EURUSD takes a breather, UK house price fell

Forex News and Events

EUR/USD at a turning point?

The week starts on a positive note with European equities broadly higher on the back of another USD sell-off last Friday. US data have proved disappointing for April as most indicator came in below expectation. Retail Sales printed flat (0.2%m/m consensus) and PPI were released at -0.4%m/m (0.1% expected) last week, dampening American’s mood with May’s Empire Manufacturing down at 3.09 verse 5 expected and Michigan Sentiment index down at 88.6 verse 95.9 consensus. The strong second-quarter rebound appears therefore more and more unlikely as the acceleration in economic growth predicted by the Federal Reserve continues to lag. The greenback felt the heat last week and was heavily sold-off, losing 2.72% against the single currency as 1 euro bought 1.1451 dollar. Despite printing a 3-month high last week, EUR/USD has proven to be unable to break the strong resistance area implied by February’s highs between 1.1450 and 1.1530 and is currently grinding lower

However, the recent dollar sell-off may have come to an end as we expect the US economy to bounce back into growth. Current levels are therefore attractive to start building a short EUR/USD position, keeping in mind that any surprise on the downside from the US economy could resume the current rally, for the short-term at least. On the medium-term, we remain dollar bulls and we expect traders to buy the greenback again as doubts gradually fade away.

UK Monthly House Price Index Fell (by Yann Quelenn)

One week has passed after the General Election. The Rightmove house prices MoM fell this morning for the first time since May 2010. The figure came in at -0.1% with a previous reading of +1.6%. On an annual basis, the index printed at 2.5% against a prior of 4.7%. We think that those numbers are due to concerns regarding election’s uncertainty that now hit the market. According to us, this would boost the British Economy. Last weeks, UK inflation report was significantly dovish suggesting that rate should rise gradually starting around mid-2016 (against the markets expectations for February rate hike). In addition, with the likelihood of the Conservative’s implementing election trail promises of spending cuts, BoE member will remain cautions to the pace of tightening to consider excessive spillover into growth. Evidence of housing prices slowing does allow the BoE more room to maneuver without having to worry about exploding asset bubbles. Tomorrow morning, markets will focus on the UK CPI. Expectations are of 0.4% with prior figure reading of 0.2%. If April report show deflation the sterling should come under significant selling pressure. The GBPUSD is now trading around 1.5716. Supports can be found at 1.5675 with a breach that will open the road to the 1.5635 level. On the other side, resistances can be found at 1.5785.