US Retail Sales and UK wage growth on the docket today as Dollar rallies.
The Dollar rallies during the first 24 hours of trading on the back of higher Treasury yields but expectations for a mixed Retail Sales report might complicate things today. The US currency is currently clawing back some of the lost ground versus its peers with the Euro trending towards 1.19 and the Pound remaining below 1.36. Apart from the US retail sales, there’s a number of key data pending for release from the Eurozone and the UK today as well so we should be in for a very active day for the markets.
Starting with the greenback, the Retail Sales report will shed more light on how consumer spending fared last month. With inflation slowing down recently it is very important for investors and policymakers to see whether this weakness spread into other sectors of the economy as well. A potentially softer reading today will come at a time when the Dollar is trying to build up momentum and it will scare off investors keeping Dollar/Yen below 110. On the flip side, a positive reading will underpin the current rally driving prices towards the 111 mark so everything hinges on the way the fresh data will print.
At the same time, the British Pound has been able to remain afloat for the past few days amid difficult negotiations between PM May and her Parliament regarding the next steps of the Brexit process. However, Cable’s sideways action has to be attributed to Dollar’s weakness rather than any strength from the Pound and today’s employment data will make this crystal clear. The spotlight will fall primarily on wage growth and if expectations for a lower reading come true Sterling will threaten to break below 1.35 again, providing that Dollar’s strength persists.
Looking across the channel. the Euro is also under pressure from the re-surging Dollar and the combination of fresh data from the Eurozone – with the EZ GDP figures and the ZEW Survey pending for release – and Dollar’s price action will dictate whether we break below 1.19 once more. Given the uncertainty surrounding the Euro area’s financial performance the risk for the Single currency today is to the downside and a set of softer figures will weigh down on the Euro bringing the 1.1850 lows into focus again.
Equities in Asia are trading below water this morning following a mostly positive day for the US exchanges that closed in positive territory. Nevertheless, the European and US futures this morning are pointing towards a bearish opening bell: the surge in the US 10-year yields above the 3% mark again and comments from US Commerce Secretary Ross that the gap between US and China “remains wide” are dampening investors’ sentiment. It seems that after a few days of higher highs, it’s time for some consolidation for global equities which however doesn’t change the medium-term bullish bias in place.
MARKET EVENTS TO WATCH
- UK Average Weekly Earnings – 12.30pm
- Euro-Zone Gross Domestic Product – 1pm
- Euro-Zone ZEW Survey – 1pm
- US Retail Sales – 4.30pm
All times are GMT +4.