Talking Points:
- British Pound volatility risk tilted to the upside as UK inflation data looms
- US Dollar may resume advance if CPI figures rekindle Fed rate hike bets
- Hawkish shift in US monetary policy views to weigh on Aussie, NZ Dollars
UK CPI figures headline the economic calendar in European trading hours. The headline year-on-year inflation rate is expected to remain unchanged at 0.5 percent in April while the core figure – a measure of the underlying price growth trend that excludes volatile components like food and energy – ticks lower from 1.5 to 1.4 percent.
News-flow out of the UK has increasingly underperformed relative to consensus forecasts since early April, hinting that economists’ models may be calibrated for a rosier environment than reality has confirmed. This opens the door for a downside surprise, though the implications of such an outcome for the British Pound seem limited considering there is little room for deterioration in the BOE policy outlook. Indeed, a rate hike is not expected until late 2017.
On the other hand, an upside surprise clashing with status-quo bets and forcing a degree of portfolio readjustment may encourage volatility. Leading survey data from Markit Economics offers some evidence in favor of such a narrative: deflationary pressure in the construction sector continued to ease while service-sector price growth hit the highest level in 27 months in April. A firm print may boost Sterling in the near term but follow-through may prove limited while traders remain pre-occupied with the “Brexit” referendum.
Later in the day, US CPI data captures the spotlight. The report is expected to show the spread between headline and core CPI hit a three-month low, which may bolster the Fed’s argument that transitory disinflationary pressure is fading and lay the groundwork for a sooner rate hike than investors have accounted for. Indeed, Fed Funds futures imply a mere 4 percent probability of tightening next month.
Figures suggesting a more hawkish posture are likely to drive the US Dollar higher, rekindling last week’s upside momentum after yesterday’s corrective pullback. Sentiment-sensitive currencies seem likely to underperform in such a scenario, with the Australian and New Zealand Dollars following share prices downward.
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Asia Session
GMT | CCY | EVENT | ACT | EXP | PREV |
---|---|---|---|---|---|
23:30 | AUD | Weekly Consumer Confidence Index (MAY 15) | 115.1 | - | 113.9 |
01:30 | AUD | RBA May Meeting Minutes | - | - | - |
01:30 | AUD | New Motor Vehicle Sales (MoM) (MAY) | -2.5% | - | 2.2% |
01:30 | AUD | New Motor Vehicle Sales (YoY) (MAY) | 2.4% | - | 4.2% |
03:00 | NZD | 2Yr Inflation Expectation (2Q) | 1.64% | - | 1.63% |
04:30 | JPY | Industrial Production (YoY) (MAR F) | 0.2% | - | 0.1% |
04:30 | JPY | Industrial Production (MoM) (MAR F) | 3.8% | - | 3.6% |
04:30 | JPY | Capacity Utilization (MoM) (MAR) | 3.2% | - | -5.4% |
European Session
GMT | CCY | EVENT | EXP | PREV | IMPACT |
---|---|---|---|---|---|
07:00 | CHF | Total Sight Deposits (MAY 13) | - | 491.7b | Low |
07:00 | CHF | Domestic Sight Deposits (MAY 13) | - | 419.5b | Low |
07:15 | CHF | Producer & Import Prices (MoM) (MAY) | 0.1% | 0.0% | Low |
07:15 | CHF | Producer & Import Prices (YoY) (MAY) | -2.7% | -4.7% | Low |
08:30 | GBP | CPI (MoM) (MAY) | 0.3% | 0.4% | High |
08:30 | GBP | CPI (YoY) (MAY) | 0.5% | 0.5% | High |
08:30 | GBP | CPI Core (YoY) (MAY) | 1.4% | 1.5% | High |
08:30 | GBP | RPI (MoM) (MAY) | 0.3% | 0.4% | Medium |
08:30 | GBP | RPI (YoY) (MAY) | 1.5% | 1.6% | Medium |
08:30 | GBP | RPI Ex Mort Int. Payments (YoY) (MAY) | 1.6% | 1.6% | Low |
08:30 | GBP | PPI Input NSA (MoM) (MAY) | 1.1% | 2.0% | Low |
08:30 | GBP | PPI Input NSA (YoY) (MAY) | -6.7% | -6.5% | Low |
08:30 | GBP | PPI Output NSA (MoM) (MAY) | 0.2% | 0.3% | Medium |
08:30 | GBP | PPI Output NSA (YoY) (MAY) | -0.8% | -0.9% | Medium |
08:30 | GBP | PPI Output Core NSA (MoM) (MAY) | 0.1% | 0.1% | Low |
08:30 | GBP | PPI Output Core NSA (YoY) (MAY) | 0.3% | 0.2% | Low |
08:30 | GBP | ONS House Price (YoY) (MAR) | - | 7.6% | Low |
09:00 | EUR | Eurozone Trade Balance SA (MAR) | 22.0b | 20.2b | Low |
09:00 | EUR | Eurozone Trade Balance NSA (MAR) | - | 19.0b | Low |
Critical Levels
CCY | Supp 3 | Supp 2 | Supp 1 | Pivot Point | Res 1 | Res 2 | Res 3 |
---|---|---|---|---|---|---|---|
EUR/USD | 1.1242 | 1.1282 | 1.1301 | 1.1322 | 1.1341 | 1.1362 | 1.1402 |
GBP/USD | 1.4219 | 1.4301 | 1.4352 | 1.4383 | 1.4434 | 1.4465 | 1.4547 |
--- Written by Ilya Spivak, Currency Strategist for DailyFX.com
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