Market Drivers July 14, 2015

Iran agrees to a deal oil, CAD slumps
UK CPI remains soft
Nikkei 1.47% Europe -0.27%
Oil $51/bbl
Gold $1153/oz.

hope but
Europe and Asia:
AUD NAB 10 vs. 8
EUR EZ ZEW 29.7 vs. 30.6

North America:
USD Retail Sales 8:30

The FX market was decidedly more sedate on the second trading day of the week as markets now had a full 24 hours to process the Eurogroup deal with Greece. The euro saw some further selling in early Asian session trade but the 1.0950 support held and the pair bounced on short covering flows and a pop in EUR/GBP.

The EUR/GBP bounce was driven by disappointingly flat UK CPI data which printed at 0.0% suggesting that BOE will not be in any rush to normalize rates. BoE chief Mark Carney will face questions from the UK Parliament and the central bank is likely to cut its estimates of growth both in this year and 2016 and 2017.

With no price pressures in the UK economy and energy costs likely to remain level for the foreseeable future, the BOE is in no rush to normalize rates and Governor Carney is likely reiterate that point which could pressure cable further as the morning progresses. Although the unit could see additional cross flows into EUR/GBP on safe harbor which could offset some of the weakness. Overall both the euro and cable appear to have stabilized for now and are likely to range for the rest of the day.

The latest data from the ZEW survey and the EZ Industrial production have confirmed that conditions have weakened in the region with IP dropping -0.4% from 0.2% eyed. It will be interesting to see how ECB Chief Mario Draghi reacts to the latest developments in the region and whether he hints that the QE program will need to be expanded in order to stimulate demand and offset the turbulence of the past month.

We continue to believe that euro is a sell on the bounces trade as the structural problems highlighted by the Greek crisis will continue to weigh on the currency. But for the unit to truly begin to fall it will need to begin to trade on interest rate differentials against the dollar and to that end US data will once again become key.

Today US Retail Sales numbers are forecast to come in at 0.7% versus 1.0% the month prior and if the data comes in generally in line it should prove supportive of possible rate hike in September. If the number comes in soft however, it will once again disappoint the dollar bulls who will like push their expectations out to December. That could result in yet another short covering rally in the EUR/USD with the pair possibly testing 1,1100 on any miss in US data.

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