The USD managed to maintain an even keel and even rally in spots despite Friday’s somewhat soft jobs report (though there were loud protests from the sidelines on mysterious statistical adjustments to April’s headline nonfarm payrolls number...).
There was speculation on the earnings front as well, with some noting that the ECI numbers suggest we are now seeing the strongest rise in earnings since the crisis over the last couple of months, even as the more widely followed Average Hourly Earnings data point was slightly softer than expected and suggests more modest wage rises.
The kiwi was slammed lower overnight as credit card spending numbers saw a surprise contraction in April and NZ rates dropped to a new low for the cycle overnight.
China’s central bank cut the main lending rate 25 basis points, suggesting continued worries on economic weakness in China, though the bank explicitly ruled out quantitative easing for now.
Today’s chief focus is on Greece as we watch for announcements after today’s EuroGroup meeting. We are clearly nearing a critical breaking point of one kind or another for Greece – the European Central Bank will soon tighten the screws on the terms of its ELA support and Greece is running out of cash – so within weeks, we are looking at “deal or no-deal”, or default or no default.
Calendar-wise, this is a very busy week for sterling after last week’s shock election victory for the Conservatives. GBPUSD looks overextended to the upside if we have a look at interest rate spreads, but signals from the Bank of England at Wednesday’s BoE inflation Report and other releases this week (manufacturing output tomorrow and earnings and employment numbers also on Wednesday) could drive the action either way (but needing far strong upside surprises if we’re to believe GBPUSD is to head higher rather than push back deep into the recent range).
As for EURGBP, barring ugly surprises this week from the UK or particularly strong objections from the BoE on sterling’s recent strength, the EURGBP selloff may continue to pressure the action toward the cycle lows and on to 0.7000.
Chart: GBPUSD
GBPUSD could be set for a volatile week as we continue to feel the reverberations of last week’s Conservative election victory and now look forward to a busy week for UK event risks – especially the Wednesday BoE Inflation Report.
GBPUSD looks overdone to the upside relative to recent developments in interest rate spreads, but technically, we need to see the pair pushing back below perhaps 1.5250 to suggest that the rally is over.
The G-10 rundown
USD: Doing well despite the generally soft jobs report on Friday, though we’ll need to see follow up action this week to believe in any ambition from the greenback beyond simple range-trading.
EUR: Watching today’s EuroGroup meeting for developments. EURUSD took out one of its key local supports that raise the odds we have seen the highs for the cycle, though to confirm that we are back to the structural weak euro trade we need to see EURUSD back through 1.1000.
JPY: All is quiet here, but we’ve yet to see exchange rates remain in a range “forever” – the focus is on the 120.50-121.50 zone in USDJPY for a potential break higher.
GBP: A big week last week and plenty of event risks this week – particularly on Wednesday, as we have the earnings/employment data and the Bank of England inflation report. EURGBP looks set to fall further after last week’s enormous reversal, while the GBPUSD rally may have been too ambitious.
CHF: The Swiss National Bank’s Jordan is out Friday, stepping up the rhetoric on intervention potential and the fact that the market responded as strongly as it did may suggest softness on conviction on the safe haven status of CHF (though equity markets storming back higher on Friday certainly helped CHF weaken as well).
AUD: AUDUSD stuck in a nervous range as bears don’t have a case until below 0.7800, while the bulls don’t until above 0.8000. The downside is the greater risk in the long term, but the tactical situation is far from clear with several elements supporting AUD (iron ore, copper prices and the market’s assessment of the RBA forward guidance) while the immediate USD outlook remains murky.
CAD: Mired in the 1.20-1.22 area until we see a break. Upside is preferred, but timing is the question.
NZD: Suffered an ugly selloff overnight on weak credit card sales and another strong rally in AUDNZD as New Zealand rates have plunged in anticipation of imminent rate cuts at coming meetings. Watching for whether we stay below 0.7400/50 in NZDUSD for a full test of the sub-.7200 lows. More room to the upside in AUDNZD as well, judging from interest rate spreads.
SEK: Watching whether we see follow up through the challenge of the range support near 9.22, which opens the path toward 9.00, as well as opening the path for more QE from the Riksbank, which won’t be happy with these developments.
NOK: Rates at the front end of Norway’s yield curve look too high if oil remains in defensive mode here. Watching today’s CPI release and market reaction as a minor sentiment test for the currency. Generally see downside risks for NOK for now.
Economic Data Highlights
- China PBOC lowered 1-year lending rate 25 bps to 5.1%
- New Zealand Apr. Retail Card Spending fell -0.7% MoM vs. +0.5% expected.
- Australia Apr. NAB Business Conditions/Confidence out at 4/3 vs. 6/3, respectively in March.
Upcoming Economic Calendar Highlights (all times GMT)
- Norway Apr. CPI (0800)
- UK Bank of England rate announcement (1100)
- UK Apr. BRC Sales Like-for-like (2301)