US inflation plateaus
The US Dollar fell sharply on Friday after data showed that the consumer price index rose 0.2% on a month over month basis in April. This was a modest improvement following the 0.3% decline in March. Economists polled were expecting inflation to rise 0.3% instead. Retail sales numbers were also soft, rising 0.4%, less than the forecasts of 0.6% increase. March’s retail sales numbers were revised from -0.2% to 0.1%.
Later today, the New York Federal Reserve’s (Fed) Empire State Manufacturing index is coming up with economists expecting the manufacturing activity in the New York area to rise to 7.2 after slipping to 5.2 the month before. Manufacturing activity in the New York area has been weakening for the past two consecutive months.
Sterling found support close to 1.2850 against the Dollar on Friday and rallied after US data disappointed, but it failed to break the 1.2900 mark until this morning. Doubts surrounding the US outlook provided some Sterling support, especially with the currency still seen as undervalued on a medium-term basis. The European Central Bank (ECB) resistance to a shift in forward guidance also helped lessen the potential of any Euro gains. The Euro failed to break resistance at 1.1765 against the Pound on Friday before opening at 1.1812 today.
The latest Commodity Futures Trading Commission (CFTC) data recorded a sharp decline in short, non-commercial Sterling positions; the lowest level since late June 2016. The sharp decline in shorts will lessen the potential for a further position squeeze and lessen the potential for further UK currency gains.
Political developments will be monitored closely with the French stance on Brexit talks watched closely following the swearing in of President Macron.
Reports appeared in the German media last Friday claiming that the ECB is planning to withdraw from its ’extremely expansionary’ monetary policy. The reports claimed July would see the start of signalling downside risks have diminished and inflation is heading towards target. Key ECB officials are still resisting any shift in forward guidance, limiting the impact of these reports.
The latest CFTC data recorded the first net long Euro position since May 2014. The positioning shift will lessen the potential for further short-term Euro gains unless there is a sharp decline in Dollar confidence as the Euro held steady around 1.0930 at market open.
Data to Watch:
2:30am AUD Home Loans (Mar), Investment Lending for Homes (Mar). 3:00am CNY Retail Sales (YoY) (Apr), Industrial Production (YoY) (Apr). 3:00pm USD NAHB Housing Market Index (May).