Week In FX Americas – US Sentiment Unchanged, Focus On ECB

  • UoM consumer sentiment little changed
  • Households anticipate lower incomes
  • Will retail spending be effected?
  • Market focus turns to the ECB

To sell in May and go away never really materialized for capital markets. Even month-end volatility is a disappointment. Event risk focus now looks to the ECB for hope next week. Will Draghi and company following through aggressively enough to combat low inflation and lending issues? Capital markets needs them to, otherwise the remainder of Q2 will be laboriously unexciting, except for a month of World Cup football.

Draghi has dropped many hints about next weeks meeting and investors have not been adhering to one particular outcome just yet. Many expect the ECB is going to cut its policy interest rate and/or announce targeted liquidity measures, with a view to supporting bank lending. Other expects a mixture of the above with cuts to deposit rates and some money market liquidity measures. The problem for the EUR bear is that any or all may not be enough to weaken the single unit currency outright. All the recent open market talk seems to have set the “expectations bar extraordinary high” and whatever is finally announced next week may not be a big enough of a surprise to punish the EUR to weaker levels.

In the US, on Friday saw the final May reading of UoM consumer sentiment. Its headline was little changed from the preliminary reading (pushing to 81.9 from 81.8). Digging deeper, the current conditions index was revised down to 94.5 from 95.1, but the expectations index was revised up to 73.7 from 73.2. Despite the month-over-month decline, the headline average was similar to the first four-months of this year (81.7). This would suggest that consumers might be ignoring the weak Q1 economy. Nearly half of all households anticipated a decline in inflation adjusted incomes and living standards over the next 12-months. Will the softer print convince many to revise down their estimates for retail spending?

Expect geo-political and event risk to be dealt with within the confines of the already established tight trading ranges, at least until investors get a better understanding of what Draghi and company is all about on June 5th.

WEEK AHEAD

* ALL G7 Meeting
* AUD Reserve Bank of Australia Rate Decision
* EUR Euro-Zone Unemployment Rate
* EUR Euro-Zone Consumer Price Index
* AUD Gross Domestic Product
* EUR Euro-Zone Gross Domestic Product
* CAD Bank of Canada Rate Decision
* GBP Bank of England Rate Decision
* EUR European Central Bank Rate Decision
* CHF Consumer Price Index
* USD Change in Non-farm Payrolls
* CAD Unemployment Rate
* USD Unemployment Rate

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell