earlier this week beat forecasts and expectations are running high that we will see a rebound from last month’s rather lacklustre figure. Against the backdrop of recent gains we’ve seen posted for the dollar, it’s perhaps going to take something particularly impressive - say well in excess of 200,000 jobs being added - if the greenback is to appreciate further in the short term. Equally, even modest disappointment could be the catalyst for profit taking from the recent USD rally.

GBP/USD
Cable appears set to record its first three week run of losses since last October although short term consolidation does seem to be in play for now. The pair traded in a very narrow range overnight and there seems to be little demand at present to push below those post-Brexit vote lows.

EUR/USD
The pair has found some support, failing to break down to fresh lows for the year and as with cable, spent the Asian session trading in a very tight range. EUR/USD is also on course to post its third consecutive weekly loss, underlying the current popularity of the greenback.

GBP/EUR
The pair is consolidating around the 1.13 level and this territory proved to be a popular area of support back in 2013, too. With further tightening of UK monetary policy now seemingly on hold until next year anything that hints at a faster unwinding of the ECB’s QE scheme could readily open the door for a return to the late 2017 lows around the 1.10 area.