Pound may be down, but Super Thursday awaits
In light of an empty economic data docket and a dearth of domestic developments, Sterling struggled throughout Friday, with a hangover created by EU Chief negotiator Barnier, effectively rejecting UK trade proposals on Thursday afternoon. The Pound also struggled under the weight of commercial month-end positioning and dipped to test 1.3100 against the Dollar. The Euro also recovered ground to trade around the 1.1235 area.
Commodity Futures Trading Commission (CFTC) data recorded a further increase in short, non-commercial Sterling positions to fresh 10-month highs, maintaining the potential for short liquidation (rapid Pound buying to close positions) if sentiment improves. Although there are expectations of a Bank of England interest rate increase this week, the market expects a cautious accompanying statement to limit.
Month-end position adjustment will also be a significant short-term focus as Sterling held just above 1.3100 against the Dollar this morning, amid reports that the government had made concessions on jurisdiction of the European Court of Justice.
The much-awaited US real GDP reading increased at an annual rate of 4.1% in Q2 in the three-month period between April and June. The increase was supported by strong personal consumption (PCI) expenditures and accelerations in exports. However, the greenback almost unexpectedly had a muted reaction to the data following the release of solid, yet unimpressive, GDP growth figures.
The GDP reading was the fastest growth recorded since 2014 and the earliest indicator of the performance of the economy after the tax reform white paper which was passed in December.
There is a now a concern whether the EU and the US will hammer out a deal that is acceptable to the US president. Trump is known for changing his mind quickly, especially when he is criticised by his fellow Republicans.
Across the pond today, we see June’s Pending Home Sales and the Dallas Fed manufacturing index.
The biggest news today is the German inflation data, which is coming at midday, but the general consensus is that they are unlikely to move. For the week, probably the most important news is in on Tuesday, with inflation data being released. This data normally has an effect on European Central Bank (ECB) policy making, so we can expect some volatility around this piece of data.
Last week was a rough week for the EUR, but this week is expected to be more positive with the currency set to gain on momentum built at the very end of last week. However, given the lack of news today and the narrow trading range during the Asian session, do not expect too much movement today.
One piece of interesting news to come out over the weekend was in Italian politics, with the leader of the Five Star Movement, Beppe Grillo, repeating his calls for an Italian referendum to leave the EU. Whilst those in mainstream Italian politics deny any such change in sentiment exists, they have their doubters.
Data to watch:
09:30 GBP Mortgage Approvals (Jun)
10:00 EUR Business Climate (Jul)
13:00 GER Harmonized Index of Consumer Prices (YoY) (Jul)
15:00 USD Pending Home Sales (MoM) (Jun)
00:01 GBP Gfk Consumer Confidence (Jul)
00:30 JPY Jobs/applicants ratio (Jun)
00:30 JPY Unemployment Rate (Jun)