Market Drivers May 24, 2018
Europe and Asia
GBP: UK Retail Sales 1.5% vs. 0.1
North America
USD: Existing Home Sales 10:00
UK Retail Sales blew past forecasts printing at 1.6% vs. 0.8% eyed, lifting cable above the 1.3400 figure in morning London trade.
The news was strong across the board with prior month revised to 1.3% from 1.1% originally reported. Although the numbers were better than projected, they were somewhat skewed by a large rise in petrol price which rose 4.7% in April versus a 6.9% drop in March. The data suggests that the softness in Q1 may have indeed been exacerbated by bad weather and that UK consumer demand is returning to more normal levels as we approach the summer.
Overall, however, ONS cautioned that retail sales would remain subdued despite the bounce back, and growth over the longer-term has slowed considerably. Still, the move back to positive growth should encourage cable bulls who have suffered a vicious selloff over the past few months. After rebounding at the key long-term support of 1.3300 yesterday, sterling is pushing through the 1.3400 figure today as it tries to establish a tradable bottom. The pair has been grossly oversold and today was the first unambiguously positive economic report in weeks so some short covering is due. All eyes will be on tomorrow’s UK GDP report and as long the number meets the low expectations of 0.1% print the news may be good enough to push GBP/USD to 1.3500 by week’s end.
Meanwhile, in Asia, a burst of risk aversion news and soft FOMC minutes helped push USD/JPY to a low of 109.33 before the pair found buyers once again. The hemming and hawing of headlines regarding the possible delay of the US-North Korea summit along with Trump administration’s confirmation that it was considering tariffs on imported autos on national security grounds dampened risk sentiment in overnight trade.
Today the focus will be housing, with the market anticipating a pullback in existing home sales of 5.56M vs. 5.6M units the period prior. As long as data is within forecast USD/JPY should remain within current range, but a sharp miss on housing could spur concerns that a key sector of the US economy is rolling over and USD/JPY could quickly trade to 109.00 as the day proceeds.