FX & market recap:
This week’s FX market risk rally took a breather overnight in a defensive move ahead of the ECB monetary policy meeting and press conference. Asia equity markets followed Wall Street’s lead but with a lot less enthusiasm. European bourses were not interested at all, and the major indexes and S&P futures are posting losses, at the time of writing. Oil prices are lower, and gold is a tad firmer.
Today’s focus is on the weekly jobless claims data (forecast 1.8 million compared to last week’s 2.12 million increase). The ECB press conference and Wall Street price action will determine US dollar direction.
Canadian dollar highlights:
USD/CAD consolidated inside yesterday’s 1.3482-1.3568 range with price action dictated by US dollar moves against the G-10 majors. Stephen Poloz’s term as Governor of the Bank of Canada ended with a whimper. His replacement Tiff Macklem attended yesterday’s policy meeting but as the policy statement noted: “he participated as an observer in Governing Council’s deliberations for this policy interest rate decision and endorses the rate decision and measures announced in this press release.”
The BoC left rates unchanged at 0.25%, and gave themselves a pat on the back noting “CPI inflation has decreased to near zero, as anticipated in the April MPR” and “The Bank’s programs to improve market function are having their intended effect.”
EUR/USD dropped from its overnight high of 1.1238 to 1.1196 in NY, despite Germany’s new fiscal package. Traders expect the ECB to follow with another bout of monetary stimulus, with a rise in PEPP, widely expected. The dip in EURUSD is merely a bit of caution in case Ms. Lagarde and company disappoint. Eurozone Retail Sales fell 11.7% in April, which was a tad better than the 15% drop expected.
British pound highlights:
GBP/USD dropped from 1.2576 at yesterday’s close to 1.2502 just before NY opened, in part because UK construction PMI was a weaker than forecast (actual 28.9 vs prediction 29.7) Prices have since bounced to 1.2535. Traders are ignoring the deteriorating UK/EU trade talks even after Wednesday’s Bank of England warning to “prepare for the worst".
Asia Pacific highlights:
USD/JPY is extending gains made after breaking through resistance at 108.10. It touched 109.15 just before NY opened, underpinned by expectations for a strong global economic rebound and higher US Treasury yields.