Quiet Monday – busy week ahead
US Data (Retail Sales, Michigan sentiment) on Friday surprised to the upside and this has triggered rate speculation once more as we wrote in our update from last Friday, sending equities lower and the USD higher against most peers. The Euro zone economy took a hit on weaker than expected growth for Q1. Global equities have been heading lower and the MSCI World index printed its third day of losses on Friday. As risk was sent on the retreat, fixed income and gold was sent higher. Oil prices are continuing gradually on the bid and is currently testing the 47-area with next resistance around 48.30.
MSCI World Daily
Sunday, Chinese yearly April data came out short of expectations. The Industrial Production came out at 6.0% vs. 6.5% expected and the Retail Sales at 10.1% vs. 10.5% expected. Despite the disappointing figures, markets in Asia kept in positive with the Nikkei leading the advances on back of speculation that the planned hike on consumption tax is to be delayed. Technically the Nikkei has established a range between the daily Ichimoku-cloud and the 61.8% in recent wave, where we see a bias towards the downside, given the underlying fundamentals. Although we are expecting to see additional easing from the BoJ, the relief should only be short-lived.
Today, most of northern Europe is closed due to Whit Monday, so we do not expect a very volatile beginning of the week. From the US, we have the Empire Manufacturing data, expected at 6.5 vs. the positive surprise in April at 9.56. We also have the TIC flow at 21CET, expected to half since February. On the monetary side, FOMC member Kashkari will hit the wires at midnight, but no hints on the monetary policy outlook is expected.
Later in the week, we have some key data points, where we are likely to see a pickup in volatility. Major FX pairs are all below their 50-day average vols, which usually is an indication that something soon will trigger a larger move.
This week, UK inflation (Tue), unemployment (Wed) and retail sales (Thurs) will all gauge the momentum of the UK economy ahead of the Brexit referendum and we could see further downside on back of a slowdown of the manufacturing sector.
Japan could be entering a technical recession should their GDP data come out in negative for the third quarter in a row while the US data could confirm additional upside for the US economy in the housing sector, industrial production and inflation data. For EURUSD, the pair is currently supported by the 50-day MA, where a close below could open up for a test of 1.1270-area before 1.12-1.1220.
Have a nice day.
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