Will UK GDP take the GBP to 2016 highs?
Risk taking was decent on Wednesday in both the EU and the US, on back of positive German IFO figures as well as a rise in oil prices, which recently has proved to trigger positive equity markets. Energy and Basic Materials led the gains with Transocean (+9.65%) and Chesapeake Energy (+7.41%) leading the S&P500. The FTSE100 broke out from the recent range between the 50- and 100 daily SMAs and has so far sustained above with next resistance at 6320-area on back of polls indicating that the implied probability for a BREXIT has decreased significantly.
Asia followed through with the Nikkei breaking above the 61.8% Fibo retracement in recent wave and adding distance from the daily Ichimoku cloud. Overnight, we saw the Japanese May Reuters Tankan Index dropping to 2 from 10 in April and a drop in foreign bonds buying to 684B from 1122.7B. Australia Economic Forecasts were raised a tad, which also influenced the ASX200 positively along with the Aussie.
In FX markets, the US Dollar lost ground yesterday and overnight, while the GBP and CAD were the top performers. The CAD has been sent on the bid by the increase in oil prices, but indeed also supported by a more hawkish than expected Bank of Canada, which left interest rates unchanged at 0.5% yesterday as expected. The BoC sees balanced inflation and a decent growth, which has been led by exports. USDCAD has broken back below the trendline projected from 2016 lows and testing support at 61.8% Fibo in the wave from May 2015 – 2016 highs, eyeing the 50-day SMA below at 1.2917-area.
Cable took a massive move on Tuesday which was sustained on Wednesday on back of positive speculation related to the BREXIT referendum. Today, we have the preliminary Q1 UK GDP at 1030CET, where consensus QoQ/YoY is at 0.4%/2.1%. Should the figures come out in positive, Cable has scope for a test of the 2016 highs at 1.4770. However, should the figure fall short of expectations, we could see a decent correction lower, given the somewhat short term overbought GBP.
From the US, we have the Durable Goods Orders for April at 1430CET along with the weekly claims. Durables are expected to show decent gains on back of an increase in aircraft and motor vehicle demand. At 16CET, the Pending Home Sales for April are released. Given the very impressive increase in the New Home Sales earlier in the week, we anticipate the markets to expect a bullish figure, which could lead to a “buy rumour – sell fact” scenario for the US Dollar. From the Fed, we have two speakers, Bullard and Powell, where focus should be tuned towards FOMC Member Powell, who speaks in Washington at 1800CET. The focus will be on the economic path of the US economy and we will be looking for any hints on his take on the next rate US rate hike.
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