Market Drivers for April 18, 2013
UK Retail Sales print weak as expected cable below 1.5200
Spain auctions off 4.71B bonds at lowest yield since Sept 2010
Europe -0.59% Nikkei -1.22%
Oil $87/bbl
Gold $1387/oz.

Europe and Asia:
AUD NAB Business Confidence 2 vs. 5
JPY Merchandise Trade Balance Total 0.92T
GBP Retail Sales -0.7% vs. -0.7%

North America:
USD Initial Jobless Claims 8:30
USD Philly Fed 10:00
USD Leading Indicators 10:00

It been a quiet night of consolidation in the currency market with EUR/USD showing good two way flow around the 1.3050 level while cable was mildly weaker after UK Retail Sales showed a contraction as expected.

UK Retail Sales declined -0.7% in March meeting consensus forecast as cold weather depressed sales of clothing and household goods. This is was sharp reversal from February when sales rose 2.1%. On a quarter on quarter basis sales were up by 0.4% which was a marked improvement over Q4 of last year when sales declined by -0.6%.

Still the weak UK Retail Sales environment clearly indicates that the consumer is suffering. As we pointed out yesterday the fact that wage growth has been weakest on record while inflation remains well above 2.5% means that purchasing power in UK continues to erode. That means that the UK economy is likely to remain moribund for the foreseeable future and GDP growth will continue to hover near nil for next several quarters.

Cable sold off to 1.5220 in its initial reaction to the news but recovered to pre news levels as rebound in precious metals helped to spark a small risk rally in morning London dealing. For now the 1.5200 level continues to support the pair, but there is little fundamental evidence of any economic improvement in UK, therefore any selloff in risk could quickly push cable through 1.5200 as the day proceeds.

The EUR/USD meanwhile recovered some of its losses from yesterday when it went on a 200 point slide after comments from ECB’s Weidemann suggested the possibility of rate cut sometime in the near future. Today strong auctions in Spain and France with yields continuing to come down, as well as news that Portugal would adhere to the austerity agreements despite the court ruling to overturn those measures, all helped to contribute to more positive tone in the European session.

In North American session today the eco calendar carries weekly jobless claims, Philly Fed and LEI. The most recent batch of data has shown a modest slowdown in activity with only the housing sector bucking that trend. If the reports today show further deterioration the sell off in risk may resume, but for now today looks to be a consolidation day as markets absorb the volatility of the past 24 hours.

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