Thursday, April 18, 2019

UK and US retail sales data may prompt some short-term price action today

Tags
  • Dollar
  • Gold
  • Yen
  • Euro
  • Pound
  • Stocks
  • Oil

MORNING BRIEFING

Limited volatility and tight trading ranges remain the key themes in the global markets for yet another day. The VIX index hits a 5-year low as the lack of any major geopolitical or financial catalysts keeps investors on the sidelines. Fresh data from China continues to print in a positive fashion but high beta currencies and equities fail to capitalize on the good news. So what could force some price action just a couple of days ahead of Easter? There's a host of reports pending for release today, some of them quite important indeed, so it will be interesting to see whether traders will be bothered to make a play.

The German and Eurozone manufacturing and services PMIs due to be released this morning may provide some stimulus to the markets, especially to the Euro. The shared currency oscillates around the 1.13 figure for the past few days and even though the EZ trade data released yesterday printed strong, the bulls were not able to push prices higher. The continued rejection of the 1.13 mark does suggest a downwards bias among traders so today's data will be closely monitored: a robust printing will offer the bulls another chance to propel the Euro above the 1.1330 resistance but we see limited chances of prices going further with the 1.1350 area capping any potential gains. On the other hand, a bearish set of figures will prompt some profit-taking ahead of the Easter holiday and the 1.1250 area may come into focus.

Meanwhile, the Dollar saw a mild pickup in demand yesterday after the 10-year Treasury yields moved above the 2.6% mark but the rally fizzled quite quickly afterwards. This morning yields are pushing a bit lower but the key intra-day catalyst will be the release of the US retail sales report. Economists are predicting a strong rebound in consumer spending last month, after the disappointing February reading, but this also poses a risk: if the report misses its mark and prints close to the 0% threshold then the Dollar will proceed lower, especially against the Yen, with the 111 level looking attractive. On the flip side, a positive reading around the 0.8% expected level will provide some fresh momentum to the greenback and the 112.50 area may be the next target.

Sterling should see its own piece of price action today in light of the UK retail sales report, also pending for release. In contrast to the bullish US retail sales' expectations, the British report is predicted to come in on the softer side. Brexit uncertainty during the past month, as the UK was scrambling to get an extension from the EU, should be reflected on the consumer spending figures. The Pound is trading with a bearish bias over the past 72 hours and a bearish reading today should keep the currency under pressure and en route to the 1.2980 - 1.30 area.

Gold continues to suffer from the subdued volatility and the optimism surrounding the US-China trade talks that seem to be entering their endgame stage. Recent news suggests that the two sides has agreed on two more rounds of talks and it seems that a deal could be signed as early as next month. Given these signs of progress the yellow metal is seeing reduced risk-off flows and, barring a surprising twist in the Sino-US talks, prices may continue trending towards the $1,267 area. Oil is trading sideways, staying above the $63 support, which is indicative of the underlying demand; a break above $65 will be needed though for more gains to be triggered, with the next area of interest found around the $66 mark.

Global stocks ended the day with marginal gains yesterday as the US markets closed almost flat while Europe was slightly above water, with the EuroStoxx 50 gaining 0.41%. The main catalyst here remains the progress in the US-China talks and the lack of any bearish surprises on the quarterly earnings' front. This morning though equity futures in Europe and the US are pointing lower so we may see some profit-taking ahead of Easter holiday. However, one thing to keep an eye out for is the US retail sales report: equities have been struggling to rally further in recent sessions so an unpleasant surprise on the consumer spending data may prompt a sell-off today as investors would seek refuge - and peace of mind - during the holiday season.

MARKET EVENTS TO WATCH

  • Eurozone Manufacturing PMI - 12pm
  • Eurozone Services PMI - 12pm
  • UK Retail Sales - 12.30pm
  • US Retail Sales - 4.30pm

All times are GMT +4.

Written by Konstantinos Anthis, Head of Research

 
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