Market Drivers April 28, 2017
Europe and Asia
UK: GDP 2.1 vs. 1.9%
EUR: CPI 1.9% vs. 1.8%
North America
USD: GDP 8:30
Euro and cable bolted higher in early European trade today with the later making 7-month highs as UK GDP came in slightly better on a year over year basis and the market focused on the key 1.3000 resistance level that has not been seen in months. UK GDP printed at 2.1% versus 1.9% eyed but only 0.3% versus 0.4% forecast on a quarterly basis. The first quarter growth was hampered by poor retail spending in UK but the market shrugged off the mixed results and continued to push cable higher.
At this point, the trade in cable is purely momentum driven. The market is basically making a bet that the hard Brexit terms upon which UK appears to be headed will not be nearly as damaging as originally thought. Such optimism may be premature but for now, sentiment reigns supreme and cable longs are eyeing the key 1.3000 level which hasn't traded for months.
In Europe, the euro received a pleasant surprise from the EZ core CPI data which rose 1.9% versus 1.8% eyed. Although the rise was modest it proved to be a major catalyst for a euro rally as the pair spiked 40 points in the aftermath of the release. The news was taken with gusto by the market because it minimizes the possibility of any additional QE by the ECB.
The ECB has been arguing that inflation pressure remains subdued, requiring perhaps, some additional monetary stimulus, but latest data shows that headline inflation has picked up 11 out of past 12 months and now core readings are inching higher, albeit modestly. That has turned sentiment towards the euro and the pair count mount a move to the 1.1000 level as the day proceeds. In North America today, the market is eyeing US GDP readings for Q1 which are expected to come in lower that the period prior.
The market anticipates a reading of 1.2% versus 2.1% but the real focus will be on consumer spending component. The call is for a very tepid 0.9% rise versus 3.5% the quarter prior. If the consumer is indeed that weak, the prospect of a Fed rate hike diminishes greatly and USD/JPY could take a tumble below the 111.00 figure as the week comes to a close.