GBP In Focus On UK Data

Market Brief

The S&P 500 hit the fresh historical high of $1,902.17 in New York yesterday as US retail sales missed the market estimates. Higher conviction on longer period of cheap money boosted the risk sentiment in US after data showed flat-to-negative evolution in April: overall retail sales advanced by 0.1% (vs. 0.4% exp. & 1.1% last), stabilized at 0.00% ex-autos ((vs. 0.6% exp.), and contracted by -0.1% ex-autos and gas (vs. 0.5% exp.).

Little news followed in Asia. Japanese corporate good prices accelerated 2.8% m-o-m in April due to 3 ppt sales tax hike during the same month. JPY crosses traded in mixed fashion. USD/JPY failed to break above the 100-dma, eased on weak US data and remained ranged between 102.12/28 in Tokyo. Trend and momentum indicators remain flat. Importer bids trail above 101.50, option bids are supportive above 102.50. Light stops are eyed within 102.44/75 (daily Ichimoku cover). EUR/JPY tests the daily I-cloud base (140.01) on the downside. EUR-negative bias and flat JPY is likely to keep the pressures downwards before Thursday EZ data (GDP and CPI).

Crowded wires on ECB shake the EUR-crosses across the globe. EUR is subject to high event/verbal intervention risk as data and ECB officials’ views shape ECB expectations for the critical June 6th meeting. Italian 10-year government bonds fell below 3% for the first time. EUR/USD shortly traded down to 1.3689 and recovered above 1.3700. Resistance is eyed pre-100-dma (1.3741) on CPI fears in Thursday release. On the downside, light option bids are seen at 1.3700/25, more support is placed at 1.3673 (April low), then 1.3625 (200-dma).

In UK, we are heading into an event-full day: March unemployment figures and the Quarterly Inflation Report will broadly occupy headlines in London. GBP/USD retreated to May low levels (1.6819 in NY yesterday) and recovered above the 21-dma (1.6847) as Europe walked in this morning. We do not expect significant change in BoE economic forecasts, Carney is likely to show limited enthusiasm vis-à-vis the good UK recovery to stand behind his forward guidance. Nevertheless, any supportive news should boost GBP-bulls. Key resistance remains at 1.7000 (psychological level), before 1.7043 (five year high). EUR/GBP extends weakness to 0.81346 – lowest since January 2013, bearish momentum strengthens. Next key support stands at 0.80817/55 (January 2013 low).

Today’s key event is BoE’s Quarterly Inflation Report release (at 09:30 GMT). Traders watch German, French and Spanish April (Final) CPI m/m & y/y, Italian March General Government debt, UK April Jobless Claims Change and Claimant Count Rate, UK March ILO Unemployment rate (3-months) and Weekly Earnings (3-months average), Euro-Zone March Industrial Production m/m & y/y, Credit Suisse ZEW Survey on May Expectations in Switzerland, US April PPI m/m & y/y, Canadian April Teranet/National Bank m/m & y/y.