With the central bank meetings behind us investors will now try to translate the guidance received by the ECB and BoE to adjust their positions on the two majors. At the same time, fresh US data is pending for release today and after the disappointment seen in recent figures the stakes are high for the Dollar. Equities had a positive day in the US while Europe was mixed, however futures on both sides of the pond are indicating a bullish opening bell.
Starting with the Euro, Mario Draghi's press conference was a slight surprise yesterday as the head of the ECB was not as cautious as we expected and instead stroke a positive tone. Draghi spoke in a bullish manner about inflation and how wage growth is supporting price pressures, a comment that diverted attention away from the lower GDP forecasts. His remarks in combination with the miss in the US CPI report allowed the Euro to hit 1.17 but we believe that, besides traders' initial reaction to Draghi's remarks, little has changed in terms of fundamentals for the Single currency. As such, we're looking for the fresh data to be the catalyst for the Euro to extend its gains or retreat.
Today's US Retail Sales report will be key in sending the currency above 1.17 or force it to give up the ground it gained yesterday. Expectations are set for a decline in this month's consumer spending reading but we see room for another surprise in US data here, but this time to the upside. Strong wage growth in the US should have resulted in higher consumer spending and we think there's a substantial chance that today's printing will surprise higher. Should this happen, the Euro will come under pressure from a surging Dollar which will drive prices towards the 1.16 level; otherwise, the shared currency will trend towards the 1.18 area to confirm its break to the upside.
The Pound was also in play yesterday but the BoE meeting didn't provide the push traders were hoping for to drive Sterling much higher. Nothing unexpected came out of the meeting with the accompanying statement discussing how continued tightening is necessary but at a gradual pace with positive wage growth being the key driver behind inflation trending higher. Given that yesterday's meeting didn't change the status quo, Brexit remains the key catalyst here and even if we see a strong US Retail Sales report today we remain in favor of the Pound hitting 1.32 as more positive news will be coming in. Any pullback towards the 1.3050 area will likely be treated as a buying opportunity as the short-term bias points higher right now.
Gold hit $1,210 yesterday on the back of the miss in the US CPI reading but it quickly retreated to settle $5 lower. We think that today's US Retail Sales data will be an important catalyst for the yellow metal as it could seal Dollar's fate after the bearish PPI and CPI reports earlier in the week; another negative printing will drive prices towards $1,215. However, in case of a stronger reading - like we suspect it might be - Gold will again trend lower towards the $1,195 area. Oil proceeded lower yesterday but still remains in the green for the week and the bulls are hopeful that the sanctions against Iran will take their toll on prices; if Oil manages to hold above $68.50 then the next step should be a move towards the $70 area again.
Asian stocks are trading with strong gains this morning after a positive US session that saw all the major indices ending the day in the green. Encouraging news that Trump's administration seeks to start negotiating with China again to resolve their trade differences is helping investors' sentiment. Futures on both sides of the Atlantic are indicating a bullish opening bell that will take its cue from yesterday's positive session; both the FTSE 100 and the DAX will look to build on their gains to finally come off their recent lows.
MARKET EVENTS TO WATCH
- US Retail Sales - 4.30pm
- U. of Mich. Sentiment - 6pm
All times are GMT +4.
Written by Konstantinos Anthis, Head of Research