Sterling – BoE and currency are idling
Last week sterling price action was again mostly a yawner with it moving by only a small amount versus the dollar. It appeared to be heading for a slide around the BoE meeting, but losses were quickly taken back. The BoE held on rates and its asset purchase program as expected, however, there were a couple of votes in the MPC to increase the program. Looking higher, if cable (GBP/USD) is to rally it will need to climb above the 200-day moving average at 1.2647, a threshold that has held advances in check twice in the past month. At the time of this writing cable is nearing its one month low.
While new car sales aren’t a market-moving piece of data, last week the year-over-year figure declined by 97.3%, highlighting just how stagnant things have become. Not all data was in the dumps though with Nationwide’s housing price index up 3.7% versus the analyst estimate of 2.5%. Looking ahead to the rest of the week we get a look at GDP on Wednesday, with the 3-month average expected to come in at -2.9%. Trade balance, industrial & manufacturing production figures, and construction output are all due out the same day.
Euro – Treading on massive support
The euro continues to hang out around massive long-term support versus the dollar (via a trend-line spanning its existence), and with EUR/USD still not gaining any traction the likelihood that it breaks lower continues to climb. Watch 1.0635 as the signal that the broader downtrend is resuming. The European Commission is forecasting a record 7.7% contraction in the Eurozone economy, keeping the ECB in position to act further if necessary. However, some of its actions have already come under scrutiny as the German court ruling last week is making the central bank provide evidence justifying its bond purchasing program. On the economic data front this week, inflation figures for Germany are due out on Thursday, unemployment in France the same day is supposed to show a rate of 8.3%. On Friday, German and Eurozone GDP readings will be released, with the former expected to show the economy shedding 2% YoY.
US dollar – Rangebound (for now)
On Friday, the US dollar mostly shrugged off the dreadful but “better” than expected jobs report. The NFP figure came in at -20.5mm for the month of April vs the -22mm estimate. Unemployment shot up to 14.7%. The lack of reaction wasn’t unexpected. Overall, the price action in the Dollar has been very much rangebound, but this won’t last. In the weeks ahead the limited activity is likely to give-way to a sustained move. Keep an eye on emerging market currencies, euro, and Canadian dollar as they are poised to lead firmer currencies. On Tuesday, inflation is expected to tick lower while on Friday retail sales is expected to be -10% MoM and UofM Consumer confidence is supposed to come in at a low reading of 72.
Canadian dollar – Light week of data
The Canadian dollar continues to show some signs of firming up versus the greenback, but it may only be temporary. USD/CAD 1.3850 is a big near-term level to watch as support. Last week the employment change wasn’t as dramatic as forecasted with an actual figure of just under 2 million jobs lost in April versus the analyst forecast of -4 million. The unemployment rate is 13%. It is a light calendar for data this week.
Australian dollar – End of rally may be near
The RBA kept rates on hold last week at a record low 0.25% as expected. The commodity/China dependent country is in a recession for the first time in nearly three decades. Going forward the thinking is that the dependence on commodities, with them looking headed lower via downtrends in industrial metals, for example, is going to keep the pressure on. AUD/USD 0.6700 threshold remains a big one to overcome. Data this week includes a change in employment expected to be -575k for April. The New Zealand interest rate decision is on Tuesday, this may have some transient impact on Aussie following.
Japanese yen – No clear direction
The Japanese yen has practically come to a standstill as USD/JPY floats lower but without conviction. It is a tough one to gauge at this time, with it drifting following the sharp fall with stocks and rebound with the dollar during March. What will drive it out of the doldrums is unclear at the moment. Last week was Golden week, no impactful data was released. Annualised GDP is due out on Sunday, it should be a big red number. No estimates available at this time.