Last week was broadly neutral across markets, the USD rallied through much of the week before giving back almost half its gains on Friday, GBP had faced selling pressures on Thursday after markets were disappointed by a less hawkish than expected BOE on Thursday, while the Euro sold off as the relief post French election risk quickly faded and ECB comments were on the less hawkish side as well.
In Europe, stocks closed the week slightly lower despite some gains early on, while in the US it was a similar story with stocks edging lower on Friday pulling the week into negative territory. Despite concerns over a global malware virus impacting business and geopolitical concerns following another North Korean missile test, markets thus far this week have opened in the positive territory.
I am seeing a wall of green across major indices, buoyed by firmer oil prices, up over 2.5% after last week’s weak close, while the DAX and FTSE are trading at all-time record highs so markets are showing little fear to welcome in the week.
Once again we are relatively light on data to start the week so broader risk sentiment will likely be the key driver, however there are some major releases from across key regions for us to dig our teeth into this week. Top of my agenda will be UK data and while the BOE may have disappointed markets last week with a less hawkish than expected policy statement, the meat on the bones will be in this week’s CPI report expected tomorrow, while Wednesday will have labour market data and the all-important wage growth figures.
Headline inflation is expected to rise from 2.3% up to 2.6% with the core reading rising to 2.3% from 1.8%. However, average weekly earnings are expected to have only grown 2.4%, meaning negative real earnings for UK workers. This may well create some concern for the BOE and thus support GBP, however given last week’s statement the bigger picture is negative for the UK economy. EURGBP finds upside resistance around .8488 and further resistance above .8500 which should attract Euro sellers and keep downside pressure on EURGBP.
There is plenty of support levels all the way down but .8405, .8373 and .8315 are major levels of interest. GBPUSD maintains its narrow range for now, and rally towards 1.3000 continues to run into sellers, while 1.2845 offers light downside support, with 1.2770 then key below that. We really need to see a break either side of that range to hope for a fixed trend direction.
Between the Eurozone and the US our attention this week will likely be focused more on key speakers than the actual data. The ECB’s Praet speaks today, Nowotny and Coeure cross the wires tomorrow evening, with Mersch speaking twice on Thursday and Draghi up Friday.
Thus far the ECB have not given much indication on a taper, saying in their last meeting that it had not been discussed yet it is something the market is keen to hear about thus any discussion or comments on policy that suggest the ECB will look to taper purchases before the program is due to end in December will be supportive of the Euro.
We have a similar run of Fed speakers as well this week and markets will be keen to see if June will be supported as the next meeting for rate hikes. Like previous meetings for this to happen we feel we need to see all Fed speakers taking a hawkish stance, and indication of hesitation from FOMC members, or signs that data is not yet supportive of additional hikes will result in USD selling. EURUSD support holds towards 1.0830/50 area, while resistance at 1.0955 and 1.1026 should see some sellers emerge.