North American markets open as the euro rate touches a 3-month high. Global markets continue to digest Wednesday’s economic data supporting stronger than expected first quarter growth, contrasted by very weak US retail sales for the month of April. Helping the euro’s rise is another lift in euro zone government bond yields that have, for the past few weeks, kept global equity markets within a tight range. Economic data has been very limited on Thursday and Greek headlines have pushed to the background for the most part. Various headlines have been circulating about a request for a push back on the deadline for July and August payments, but to this point nothing has been confirmed, nor has any impact been felt. This morning, US weekly jobless claims were released and at 10:30am EST, the Bank of Canada Review will be released.
Sterling remains this week’s big winner, now one week removed from last week’s Conservative election victory. The world had been expecting a hung parliament and continued political uncertainty, but David Cameron’s Conservatives have squashed that with their victory, pushing the pound up more than 4% since May 6th. Yesterday, the Bank of England released its Inflation Report, which had multitude of conclusions and projections. The Central Bank cut its 2015 growth forecast from 2.9% to 2.5% and stated the first rate rise is expected to take place somewhere around the second quarter of 2016. At the moment, the Bank does not forecast inflation to return to the important 2% level until sometime in 2017. Sterling remains a buy on dips.
The global sell-off in bonds, which began in earnest two weeks ago, seems to have stabilized for the moment. This latest move in the foreign exchange markets seems to be attributed to yesterday poor US retail sales figures. While many don’t think this is a pivotal moment in American monetary policy, it is another murky result for an economy whose central bank is finally lifting rates off the current 0% levels. Markets were expecting a modest increase over last month, but it appears more Americans cut back on spending, especially on big ticket items like cars. US weekly jobless claims fell 1,000 over last week with a strong result of 264k Americans filing first time unemployment claims. US producer prices fell 0.4% as well, showing inflation fears remain misguided.
The Canadian dollar is currently trading at its lowest level since mid-January. While the Canadian economic data calendar has been fairly limited of late, we do get a bit of insight this morning when the Bank of Canada review is released at 10:30am. Markets are expecting a fairly benign review, as the central bank is unlikely to raise the country’s inflation mark. The Bank of Canada reviews the target every five years, and despite near zero interest rates, Governor Stephen Poloz and his colleagues are not expected to be making any alterations to their current policy. The USD/CAD rate continues to edge lower, this week finding a bit more support amid the dismal US retail sales figures. The CAD is now trading 7.5% higher than its March lows, at the dollar’s expense.
Mostly second tier data closes out the week, with US April Industrial Production and U. of Michigan Consumer Sentiment headlining Friday’s releases. Foreign exchange markets will keep a keen eye on bond yields and Greek headlines to close out this week.
Further reading:
EUR/USD: An Early Warning Signal – Danske
USD Index Weakness Giving Bullish Support To EURUSD – Elliott Wave Analysis
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