Sticky wicket for US data, UK retail sales due

• Disappointing US durable goods orders loosen dollar's grip

• Japanese yen gains on Saudi military action, overall risk

• UK retail sales to gain on deflation help for consumers

• US initial jobless claims to add only 290,000 claims last week

Getting up early this morning to watch the cricket, I realised the similarities between the currency markets and the game. The batsman is the investor, the home buyer, the corporate that wants to hedge its exposure with the wider market of economic data. The central banks as the fearsome bowling line-up and a minefield of a pitch respectively.

The first few overs of this year were relatively simple with the USD leading the charge under a banner of higher interest rates by this summer but the change of bowling that Janet Yellen represented has got market participants tucked up and praying for a drinks break.

Bad US data starting to outweigh the good

Recently, the view of the US economy has changed from one that is solidly bringing jobs increases and powering the world economy on as well. Unfortunately some other parts of the economy have started to creak, with yesterday’s durable goods orders only the latest. Durable goods are important as they represent longer term orders of important capital and infrastructure. These goods are not easily replaces and represent investment.

A decline of 0.4% for orders excluding transportation, was the fourth month of declines and shows a 4.4% fall in the past five months taking into account recent revisions. This continued disappointment speaks to a wider concern that not only is tomorrow’s final Q4 GDP revision likely to be weak, but Q1 is likely to be even weaker.

Some of this weakness is likely as a result of the inclement weather that the Eastern seaboard of the US has had to deal with since the turn of the year while there is also the chance that the strength and resilience of the US dollar has made US sourced machinery and capital too expensive for export markets.

We will wait on tomorrow’s GDP reports to see just what the damage has been.

Yen stronger on Middle East concerns

Saudi Arabian military actions against Yemeni rebels within Yemen has seen oil markets maintain their recent volatility and the safe haven currency of the yen gain overnight. Yen has had a strong 2015 as it has picked up support from investors that are keen to protect themselves against the negative pressures of the Ukrainian crisis, the Swiss National Bank’s floor collapse or the slowing of the Chinese economy.

The other side of this coin is the commodity currencies of CAD, AUD, NZD and ZAR which have remained weak within this environment. Bets that the central banks of these currencies will once again have to use their monetary policy tools to weaken their currency are increasing. The market is now predicting a 70% probability that the Reserve Bank of Australia will cut rates by 25bps at its April 7th meeting for example.

UK retail sales due to rise

We said earlier in the week that if there was one announcement this week that was likely to weaken sterling, it would be Tuesday’s CPI announcement. It did indeed take the pound lower. We are looking for today’s view of UK retail sales to drive the pound higher however. As much as deflation gives us economists cause for concern, the deflation of what consumers need and what consumers want is a positive for retail in my eyes. Nobody in the UK benefits from spending more on petrol because of high oil prices nor having to pay more at the supermarket because grain prices are high. Deflation in what people need to buy helps those people use additional funds as they see fit. With this in mind I am looking for sterling to rally after a strong retail sales announcement this morning at 09.30.

Elsewhere today we have US initial jobless claims that should continue to support the USD with a figure of less than 300,000.

Have a great day.