Market Drivers July 10, 2017
Europe and Asia
JPY: Machinery Orders -3.6% vs. 1.7%
CNY: CPI -0.2% vs. -0.1%
EUR: EZ Sentix 28.3 vs. 28.4
North America
No data
It's been a very quiet start of the week in currency market with most of the majors content to trade in narrow ranges as prices generally consolidated after Friday's US NFPs provided better than expected result in jobs and kept hopes of another 2017 Fed rate hike alive. USD/JPY pushed higher in London dealing hitting 114.30 before stalling at those levels. The market no doubt wants to hear Janet Yellen's semi-annual testimony in front of Congress this week before trying to run the pair through the key 115.00 level. Ms. Yellen has grown increasing hawkish this year and Friday's data is only likely to reaffirm her bias that the Fed should continue to tighten.
Given Ms. Yellen's preferences and the fact that CFTC positions show that dollar shorts remain at seven-week highs, the prospect of a dollar rally looks good this week with USD/JPY very likely testing the 115.00 within the next two days. However, the pair faces formidable long-term resistance above that level and any further upward move will likely need better US economic data than the market is currently seeing. Of key importance will be the Retail Sales number at the end of the week. If the US consumer doesn't show a pickup in spending, the dollar rally could quickly lose momentum. Elsewhere, cable remained on the back foot, as the harsh reality of Brexit is beginning to dawn on the market.
UK data was horrid last week with every single PMI report missing its mark. The week ended by showing that Industrial Production and Manufacturing Output slowed as well. The prospect of Brexit is forcing companies to reign in investment while inflation eats away at workers wages. This week UK employment data is due Wednesday and although the economy may see a bump in jobs, wage growth is supposed to decline further dropping below the 2% level against inflation that is running almost at 3%. That means UK workers will once again see negative real wages which could depress consumption even further.
Adding to the chaos is the absolute disarray in PM May's government as rumors of palace intrigue surround her with many of her Tory members seeking to oust her from leadership. According to the latest polls, Labor is up by 8% and Ms. May appears to have no consensus to move forward with her Brexit plans – all of which is likely to keep pressure on the pound and keep the currency as a relative weakling all week long.