Today’s macro highlights:
Week starts on a quiet note, but underlying dollar strength prevails.
The Bank Holiday weekend gave the beaten down Pound something of a break yesterday, with the absence of any UK economic data serving to protect Sterling from fresh selling pressures. There was no such respite for the Euro however, with EUR/USD sliding once again and leaving the pair to briefly test fresh lows for the year. This was despite data from both sides of the Atlantic disappointing - US consumer credit came in 20% below expected, whilst Eurozone Retail PMI readings also came up short. The effect of tax changes on consumers is expected to reverse the US lending situation, but concerns over the health of the Eurozone remain harder to brush off.
The economic data we have slated for today is relatively low key, although could well provide some fresh direction for major currency crosses. The Halifax will release its latest house price index at 8.30am BST with the month-on-month figure expected to show little change. Yes this is coming against some tough comparatives as the year has started well, but with mortgage approval rates falling, a print in negative territory today could give the market fresh impetus to push Sterling lower once again.
Across the Atlantic and it’s a similar picture in terms of the relatively quiet economic calendar. We do however have one reading that will be worth some attention at 3pm BST and that’s the JOLTS job openings - a government survey of the number of unfilled employment vacancies. This is expected to hold steady around the 6 million mark, but a jump here would have the potential to fuel inflation concerns in the US with employers bidding more aggressively when it comes to recruitment. In turn this will bolster an already strong US dollar - although such a move would clearly prove frustrating for the country’s export ambitions. With the market seemingly happy to cheer the dollar at every opportunity, even a modest overshoot here could provide the greenback with the next leg up.
Cable has recovered from late Friday lows, but a sustained move below 1.35 - and with it fresh lows for the year - could still be seen if today’s data disappoints. The overhanging political situation also continues to weigh on the Pound, both in terms of the UK Government and the Brexit negotiations. The failure of the electorate to bloody the nose of the Conservatives in last week’s local elections may offer Theresa May some solace, but with no meaningful gains, it’s still a case of walking a very careful path.
Yesterday’s session saw renewed selling with five cents now having been lost from the mid-April highs, leaving the pair around 2018 lows. Economic data is increasingly suggesting that the Eurozone economy isn’t yet in a position to withstand the removal of QE so even if the ECB is talking around this issue for now, downside pressures on the pair certainly have the potential to prevail.
Neither currency looks like a compelling target for appreciation right now, but broad-based Eurozone weakness does appear to have been priced in. As such, any better than expected readings from the Eurozone could act as the catalyst to push the pair down towards lows for the year and beyond towards 1.10.