Plenty of US data on tap

A quiet start to the week ahead as London off on Monday, but plenty of US data on tap. Other end of the week is the business end as US payrolls dominate. FOMC on Wednesday, but focus on June.

Weekly FX Wrap: A quiet start to the week ahead as London off on Monday, but plenty of US data on tap.  Other end of the week is the business end as US payrolls dominate.  FOMC on Wednesday, but focus on June.  USD finding some support, but is proving hard fought.  GBP at lofty levels, as UK growth slips.  CAD remains under the cosh.

Looking to the week ahead, we may be starting with a bank holiday on Monday in much of Europe and the UK, but we have some notable events over the weekend which could impact on some of the majors once Asia returns on Sunday.

EU ministers will again be meeting on the weekend to discuss the negotiating outlines and principles in the Brexit talks ahead, and while there is unlikely to be any major changes, with GBP at lofty levels – though still undervalued – the jitters may return if the media headlines report any reference to a ‘hard’ stance.

Cable has been the focal point, fighting against the USD flow to push through 1.2920 resistance, but running towards 1.3000 we can sense offers ahead and another tough obstacle to overcome.   Friday morning’s UK GDP print for Q1 2017 was a touch off expectations but enough to lift the year on year rate up to 2.1% from the previous quarter’s 1.9%.  Over Tuesday to Thursday, we get more forward looking data in the form of manufacturing, construction and the key services PMIs, but along with the backdrop of the 8 June general election, UK data may slip back down the ‘priority’ list!

Greater implications for EUR/GBP perhaps but calls for a wholesale turnaround towards 0.8200-.8000 may be a little premature in light of the extended GBP levels against the greenback, but now more so as the EU wide inflation data is picking up.  This week’s CPI read to within 0.1% of the 2.0% mark, and along with some of the positive economic developments in the single currency region highlighted at the ECB press conference this week, we can see why traders are now happy to give up on the downside – albeit for now. 

EUR/USD has tested 1.0950 a number of times this week but repelled on each occasion, but on the downside, buyers are coming in from 1.0850 to prompt a near term stale mate.  Against GBP, pre 0.8400 seems to be generating some demand accordingly, but plenty of selling interest into 0.8600 on way up.

PMIs also due out across the EU, with the midweek Q1 GDP release on Wednesday accompanied by the German employment report. 

It is much busier in the US however, and while London is away on Monday, we have the Mar personal income and spending data followed up by the ISM manufacturing PMIs. The focus will be on Friday however, when the Apr non farm payrolls report is due. After last month’s disappointing 89k reading, market forecasts remain closer to the average readings seen in recent months, with consensus looking for 180k.  This will be preceded by the private ADP jobs survey and ISM non manufacturing PMIs on Wednesday, but we have the FOMC meeting in the evening which has drawn little attention given the focus on a possible Fed move in June.  The odds of another 25bp hike have shifted up from 70% to 75% for June, so little focus this time around with no press conference to feed off either.

North of the border we saw Canadian GDP moderating to a flat reading for Feb after the surprise +0.6% seen the month before. Much of the weakness seen in CAD over recent sessions have come off the back of president Trump’s threat to withdraw from the NAFTA agreement, but relations with Mexico and Canada have been smoothed over since.  Negotiations are now back on the table, but the uncertainty may continue to weigh on MXN and the CAD, with Oil prices also having slipped to add to the near term pressure.

Traders continue to buy the dips in USD/CAD as a result, and having worked through much of the resistance area from 1.3600-75, the prospects for an eventual move on 1.4000 have been heightened.  We also have Canadian payrolls next Friday, but trade data on Wednesday will be followed up by the BoC’s Poloz speaking later in the day. 

In Australia, we have the RBA meeting on Tuesday, with the quarterly monetary policy statement on the Friday.  Despite the headline miss in inflation this week, few see any likelihood of the central bank changing their stance to any notable degree.  They may continue highlight household debt levels, but global risk concerns have eased somewhat given their recent verbiage. AUD/USD is now testing the lower end of the broader 0.7400-0.7700 range, and bears are finding it slow going. 

AUD/NZD bulls will also be frustrated with the lack of momentum, but will have been encouraged by a clear move NZD/USD below 0.6870.  Jobs data in NZ, with the latest GDT auction also due, but the latter has been drawn little or no response from the market of late.