GBP/EUR 1.1545 (0.8661)
Yesterday pretty much delivered what it promised, a non existent economic calendar in the European session saw markets in consolidation, despite plenty of tail end risks for the single currency region the Euro remained resilient, as it often has.
The US session delivered us some mixed signals, much like the Fed has in recent weeks, but it does highlight exactly what the Fed are getting at. The current environment is not conducive to tapering, things are certainly moving in the right direction and the overall trend for the US is positive but data is not in line yet, and until it is the ebb and flow of tapering expectations is likely to continue.
European troubles remain a concern although that is certainly not being reflected in euro currency crosses. Following the French downgrade on Friday the EFSF was also downgraded by Fitch on Monday. Downgrades clearly do not have the massive impact they once had, particularly if they are behind the curve, but they do serve to highlight on-going concerns in the Region.
The ESM is more important to the Eurozone and of course the sovereign rating of Germany; if either of them come under pressure we’ll likely see far more negative reactions from the EUR. We continue to see political uncertainty in Portugal with a Sunday deadline set to agree austerity measures, the Bank of Portugal will release their quarterly economic update today which may add to the fragile environment.
As mentioned above the US session provided us with mixed data, Retail sales grew .4% in June vs .8% expected highlighting slower activity on the streets but the Empire Manufacturing survey saw confidence levels at 9.46 vs 5.00 expected. Despite plenty of data on today’s calendar the US may well be waiting for Bernanke’s testimony to the house.
The European session has a host of inflation readings, both from the UK and Eurozone. UK CPI is expected to come in at 3% the highest inflation level in 14 months. This may erode BOE easing expectations as inflation concerns take precedent. We know the UK Chancellor of the Exchequer has inflation targeting on the agenda although official targeting is a way off and tomorrow BOE minutes will likely take precedent for the pounds outlook.
Inflation in the Eurozone is less of an issue remaining below the 2% target and expected to remain unchanged from previous months, if anything lower Eurozone inflation indicates spare capacity for easing in the Eurozone with September rate cuts a real possibility unless condition improve. The German ZEW survey is also due out this morning with improvements expected in current and forward looking indicator.
The US session has plenty of activity as well with CPI data, industrial and manufacturing production, housing data and Fed speakers all on the cards.