Quite a few things to focus on today with several fresh reports pending from release from Europe, the UK and the United States. The price action during the past 24 hours has been rather muted as investors preferred to sit on the sidelines ahead of a host of fresh data. The Dollar edged slightly to the upside mainly against its European peers while safe haven instruments remained unchanged. Equities kicked off trading with marginal gains in Europe and the US, Gold was treading water around $1,415 but Oil dipped below $60.
Starting our overview with Sterling, the release of the UK employment figures today will divert traders’ attention away from the Prime Minister race between Johnson and Hunt and force them to take a look at the upcoming data. Despite the mess the Brexit process has been in throughout the year, the labor market in Britain continues to showcase a rather robust performance and today’s figures should confirm that. Economists expect job and wage growth to have picked up marginally last month while the unemployment rate probably remained steady.
Nevertheless, Sterling’s price action has been driven by politics and the Dollar’s performance during the past few months and we wouldn’t expect this to change today, regardless of how the data prints. Prices have fallen close to the 1.25 mark and we think that the US retail sales report, due to be released later in the day, will play a more significant role in dictating the direction forward. A set of positive US data will clear the path towards 1.2450 while a miss in consumer spending in the US will help Sterling recover towards 1.2570.
Elsewhere, the Euro will also be in play today with the ZEW Survey on the docket during the European session. Unlike the bullish expectations in regards to the UK employment figures, the German and Eurozone investor optimism survey conducted by the ZEW institute is predicted to indicate a bearish bias. Europe has been suffering by the global slowdown in growth and with the ECB also holding a dovish outlook for the economy, the data should probably come in softer. Albeit, similar to what we discussed for the Pound, the US retail sales figures will also play a role in Euro’s price action today. With a bearish bias already in place, a set of strong US figures may force the shared currency to revisit the 1.12 lows, while a weak US report could prompt prices to climb towards 1.13 but we’d be rather unsure on whether any gains could be sustained.
Clearly, the US retail sales will be the main event of the day and the way the report prints will affect not only the US currency but its peers as well, as we discussed above. According to analysts’ expectations, consumer spending probably improved marginally during the past month and consensus calls for a 0.1% month-on-month advance. Should this be the case, then the greenback will get a slight push to the upside, especially following the hotter than expected inflation figures last week, but we don’t think that this will be enough to delay the Fed from easing policy at the end of the month. Conversely, if retail sales miss - and potentially by a wide margin - the Dollar will dive as yet another slowdown signal will make a July cut almost a certainty and could also increase the odds for more rate reductions down the road.
For Gold, things haven’t changed at all over the past 24 hours with prices treading water around the $1,415 area. As we wrote yesterday “prices have formed a wedge pattern on the short-term charts and the breakout from this will show us the way forward. A move above the $1,425 mark clears the path for Gold to retest the $1,435-40 area, otherwise if the $1,405 support gives in we should see prices pulling back towards the $1,385 level”. In light of the US retail sales report pending for release later today, a breakout is certain and we will monitor the way the data prints in order to define its direction.
Finally, equities started the week on a positive note with Europe and the US advancing by around 0.10% on average. There was little to drive the price action in stocks yesterday but today is an important day for equity traders. The US retail sales report will be a good bellwether of the consumer’s health in the States which, in combination with the Q2 earnings’ releases, should shed plenty of light on how the economy fares. Futures are trading flat at this time and we should be in for a muted opening bell until traders get their hands on some fresh data to guide them forward.
MARKET EVENTS TO WATCH
- UK Unemployment Rate - 12.30pm
- UK Average Weekly Earnings - 12.30pm
- Eurozone ZEW Survey - 1pm
- US Retail Sales - 4.30pm
All times are GMT +4.
Written by Konstantinos Anthis, Head of Research