US upgrades GDP as Greek problem resurfaces
At the start of trading this morning, it looks like the Pound is on the up from the dismal lows seen last week before the UK bank holiday. The trigger to the decline was the latest Survation opinion poll that showed the Conservatives on 43% and Labour on 37%. It is worth noting that the Tories still hold a sizeable lead over Labour, and the change in their fortunes remains outside the margin of error (5%). Thus, unless the Tories suffer a catastrophic week, Theresa May probably won’t be calling in the movers in nine days’ time.
Although GBPUSD has fallen back to 1.2800, a drop of 68 pips from Monday’s high, key support should hold at 1.2776, the low from last week, since the Tories are still expected to win, even if these polls are giving the markets a scare.
There is no important economic data due in the UK today. Focus will remain on the UK political scene where uncertainty on the lead of the conservative party is negative for Sterling in the short-term.
All eyes were on Mario Draghi and his speech yesterday, with Greece being the central focus of conversation and the possibility of a default. Draghi’s statement seemed to suggest that the European Central Bank’s (ECB) view is that, although things are improving in the Eurozone, there is still some work to be done: “Eurozone growth may be improving but inflation remains subdued and still requires substantial stimulus”.
The ECB will not consider including Greek government bonds in its asset purchases program before a pending bailout review is concluded and creditors agree how to ease the country’s burden. Euclid Tsakalotos, the Greek finance minister, wasn’t sitting on the fence: “There are no excuses for not getting this overall deal that the Greek economy so desperately needs in its efforts to access the markets”. He also added that the Greek government had “done its part”, adding “the ball is very much on the side of our creditors and the IMF”.
Having bottomed at two-week troughs of 1.1122, the EURUSD pair has entered a phase of downside consolidations, with the bears gathering pace for the next move lower below the 1.1100 handle on the European opening bells.
In the US, sales of new and existing homes in April came in weaker than expected, but the upward revision to 1.2% in first quarter GDP provided some much-needed relief for the Dollar. Despite the recent soft patch in US data, the market still expects the Fed to raise interest rates in June, but those expectations may be revised if incoming data from the world’s largest economy deteriorates sharply in the next two and a half weeks.
In fact, the economic calendar is jam-packed with key data from both the Eurozone and the US next week. As a result, it should be a volatile week for the EURUSD pair.
Data to watch:
8:00am EUR CHF KOF Leading Indicator (May).
10:00am EUR Services Sentiment (May), Consumer Confidence (May), Business Climate (May), Economic Sentiment Indicator (May), Industrial Confidence (May).
1:00pm EUR GER Consumer Price Index (MoM) (YoY) (May), Harmonised Index of Consumer Prices (MoM) (YoY) (May).
1:30pm USD Personal Consumption Expenditures – Price Index (MoM) (YoY) (Apr), Personal Spending (Apr), Core Personal Consumption Expenditure – Price Index (MoM) (YoY) (Apr), Personal Income (MoM) (Apr).
2:00pm USD S&P/Case-Shiller Home Prices Indices (YoY) (Mar).
3:30pm USD Dalla Fed Manufacturing Business Index (May).