Rangy Markets on UK Holiday – more USD bids to come?
With UK Bank Holiday on Monday, markets were relatively rangy with the US Dollar stabilising against peers, less the JPY and risky assets continuing higher. US equity markets, closing 0.3-0.7% higher, were led by financials and the S&P50 managed to take home its fourth daily gain in a row. In Europe, Euro Stoxx 50 closed higher for the fifth day in a row, but has come off a bit in the Tuesday morning session. On the macro front, national EU CPIs came out more or less in line with expectations and EU sentiment indices came out with a bullish bias giving a slight relief to the Euro zone currency, which has overall been on the offer since April.
In the Asian session, Japanese stocks gapped higher on back of a solid Industrial Production for April and a pickup in Household Spending as well as a good print in the Housing Starts, pushing basic materials and utilities higher. In addition, the comments on postponing the Sales Tax hike 2 ½ years was received positively (PM Abe will be clarifying on June 1st.) The Nikkei took home around 1% and has broken free from the Ichimoku cloud on a daily basis and the JPY strengthening a tad. USDJPY is still struggling within the cloud on a daily basis, but is overall on its fifth week of recovery from the 2016 lows. A clear break of the cloud would give scope for a test of 111.90-area.
This morning, German Retail Sales came out disappointing on a monthly basis, and despite decent figures from the German labour market, the positive contribution to EUR bids was offset by an increase in the Italian unemployment rate. EURUSD has faded lower this morning and the DAX has been rejected at the 61.8% Fibo retracement in recent wave following a close above the trend resistance projected from Nov 2015 highs. Euro zone CPI, Employment at 11CET will be in focus, and these should be noted as they are the first release for May.
Cross the Atlantic, US PCE Price Index and Personal consumption figures will be interesting. Also note the US Consumer Confidence released a little later. Should the figures come out higher than expected, the markets are very likely to take it as another hint of a near term rate hike from the Fed and we should see additional bids building in the US Dollar.
USDCAD should also come in focus, as the Q1 GDP is released, expected to drop 0.1% on a monthly basis. The pair has in May been dancing around the 50-day SMA, currently acting as support, with a market bias for a move higher. The technical setup is constructive, but will change with a close back below the 50-day SMA.
Please see our Daily FX Toolbox for suppor and resistance levels:
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