Market Drivers May 23, 2017
Europe and Asia
EUR: EZ PMI 56.8 vs. 56.6
EUR: IFO 114.6 vs. 113.1
GBP: UK PSNB 9.6B vs. 8.1B
North America
CAD: Wholesale Sales 8:30
USD: New Home Sales 10:00
The euro hit fresh yearly highs in morning European dealing today after better than expected PMI and IFO data fueled another round of buying in the currency. The Eurozone composite PMI came in at 56.8 versus 56.6 – well above the boom/bust line of 50 as the recovery in the region continues. The PMI readings were led by better French and German data which saw their results rise this month as well with only the German services report slightly missing its mark at 55.2 versus 55.5 eyed. The good news was confirmed by the German IFO readings as well which printed at 114.6 versus 113.1 forecast. Both inventory orders and exports were up suggesting that demand remains healthy with economists now projecting 0.6% Q2 growth in Germany.
The EUR/USD rose to a high of 1.1268 in the aftermath of the reports, but the pair ran into some sellers at that level and traded back to 1.1240's by mid morning session. The EUR/USD rally now stands at a critical junction with the pair facing a key technical resistance at the 1.1281 level left there from the massive reversal after the ECB press conference last November. The fundamental conditions have improved markedly since then and the pair looks ready to mount a fresh challenge on those highs as well the 1.1300 figure beyond them, but it may take a bit of consolidation before those targets are breached. Earlier in Asia trade, the markets were roiled by the horrible terrorist bombing at the Ariana Grande concert in Manchester UK where 19 people were killed and scores injured.
FX markets reacted predictably with USD/JPY selling off on the news, but overall the reaction was mild as traders saw little long term geopolitical damage from the news. Still, coming as it did, just two weeks ahead of the election, the news could prove to be concerning to the pound which struggled all night and remained below the 1.3000 figure. There is no confirmation yet as to whether this was a lone wolf attack or a planned terror event by ISIS and the risk remains that it may not be an isolated incident.
Although terrorism is an ever present threat both in Europe and North America, last night's attack was particularly vicious as it was targeting teenagers. If it is indeed a part of some coordinated new terrorist activity, it will weigh on UK at a very vulnerable time as the country begins to deal with Brexit negotiations. In short the relative weakness of cable could continue if the terror event adds another pressure point to the pound.
In North America today the market will get the release of New Home Sales data and a smattering of Fedspeak. Generally, the dollar remains weak as markets pare back their interest rate hike expectations to just 2 from 3 by the end of the year and traders see little positive progress in Washington DC. Although the anti-dollar move is getting extended, there is nothing on the horizon to change the current sentiment and the greenback should remain under pressure for the foreseeable future.