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Slight Recovery in Risk FX ahead of US Open

Boris Schlossberg, Director of Currency Research, GFT

Top Stories

  • Better data from Europe lifts risk FX
  • UK TB balance misses
  • Nikkei off -0.81% Europe up 0.64%
  • Oil at $94.50/bbl
  • Gold at $1558/oz.

Overnight Eco

  • JPY Consumer Confidence (APR) 40.0 vs.40.9
  • EUR German Gross Domestic Product s.a. (QoQ) (1Q P) 0.5% vs.0.1%
  • EUR German ZEW Survey (Economic Sentiment) (MAY) 10.8 vs. 19.1
  • GBP Trade Balance -8.6B vs. -8.4B
  • EUR Euro-Zone Gross Domestic Product s.a. (QoQ) (1Q A) 0.0% vs. -0.2%

Event Risk on Tap

  • USD Consumer Price Index (MoM) (APR) expected at 0.1%
  • USD Consumer Price Index Ex Food & Energy (MoM) (APR) expected at 0.2%
  • USD Empire Manufacturing (MAY) expected at 9
  • USD Advance Retail Sales (APR) expected at 0.2%
  • USD Retail Sales Less Autos (APR) expected at 0.2%
  • USD Net Long-term TIC Flows (MAR)

Price Action

  • USD/JPY rallies towards 80.00
  • AUD/USD better risk flows take it to parity
  • GBP/USD lower TB bring it back below 1.6100
  • EUR/USD rallies above 1.2850

Risk FX was mildly firmer in overnight European trade today boosted by better than expected GDP data from Germany although investor sentiment in the region deteriorated. German Q1 GDP surprised to the upside printing at 0.5% versus 0.1% eyed as it helped ot lift EUR/USD above the 1.2850 level in early morning European trade.   In calendar-adjusted terms, economic activity was up 1.2% on the year. In non-adjusted terms, GDP growth came to +1.7% y/y.

The growth in Germany was driven by exports and better than expected consumer spending while investments declined. The news may ease some concerns about Europe’s largest economy falling into a recession, however GDP data is by definition  backward looking while the latest flash PMI data from the manufacturing sectors has suggested a sharp slowdown in economic activity. Nevertheless, German data helped to lift the broader EU GDP figures to 0.0% from -0.2% forecast avoiding the prospect of technical recession in the EZ.

Investor sentiment as measured by the ZEW survey soured however, dropping to 10.8 from 19.1 forecast. This was the first miss in ZEW reading this year and the first month over month decline since November of last year indicating that the credit problem in the region are beginning to weigh on investor’s minds.

In UK the Trade deficit remained broadly steady though it missed estimates printing at -8.6B versus -8.4B eyed. On the upside exports to non-EU countries hit a record high with volume of exports also hitting record highs in March. Cable however sold off on the news sliding towards 1.6050 level as traders became concerned that troubles in the EZ would curtail growth going forward.

In North American today the focus is on CPI and Retail Sales with markets anticipating core inflation to remain at 0.2%  while Retail Sales are expected to decline to 0.3% from 0.8% the month prior.  The data could determine if the short covering rally in risk assets continues into North American trade or if equities sell off once again dragging FX down with them. Given the fact that weekly shopping data form ICSC shows sharp declines chances are that Retail Sales could miss sending USD/JPY back to 79.50. On the other hand if US consumer demand surprises to the upside the pair could break above the key 80.00 resistance indicating that has finally formed a base.   

FX Upcoming

Currency GMT EST Release Expected Prior
USD 12:30 8:30 Consumer Price Index (MoM) (APR) 0.1% 0.3%
USD 12:30 8:30 Consumer Price Index Ex Food & Energy (MoM) (APR) 0.2% 0.2%
USD 12:30 8:30 Empire Manufacturing (MAY) 9 6.56
USD 12:30 8:30 Advance Retail Sales (APR) 0.2% 0.8%
USD 12:30 8:30 Retail Sales Less Autos (APR) 0.2% 0.8%
USD 13:00 9:00 Net Long-term TIC Flows (MAR) $10.1B