Stronger than expected spending in US boosts the greenback to end the week higher. Could the momentum carry on this week?
US Retail Sales rose 1.3% to the surprise of market consensus of -0.3%. Not only did it surprise on the upside, it is the biggest rise in Retail Sales since May 2010. The Core Retail Sales exceeded expectation too, rising 0.8% against consensus of 0.6%. One release of good data is quite unlikely to reverse the decision Fed will make in June. This week, a series of US data and FOMC meeting minutes could determine if the dollar strength will continue. Market is expecting improvement in all of the US data, including US inflation, Unemployment Claims and Philly Fed Manufacturing Index. In other words, any disappointment could erase the gains of last week.
The Yen continued its weakness at the start of last week. Japan Finance Minister Taro Aso said their government could intervene to stabilise foreign-exchange markets when the need arises. “Verbal intervention” is the most economical way to weaken one’s currency, however the impact may be short term. Market is likely to look forward to more easing to make longer-term decision.
Bank of England (BOE) Governor Mark Carney did not held back last Thursday; he gave his strongest warning against “Brexit”. He sees more pain than gain if UK exits European Union and one of the possible consequences could even be a technical recession. His statement drew support from the “Bremain” camp and criticism from the “Brexit” camp. This is a classical case of a political event having implications on the financial market and vice versa. BOE’s warning is likely to sway more votes towards the “Bremain” camp. In addition, the Monetary Policy Committee (MPC) cut their growth forecasts and mentioned inflation remains subdued.
This week, we will be seeing a broad range of data being released. UK inflation, employment and retail sales data. Australia monetary policy meeting minutes and employment figures. New Zealand Inflation expectations and GDT Price Index. US inflation, FOMC meeting minutes, Philly Fed Manufacturing Index. Canada manufacturing sales, inflation and retail sales. Last but not least, 2 days of G7 meeting towards the end of the week. The market will be pretty active and should present a fair amount of opportunities to traders.
Our Picks
USDJPY – Potential Breakouts. USDJPY is consolidating between 108.35 and 109.35 With the upcoming FOMC meeting minutes, there may be opportunities for breakout traders.
Dow Jones – Slightly bearish. If price breaks the support around 17,500 level, we expect it to head towards the 100-day moving average.
WTI Oil – Slightly Bearish. WTI has rose significantly since April. Inventories from non-OPEC countries are dropping, however, production in Middle East continues and demand remains weak. We expect a short-term downward correction.
Top News This Week
UK: CPI y/y. Tuesday 17th May, 4.30pm.
We expect figures to come in at 0.4% (previous figure was 0.5%).
US: Core CPI m/m. Tuesday 17th May, 8.30pm.
We expect figures to come in at 0.1% (previous figure was 0.1%).
Australia: Employment Change. Thursday 19th May, 9.30am.
We expect figures to come in at 8.5K (previous figure was 26.1K).
Fullerton Markets Research Team
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