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UK & EU Economics To Propel Market Volatility

While upbeat US NFP number helped the US Dollar to start last week on a positive note, better than consensus Retail Sales provided additional strength to the greenback index (I.USDX), which completed third consecutive weekly gain series. The EUR remained a bit weaker with no major progress in EU-UK talks and an attack in Nice dragging the regional currency down. The GBP registered first positive week in four after the BOE disappointed global markets by asking for some more time to analyze the economy and announce the rate-cut while Theresa May's positioning as PM shrugged-off recent political uncertainty in the Britain. The JPY kept weakening in the wake of expectations favoring mammoth asset purchase program by the Bank of Japan (BoJ) and the AUD held its gains with market players' run for high interest-bearing currencies. Further, the NZD dropped heavily after the RBNZ announced that it will release an unscheduled assessment of the economy next week, prompting investors to expect a rate-cut soon, while the CAD strengthened on strong Crude prices.

During the current week, which started with Japanese market holidays on Monday, there are few stats to analyze; however, UK & EU economic calendars have some important data-points/events that could continue fueling the market volatility. Amongst them, UK CPI, Job numbers and Retail Sales are the British details to help foresee GBP moves while monetary policy meeting of the ECB, EU & German Flash PMIs & ZEW Economic indices could help analyze the EUR direction. On the US front, headline housing market indicators and the Philly Fed Manufacturing Index are the scheduled details to observe while RBNZ's surprise economic statement, together with Canadian CPI & Retail Sales, are additional economics that should also be given proper deliberation.

UK CPI, Retail Sales & Job Numbers To Portray GBP Trend

Although BoE's inaction and the Theresa May's appointment as UK PM helped the GBP register its first weekly gain ever since the nation decided to leave EU, this week's inflation and job numbers, coupled with the Retail Sales, would become important to forecast near-term moves of the Great Britain Pound (GBP).

The first British release to fuel the market volatility, Inflation, is scheduled for release on Tuesday. The headline CPI (YoY) figure is likely to please the GBP traders with a three-month high print of 0.4% against 0.3% prior and the Core CPI is also likely to register advance of 1.3% versus 1.2% marked in June. On Wednesday, Job market details, namely the Average Earnings, Claimant Count Change and Unemployment Rate, are up for publishing. The employment numbers show mixed signals as Earnings are expected to rise by 2.3% from 2.0% prior growth while the Claimant Count is also likely to advance with 4.1K against -0.4K previous. Further, the Unemployment might remain unchanged at 5.0%. Moreover, Thursday's Retail Sales, which provides greater influence to the UK GDP, indicates a weaker signal as the sales growth is likely dipped with -0.4% compared to +0.9% prior.

Looking at the mixed consensus of scheduled top-tier stats, chances are higher that the BoE might not be capable enough to avoid an interest-rate hike in its August meeting, which in-turn indicates a weaker GBP.

However, a surprise improvement in Employment and Retail Sales could enable the central banker to keep postponing the first in a seven-year rate-cut, ultimately resulting into extension of GBP's recent northward trajectory.

At the political front, new leaders of the UK are trying hard to keep their EU entry-gate status and any positive outcome in that direction might provide additional strength to the Pound.

EUR Traders Should Observe ECB Details

Following the BoE's hesitation in altering monetary policy, market players would closely observe outcomes of Thursday's ECB meeting as the European Central Bank also announced to take necessary steps to safeguard the regional economy after Brexit result. Even as there are fewest chances that the ECB would alter its present monetary policy, considering the BoE's inaction, details on its future action would weigh higher as it is the first monetary policy meeting after the UK decided to leave EU.

Additionally, Tuesday's ZEW economic sentiment indices and Friday's Flash Manufacturing & Services PMIs from Germany & EU are likely second-tier events that would gain market attention. Looking at the consensus, both these data-points indicate weaker prints. ZEW indices for EU & Germany are expected to mark 12.3 & 8.2 against 20.2 & 19.2 prior respectively while the Flash Manufacturing PMI for the Union and its largest economy, Germany, might print 52.1 & 53.6 mark versus 52.8 & 54.5 previous mark. Also, the Flash reading of Services PMI aren't expected to show any upbeat signs as the EU Services PMI might print 52.3 against 52.8 prior while the German reading is likely to show 53.6 mark versus 54.5 previous number.

Being the first ECB after Brexit, the President, Mario Draghi, might choose to remain a bit worried and utter a help for loose monetary policy, which in-turn can provide EUR weakness. Moreover, downbeat economics, if match with forecasts, could extend the regional currency's south-run.

US Housing Numbers, RBNZ Economic Assessment And Canadian Details

Unlike EU & UK calendars, the US stream of economics are quite thin this week with only headline housing numbers and Philly Fed Manufacturing to be published. Building Permits & Housing Starts, up for release on Tuesday, will be the first US housing numbers to come out. Both these numbers are expected to show minor advances with Building Permits likely marking 1.15M against 1.14M prior while the Housing Starts can rise to 1.17M versus 1.16M previous. On Thursday, Philly Fed Manufacturing Index, Weekly Jobless Claims and Existing Home Sales will help forecast the USD moves wherein the manufacturing gauge is likely advancing to four month highs with 5.1 against 4.7 and the Jobless Claims might inch up to four week high of 271K from its 254K prior. Further, the Existing Home Sales may be a bit weaker with 5.45M against 5.53M showed in June month.

Considering the thin flow of data-points, and looking at their consensus, chances are higher that the US Dollar can continue extending its recent up-move given the housing market numbers keep pleasing the greenback bulls. However, an extreme hike in Jobless can force the USD to pare some of its gains.

As the New-Zealand central bank's surprise announcement to release an unscheduled analysis of the economy has already pulled the NZD towards south, unwelcome numbers, which are more likely after witnessing the recent CPI release, can extend its downside momentum. However, upbeat growth and inflation figures on Wednesday can disappoint speculators who expect RBNZ's rate-cut, which in-turn could trigger fresh upside of the Kiwi, as the New-Zealand Dollar is popularly known as.

At the Canadian line, Friday's CPI & Retail Sales are the only ones to observe. The CPI is likely to dip to the lowest in three months with 0.2% figures against 0.4% prior and the Core CPI is also expected to mark five-month low of 0.0% versus 0.3% showed in previous month. Additionally, the Retail Sales growth may also disappoint CAD traders as the consensus shows 0.0% figure compared to its 0.9% prior while the Core Retail Sales rise may also slow to 0.3% from 1.3% growth in the earlier month. Looking at the recent advance in Crude, better than expected data-points may help the CAD to reverse some of its nearby losses.

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Tuesday, 19 Jul, 2016 / 2:08

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Source : http://www.mtrading.com/analytics/fundamental-analysis/uk-eu-economics-to-propel-market-volatility

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