GBP Still in Search of Direction, BoE This Week

GBP – No direction is the direction, BoE this week

Cable (GBPUSD) tried to reclaim the 200-day last week, but failed back below only a short time after it closed above. The general price action remains challenging as several crosswinds keep the picture jumbled. Between uncertainty surrounding the virus and Brexit negotiations the market is kept at bay in creating any sustainable trends. No forecast available for employment change tomorrow, but claimant count change is expected to rise 370k, however this is still better than the 856.5k reading since the month before. The unemployment rate is expected to tick to 4.5% from 3.9%. Inflation data on Wednesday is expected to show core inflation soften to 1.2% vs the prior level of 1.4%. Month-over-month data, however, is anticipated to be slightly better at 0% vs -0.2% the prior month. Thursday the BoE is expected to keep rates unchanged at 0.1%. Bond purchases are forecasted to increase to £745b, up from £645b.

EUR – Euro rally might be finished

Last week the Q3 estimate for GDP growth rate in the EU fell by 3.6% versus the estimate of -3.8%. Tomorrow, the German inflation rate is expected to tick lower to 0.6% YoY from 0.9% YoY, while on a month-over-month basis it is expected to turn negative by 0.1% from +0.4%. The recent rise from the long-term trend-line appears set to come under further pressure after EUR/USD reached over 1.14 last week. The euro has been unable to hold a rally since early 2018, and this recent string of strength may quickly have us again looking at long-term support near 1.07.

USD – Reasserting itself

General consensus for a weaker dollar may have grown too entrenched recently, with a large portion of the market calling for the USD to drop dramatically on Fed accommodations. But the safe haven status of the dollar remains a strength as well as the general global dollar shortage that could come back to haunt many currencies if we see the virus further itself in harming the global economy. Keep an eye on emerging market currencies as those will be the first to sink, likely followed by CAD, EUR, then others in the developed markets. We have seen Fed meetings mark intermediate turnarounds before, so don’t be surprised if last week was an important turning point again. Retail sales is expected to have bounced back last month with a MoM reading of 7.6% vs -16.4% the month prior.

CAD – Might be time to wake up to reality

The Canadian dollar turned around sharply last week, and many continue to do so in the weeks ahead. We still remain firm on the belief that the Canadian economy isn’t going to be capable of thriving with oil prices hanging at depressed levels for a sustained period of time. Year-over-year inflation data is expected to be modestly better at 1.4% vs 1.2% previously. Otherwise a quiet week of data. Watch to see if last week’s low just above 1.33 can hold in USD/CAD.

AUD – Struggling with the 0.7000 threshold

AUD/USD struggled to climb over 0.70 as anticipated, but still rebounded sharper than we initially expected. Look for the 0.70 threshold to remain a barrier for some time to come. If risk appetite sours again on renewed coronavirus fears, as we saw last week into this week, then Aussie could come under significant pressure in the intermediate-term. On Wednesday, the May employment change is expected to be -125k, better than the month before figure of -594.3k. The unemployment rate is expected to rise to 7% from 6.2%.