Market Drivers May 14, 2015

Eur squeezes higher as 1.1400 falls on post Retail Sales dollar weakness
New Zealand Core Retail Sales 2.7% vs. 1.6%
Nikkei -0.98% Europe -0.15%
Oil $60/bbl
Gold $1215/oz.

Europe and Asia:
NZD Retail Sales 2.7% vs. 1.6%

North America:
USD PPI 08:30

USD Weekly Jobless 08:30

It’s been a topsy turvy session for the euro today despite the fact that much of the continent is closed for a bank holiday. The euro short squeeze continued in early European dealing as the shock of the weak US Retail Sales number reverberated through the markets.

Yesterday’s disappointing print on US Retails Sales data put a huge dent into the dollar bullish thesis premise. Up to now investors were certain that the combination of the drop in oil prices and steady job growth would translate into a healthy pick up in consumer spending. With consumer making up to 75% of the US economy the pick up in demand is crucial to the overall growth.

However, yesterday’s data shows that the consumer is either unwilling or unable to spend at the moment and that is likely to put any plans to normalise monetary policy on hold. The Fed will not move on the interest rate front until US monetary authorities see steady growth in consumer spending. Job growth is simply not enough to make the Fed move off the zero bound level unless it is accompanied by the concomitant pickup in consumer demand.

That’s why yesterday’s surprisingly weak US Retail Sales number has had such an outsized reaction on the dollar today. The EUR/USD climbed to a high of 1.1435 – a level it has not seen since February of this year and may make a play for the critical 1.1500 figure as the day progresses.

The North American calendar is relatively light today with only the PPI and US weekly jobless claims on the docket but the volatility in FX may continue especially because Mario Draghi is expected to make a speech later today at an IMF forum and may touch on the issue of QE. One of the great ironies in the market is that since ECB has started its bond buying program yields have actually risen and EUR/USD has strengthened and it will be interesting to see if Mr. Draghi expressed his concerns about that which may take some of the momentum out of the euro move.