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Europe Roundup: Sterling rallies over 1.300 following better-than-expected retail sales, euro off 6-month peak on profit taking, European shares decline amid risk-off sentiment - Thursday, May 18th, 2017

Market Roundup

  • EUR/USD -0.35%, USD/JPY -0.42%, GBP/USD +0.55%, EUR/GBP -0.88%
  • DXY flat, DAX -1.06%, FTSE -1.46, Copper -1.9%
  • UK shoppers shrug off inflation pressure; +2.3% vs revised -1.2% previous -1.8%
  • Great Britain Apr Retail sales yy +4.0% vs revised +2.0% previous 1.7%
  • Trump campaign had at least 18 undisclosed contacts with Russians
  • Bank of England's growth and pay forecasts too optimistic-poll
  • ECB to signal a move away from QE by Sept on better data-poll
  • Japan's economy expands at fastest pace in a year in Jan-March
  • Support for Macron's party grows before French parliamentary election-poll
  • EU looks to build alternative to London for capital market - document
  • Smaller cities keep China property market hot in April
  • Greece needs to clear more hurdles before ECB bond buys: Coeure
  • Oil down as market stays well supplied despite OPEC cuts; Brent -1.88%
  • Mexico central bank seen holding key rate, pointing to future hikes

Economic Data Ahead

  • (0830 ET/1230 GMT) The number of Americans filing for unemployment benefits is likely to have increased by 4,000 to a seasonally adjusted 240,000 for the week ended May 12 while continuing claims for the week ended May 5 is expected to rise to 1.960 million from 1.918 million a week earlier.
  • (0830 ET/1230 GMT) Philadelphia Federal Reserve manufacturing survey is likely to show that business activity decreased to 19.5 in May from 22.0 in April.
  • (0830 ET/1230 GMT) The Statistics Canada will report foreign portfolio investment in domestic stocks for the month of February.
  • (0830 ET/1230 GMT) The Statistics Canada will release investment in foreign securities figures for the month of February.
  • (1030 ET/1430 GMT) The Energy Information Administration (EIA) reports its Natural Gas Storage for the week ending May 12.
  • (1400 ET/1800 GMT) Mexico's central bank meets to decide its interest rate and is expected to leave interest rates on hold at 6.50 percent.
  • (1745 ET/2145 GMT) The Statistics New Zealand will release visitor arrivals report for the month of April. The indicator posted an annualized fall of 0.2 percent in the prior month.

Key Events

  • (1145 ET/1545 GMT) FedTrade Operation 30-year Fannie Mae / Freddie Mac (max $1.625 bn)
  • (1300 ET/1700 GMT) European Central Bank (ECB) President Mario Draghi's Speech. 
  • (1315 ET/1715 GMT) Federal Reserve Bank of Cleveland President Loretta Mester speaks on the economic outlook and monetary policy before the Economic Club of Minnesota in Minneapolis.
  • N/A Mexican Finance Minister Jose Antonio Meade and Foreign Minister Luis Videgaray Caso will meet with U.S. Secretary of State Rex Tillerson, Secretary of the Treasury Steven Mnuchin and Secretary of Homeland Security John Kelly in Washington in the latest round of bilateral meetings.

FX Beat

DXY: The dollar tumbled against the Japanese yen as investors sought safe-haven assets amid increasing political uncertainty in the U.S. The greenback against a basket of currencies traded 0.1 percent up at 97.48, having hit a low of 97.33 in the previous session, it’s lowest since Nov. 9. FxWirePro's Hourly Dollar Strength Index stood at -78.95 (Slightly Bearish) by 1000 GMT.

EUR/USD: The euro declined after rising to a 6-month high earlier in the day as investors booked profits ahead of the ECB meeting minutes due later in the session. Moreover, fresh recovery seen in the U.S. dollar against its major peers undermined the bid tone around the major. The European currency traded 0.3 percent down 1.1130, having touched a high of 1.1171 earlier, its highest since Nov. 9. FxWirePro's Hourly Euro Strength Index stood at -36.24 (Neutral) by 1000 GMT. On the higher side, major resistance is around 1.1180 and any break above targets 1.1200/1.1235. The near support is around 1.1090 (23.6% retracement of 1.08391 and 1.11719) and any break below targets 1.10508/1.1020 (resistance turned into support).

USD/JPY: The dollar slumped to an over 3-week low as revelations about the investigation of Trump's ties to Russia and a combination of recent downbeat U.S. data drove investors seeking safety in Japanese yen. The pair traded 0.4 percent down at 110.37, having touched a low of 110.23 earlier, its lowest since Apr 25. FxWirePro's Hourly Yen Strength Index stood at 184.61 (Highly Bullish) by 1000 GMT.  The pair is facing support at 110 and any break below will it down till 108.13. On the higher side, break above 111.97 will take it to next level till 113.40/114.36 likely.

GBP/USD: Sterling rallied above the 1.300 handle for the first time in almost eight months after data showed Britain’s retail sales growth surpassed estimates, easing concerns about the pace of spending by consumers. The economy's retail sales volumes rose 2.3 percent in April, beating forecast of a 1.0 percent rise and reversing a 1.4 percent fall in March. Sterling trades 0.5 percent up at 1.3034, having hit an early high of 1.3047, its strongest since Sept. 29. FxWirePro's Hourly Sterling Strength Index stood at 85.58 (Highly Bullish) by 1000 GMT. On the higher side, the pair has broken major resistance 1.3000 and this confirms bullish continuation and a jump till 1.3050/1.3088 likely. The major support is around 1.2950 and any break below will drag the pair down till 1.2900/1.2830. Against the euro, the pound traded 0.7 percent up at 85.39 pence, retreating from a 1-1/2 month low of 86.14 hit in the prior session.

USD/CHF:  The Swiss franc hit a fresh six-month high against the U.S. dollar as recent developments in the U.S. political scenario continued to weigh on market sentiment. The major slumped 0.1 percent to 0.9774, having hit a fresh low of 0.9768 earlier, its weakest since Nov 9. FxWirePro's Hourly Swiss Franc Strength Index stood at 134.20 (Highly Bullish) by 1000 GMT. The break below 0.98120 confirms that jump from 0.95493 comes to an end at 1.03400 and a dips till 0.9617 (100% projection from 1.03420 to 0.9860 from 1.0099) is possible. The near term major support is around 0.9705 (50% retracement of 0.90719 and 1.03436) /0.9640. On the higher side near term resistance is around 0.9860 and any break above will take the pair till 0.9900/0.9960 (200- day MA).

AUD/USD: The Australian dollar declined after rising to a 2-week high earlier on the back of better-than expected Australia’s employment report, which supported the case for a stable interest rate outlook in the near term. The Aussie trades 0.1 percent down at 0.7424, having hit a high of 0.7466 earlier, it’s strongest since May. 3. FxWirePro's Hourly Aussie Strength Index stood at -80.92 (Slightly Bearish) by 1000 GMT. On the lower side, near term support is around 0.7385 (61.8% retracement of 0.71599 and 0.77493) and any close below will drag the pair till 0.7325/0.7300. The near term resistance is around 0.7450 (21 EMA) and any close above targets 0.7520 (89 day EMA).

Equities Recap

European shares declined in early trade as growing concerns over political turbulence in the U.S. continued to weigh on market sentiment.

The pan-European STOXX 600 index lost 0.9 percent to 387.60 points, while the FTSEurofirst 300 index declined 0.8 percent to 1,524.85 points.

Britain's FTSE 100 trades 1.3 percent down at 7,406.24 points, while mid-cap FTSE 250 fell 1.0 percent to 19,578.47 points.

Germany's DAX shed 0.9 percent at 12,521.25 points; France's CAC 40 trades 1.1 percent lower at 5,256.46 points.

Commodities Recap

Crude oil prices slipped over 1 percent as the market remained well supplied with crude despite efforts by OPEC and other exporters to reduce production. International benchmark Brent crude was trading 1.6 percent down at $51.21 per barrel by 1017 GMT, having hit a high of $52.58 on Monday, its strongest since Apr. 21. U.S. West Texas Intermediate fell 1.5 percent to $48.16 a barrel, after rising as high as $49.63 on Monday, its highest since Apr. 28.

Gold prices rallied, hitting a more than 2-week high amid political turmoil in the United States. Spot gold was 0.2 percent up at $1,261.16 per ounce by 1023 GMT after touching its strongest since May 1 at $1,263.03 earlier. U.S. gold futures were nearly flat at $1,258.40 an ounce.

Treasuries Recap

The U.S. Treasuries rallied on expectations of a rise in the country’s initial jobless claims, scheduled to be released later in the day. The yield on the benchmark 10-year Treasury slumped 2 basis points to 2.19 percent, the super-long 30-year bond yields fell nearly 1 basis point to 2.88 percent and the yield on short-term 2-year note also traded 1 basis point lower at 1.24 percent.

The UK gilts rallied as investors largely shrugged off the wider-than-expected rise in the country’s retail sales for the month of April. The yield on the benchmark 10-year gilts slumped 3 basis points to 1.10 percent, the super-long 30-year bond yields plunged 3-1/2 basis points to 1.73 percent while the yield on the short-term 2-year traded 1-1/2 basis points lower at 0.12 percent.

The German bunds jumped as investors look forward to the European Central Bank (ECB) President Mario Draghi’s speech, scheduled to be held later today. The yield on the benchmark 10-year bond slumped nearly 4 basis points to 0.34 percent, the long-term 30-year bond yields plunged 3 basis points to 1.17 percent and the yield on short-term 2-year bond traded 1 basis point lower at -0.69 percent.

The Japanese government bonds trade lower after reading a higher-than-expected gross domestic product (GDP) for the first quarter of this year. The benchmark 10-year bond yield rose 1 basis point to 0.04 percent, while the long-term 30-year bond yields slumped 2 basis points to 0.81percent and the yield on the short-term 2-year note traded 1/2 basis point higher at -0.14 percent.

The Australian bonds jumped, following a drop in the country’s inflation expectations for the month of May. The yield on the benchmark 10-year Treasury note slumped nearly 3-1/2 basis points to 2.50 percent, the yield on 15-year note also plunged almost 3-1/2 basis points to 2.90 percent and the yield on short-term 4-year traded 1/2 basis point lower at 1.99 percent.

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