Risk supported by 6-months high oil prices – Inflation in focus today

While some markets in Europe were closed yesterday, global risk taking was on in equity markets. US markets closed about 1% higher and the US dollar sold off, less the JPY and the GBP was in demand ahead of the inflation data today, which is expected to be supportive for the Sterling following recent BoE statements. Fixed income sold off across the curve in the US and the EU as investors enjoying the constructive risk building. Commodity prices gained on the weaker USD and oil continued above $47 to 6-months highs on back of reports that demand is back.

Overnight, the positive mood spread to Asia, and the Aussie benefited reversed from recent offers following the RBA minutes. AUDUSD took out short term trend resistance with next area of interest around the 0.74-figure. In Japan, The Nikkei is approaching May highs at 16,811, with unwinding of JPY contributed to the positive mood on back of a better than expected May Industrial Production coming out at 3.8% vs. 3.6% expected. Price action in USDJPY and the Nikkei225 has been very similar except the fact that the currency pair is trading below the daily Ichimoku cloud. However, we could see stops being taken out at the May highs for both, triggering additional upside.

USDJPY and Nikkei Daily

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Today, focus in the EU session will be on the UK inflation data along with the EU Trade Balance. Equity markets have kicked off the session in plus with Europe up around 1%. EU March Trade Balance is expected to increase to 22.5B from 19B and the positive release of the Italian Trade Balance this morning could contribute positively to the overall Euro zone figure.

UK inflation data will be out at 1030CET, and expectations are for a slight drop in the overall inflation pressure – both in Consumer and Retail Price indices. There have been rumours in the market of upbeat inflation figures, but we could see a “buy rumour, sell fact in Cable, which should benefit the FTSE still being stuck in between the 50- to 100-day SMA.


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In the US, we have as string of figures, starting at 1430CET with the CPI and Housing Start figures. Headline CPI is expected to increase on back of energy while the Core CPI is expected to show more or less same pace as in March. April Housing Starts at 1430CET is expected to increase 2.9% on back of better weather in the West compared the surprise drop of 8.8% in March. US Industrial production is expected to increase 0.6% from a contraction in March of -0.3%. The increase is based on a prick-up in manufacturing and output increase in utilities production. EURUSD has been supported at the 50-day SMA and should US figures be better than expected, we could see renewed rate speculation, sending the US dollar on the bid once again. Should inflation be lower than expected and production figures positive, we are likely to see additional risk taking and a lower US dollar, so keep an eye on the figures and stay alert.

From the US, we also have a some monetary noise from Fed Presidents Lockhart, Williams and Kaplan, where any hints on the rate outlook should be noted carefully.


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