It’s the way you tell them, Mario
There were no significant Eurozone developments yesterday with the Euro vulnerable to a correction after strong gains, especially with position adjustment in evidence ahead of this afternoon’s European Central Bank (ECB) meeting. The Euro retreated to lows around 1.1510 against the Dollar overnight with some profit taking in evidence, especially given the substantial number of long, non-commercial Euro positions as Eurozone bond yields declined.
Markets will not be expecting any change to interest rates or the bond-purchase programme. The rhetoric used in adjusting forward guidance, dropping references to bond purchases increasing again, will be the focus. President Mario Draghi will choose his words extremely carefully after a robust reaction following his last press conference. The Euro is likely to surge if “tapering” of bond purchases is announced.
Sterling traded within the confines of 1.3000 and 1.3050 throughout yesterday’s European trading session. The Euro weakened slightly but found support near 1.1310 against the Pound. There were no significant UK developments yesterday with markets waiting for further economic and political evidence.
This morning’s UK retail sales data is expected to show a limited recovery after the sharp decline recorded for last month, but with expectations of an underlying slowdown.
The Brexit press conference between UK Brexit Secretary David Davis and EU chief negotiator Michel Barnier will be watched closely on Thursday, with a focus on underlying progress, transition arrangements, and the potential move towards an eventual trade deal. The ECB monetary policy is likely to have more impact on Sterling developments today with the potential for sharp moves against the Euro and a test of 1.3000 against the Dollar if the Euro comes under pressure.
The US housing data was stronger than expected with housing starts rising 8.3% to a three-month high for June of 1.22 million while building permits recorded a 7.4% increase for the month. The data should bolster confidence in the outlook for housing and the overall economy, although there was very little market reaction with markets still focussing on fiscal policy.
Data To Watch:
6:00am EUR Produce Price Index (YoY)(MoM)(Jun)
8:30am GBP Retail Sales ex-fuel (MoM)(YoY)(Jun), Retail Sales (YoY)(MoM)
11:45am EUR ECB Interest Rate Decision, ECB Deposit Rate Decision
12:30pm USD Continuing Jobless Claims (Jul), Initial Jobless Claims, Philadelphia Fed Manufacturing Survey (Jul)
12:30pm EUR ECB Monetary Policy Statement and Press Conference.