Europe and Asia
EUR: GE WPI 0.0% vs. 0.4%
It was a slow start of week’s trade in the FX market with majors making only minor moves in absence of any significant news flow. The bombing of Syrian targets proved to be a non-event as traders took it to be a one off affair with US unlikely to commit more resources to the region for the time being.
Instead, FX traders went back to looking at economic data with the dollar notably weaker ahead of the US Retail Sales report due at 12:30 GMT. Friday’s U of M Consumer sentiment survey preliminary reading plunged from multi-year highs of 101 back to 97 suggesting that the tax cuts are having zero positive impact on spending or sentiment.
The US consumer remains the lynching of the US growth/Fed tightening thesis and if consumption suddenly stalls the market will have to rethink its hawkish assumptions about Fed policy. Core Retail Sales have missed their forecast for the past two months with overall headline data showing month over month contraction since the start of the year. That’s hardly a sign of healthy consumers buoyed by low unemployment rates and lower tax burdens and could signal a more serious macro demand problem ahead.
Today’s retail sales data is shaping up to be a key data point for the market. A third straight monthly miss could quickly sour sentiment and send the dollar lower still. For now, USD/JPY is holding above the 107.00 level while EUR/USD remains below 1.2400, but both pairs could move in the aftermath of the release, with cable, which is already showing signs of strength in early London dealing, exploding to the 1.4400 post Brexit high if US data disappoints.
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