U.S. Data Inconsistencies And Post-UK Election Sentiment

After many months of consistent strengthening of the dollar, it finally seems set to for a halt. Judging from recent economic data and the technical outlook of the USD against most of its major counterparts, the currency may well be set for a decline. The tables seem to be turning as the sterling on the other hand has found some renewed strength. It looks like there is more potential to the top side for the GBP/USD, technically and fundamentally.

UK elections
Fundamentally, the sterling is likely to add further strength, at least in the short term. Due to the victory of the David Cameron's conservative party, the fog is cleared and the long wait is over, which resulted in a sharp rise in the pound. The result was somewhat of a surprise considering that all polls before the election pointed towards a tight race and potential political instability. Cameron has promised the UK citizens of a referendum as regards the EU exit, this is the next event to potentially create political instability in the long run. For now, attention will revert back to regular economic indicators and data. Top of the list will be the upcoming Bank of England Quarterly Inflation Report. Although, rates are not expected to be hiked anytime soon, we will still be watching for the tone. A hawkish tone would add further momentum to the strength of the pound.

US data inconsistency
The Non farm payroll report came as a relief. The extremely weak employment data for March which was revised further down to 85k may have actually been due to bad weather. The April job data came at 223k, close to forecast of 228k. Unemployment rate fell further to 5.4%, a notch closer to the NAIRU. On the other hand, wage growth has also been showing increase, but not at the same pace as expected considering the 5.4% unemployment rate. The trade balance for the month also increased to -51.4B from -35.9B. This represents the highest level of deficit in over six years, thanks to a record increase in imports as commercial activity resumed at West Coast ports after a resolution to labor disputes. The rebound of the job data will no doubt restore some confidence in the economy by the Feds, but they will likely need further confirmation considering weakness in some other sectors of the economy.

THE WEEK AHEAD
The week is packed with important meetings and statements like the Eurogroup meetings, Bank of England Official Bank Rate, New Zealand’s RBNZ Gov Wheeler speaks, alongside many other fundamental data releases.

Monday, May 11- We start off with news that may likely affect the outcome of the Euro and GBP for the entire week. With the Eurogroup Meetings, Greece comes back into headlines as the nations is yet to reach an agreement with its European counterparts. Haven changed its team, the nation has dropped Yanis Varoufakis as its lead negotiator. Maybe this could influence an agreement. From the UK, the official bank rate is expected to remain at 0.5% and the Asset Purchase Facility is also expected to hold at 375B. However, it will be important to pay attention to the tone during the MPC Rate Statement.

Tuesday, May 12- We have Reserve bank of New Zealand's Financial Stability Report. The economy of the country seems sound at the moment. Recent data shows unemployment rate at 5.4%, close to full employment and employment change came positive at 0.8%. A confirmation of the economic momentum could send the NZD higher. We also have the UK's Manufacturing Production m/m and Australia's Annual Budget Release.

Wednesday, May 13- This is a heavy day for economic data release. From Europe, we have German Prelim GDP q/q as well as the French Prelim Non-Farm Payrolls q/q and the Italian Prelim GDP q/q. We also have the ECB Monetary Policy Meeting Accounts. From the UK, Average Earnings Index 3m/y, Claimant Count Change and most importantly is BOE Inflation Report as Gov. Carney speaks. And from the US, we have the Core Retail Sales m/m and the Retail Sales m/m.

Thursday, May 14- Its a bank holiday in the European region as they celebrate Ascension Day. US on the other hand will have the PPI and Unemployment claims report released. Following two weeks of impressive results, which was actually reflected in the NFP. We watch to see if data will continue to impress.

Friday, May 15- Canada's Manufacturing Sales m/m and US Prelim UoM Consumer Sentiment will also be released as the week comes to a close.