Cable Bends But Does Not Buckle

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Market Drivers May 5, 2016

AU Retail Sales Trade Balance beat
UK PMI Services misses
Nikkei closed Dax 0.26%
Oil $45/bbl
Gold $1277/oz.

Europe and Asia:
AUD Retail Sales 0.5% vs. 0.4%
AUD Trade Balance -2.16B vs. -2.95B
GBP UK PMI Services 52.3 vs. 53.5

North America:
USD Weekly jobless 8:30

UK PMI Services report concluded a hat trick of misses for UK data this week coming in significantly weaker than anticipated as Brexit concerns continued to weigh on the country’s economy.

UK PMI Services printed at 52.3 versus 53.5 eyed as demand slowed across the board with exception of new orders which rose to 53.6 from 52.9 the month prior. Employment also showed some growth but at the slowest pace in more than two years.

Overall the UK data is likely reflecting not only the political turmoil concerning Brexit, but the broad global slowdown in activity seen across the G-20 universe over the past few months. According to Chris Williamson of Markit, “The deterioration in April pushes the surveys into territory which has in the past seen the Bank of England start to worry about the need to revive growth, either by cutting interest rates or non-standard measures such as quantitative easing.”

Cable however, shrugged off the news rebounding above the 1.4500 level after dipping as low as 1.4468. For now the 1.4450 level remains strong support for the unit and today’s price action remains classic sell the rumor buy the news dynamic. Nevertheless as we pointed out yesterday we believe the trend in cable has turned for now and any rally is likely to be capped by recent highs above the 1.4700 figure. Brexit risk still remains an unknown for the pair and the economic backdrop is unlikely to rebound anytime soon.

Elsewhere comm dollars were firmer with Aussie popping back to .7500 level after bit better Retail Sales which came in at 0.4% versus 0.3% eyed and Trade Balance deficit that was slightly smaller. Oil meanwhile jumped to $45/bbl after wildfire in Canada, disruption in Libya and data from EIA showed that oil production declined to its lowest level since September of 2014. Still inventories continues to rise suggesting that demand remains lackluster and the loonie saw little benefit from the move with USD/CAD holding above the 1.2800 level.

In North America the calendar is quiet with only weekly jobless on the docket for the day. The markets may simply meander as traders square up ahead of the NFP report tomorrow with majors staying in relatively narrow ranges for the rest of the day.

Boris Schlossberg
Managing Director

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