Market Drivers for February 21, 2014
UK Retail Sales miss but PSNB much better
Loonie weakness persists
Nikkei 2.88% Europe 0.03%
Europe and Asia:
UK Retail Sales -1.5% vs. 0.9%
UK PSNB -6.4B vs -9.3B
CAD CPI 8:30 AM
CAD Retail Sales 8:30 AM
USD Existing Home Sales 10:00 AM
It been a relatively quiet night of trade on the final day of the week with EUR/USD flatlining around the 1.3700 level while USD/JPY has traded steady around the 102.50 spot but was lifted higher in Asian session trade by the near 3% gain in the Nikkei. The one surprising source of volatility has been USD/CAD which rose sharply at the start of European trade to hit a high of 1.1170 before retracing a bit.
The loonie has been weakening markedly over the past few days as it once again flirts with yearly lows above the 1.1200 level. The sell off in the pair has been partly caused by M&A flows after Canadian Natural Resources announced plans to buy part of U.S. based Devon Energy’s Western Canadian assets, but the primary reason for the swoon in the loonie has been growing speculation that the BOC may have to lower rates as the economy continues to sputter.
Today the market will get a glimpse of the Canadian CPI numbers and the Retail Sales data. Given the woeful results of the wholesale sales report which saw a contraction for the third month in a row, the prospects for downside print are relatively good. The consensus view already expects a sharp decline of -0.5% from last months 0.6% rise, but given the very tough weather conditions and the overall depressed tone in final demand, Retail sales could contract even more than forecast. That could only fuel further speculation of easing and could send USD/CAD to a test of yearly highs.
Meanwhile in Europe the eco calendar was relatively quiet, but in UK Retail Sales dropped by -1.5% versus -0.9% eyed. The decline was primarily driven by supermarket sales while sales at DIY stores was strong. Although the data was weaker than expected the overall year on year figures still registered an impressive 4.3% gain indicating that demand in UK remains robust.
Cable initially slipped to 1.6610 on the news but quickly rebounded to settle near session highs after traders saw the Public Sector Net Borrowing figures which declined to -6.9B from -9.0B eyed. The continued improvement in government revenues suggests that the economic expansion in UK remains on track, and that it may indeed be the first G-7 economy to hike rates as this year progresses.
In North America today the US calendar is nearly barren with only Existing Home Sales on the docket. Again weather related woes may affect the number and market may look past the weak data if it surprises to the downside. USD/JPY has been fairly resilient despite a string of weak US economic reports holding above the 101.50 support line. However, in order to truly establish a bullish bias the pair needs to take out the 103.00 level and it will be interesting to see if the bulls try to press that barrier as the day progresses.