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In search of inflation – FX: The week ahead, Tuesday 31 May

FX
Macro observations

US Dollar Basket (-)

The USD is still in consolidation mode, with a break above its 100-day moving average encouraging for bulls, who’ll be jumping on Janet Yellen’s comments that indicated a ‘summer’ US rate hike might be on the cards. As usual, this remains data dependent with the afternoon of 31 May likely to provide several key inputs, most notably the PCE which is the Fed’s preferred inflation indicator. Note inflation is still the key metric regarding US monetary policy.

This Friday’s US jobs report will still garner a lot of attention as fodder for the monthly office sweepstake, and while the headline print is indeed entertaining, focus your gaze on the average earnings figures as these are a more immediate driver for inflation.

With 3 weeks to go until the UK’s EU in/out referendum, Sterling  continues to strengthen off its lows, driven by the essentially objective assessment by the Bank of England. Pound bulls will hope this wins out over increasingly desperate fearmongering from the Brexit camp (threats to David Cameron’s leadership and all that). Data expected to have a muted (at best) effect on GBP strength.

As usual, the Euro remains largely driven lower by US and UK fundamentals, while Tuesday’s CPI confirming an improvement YoY should keep it supported versus more minor peers.

Key data this week (Sign up here to get our daily live macro-calendar)

Monday 30 May

** Bank Holiday – UK markets closed **

Intl Economic Announcements
07:00    Import Price Index (GER)

Tuesday 31 May

UK Economic Announcements
00:01   BRC Shop Price Index

Intl Economic Announcements
07:00   Retail Sales (GER)
09:00   M3 Money Supply (EU
10:00   Unemployment Rate (EU)
13:30   Personal Consumption Expenditures, Income, Spending (US)
14:45   Chicago PMI (US)

Wednesday 1 June

UK Economic Announcements
07:00    Nationwide House Price Index
09:30    M4 Money Supply,  Mortgage Approvals

Intl Economic Announcements
12:00    MBA Mortgage Applications (US)
15:00    Construction Spending, ISM Manufacturing, ISM Prices Paid (US)
15:30    Crude Oil Inventories (US)

Thursday 2 June

UK Economic Announcements
09:30    PMI Construction

Intl Economic Announcements
08:55    Unemployment Rate (GER
10:00    Producer Price Index (EU)
12:45    ECB Interest Rate (EU)
13:30    Initial Jobless Claims, Continuing Claims (US)

Friday 3 June

Intl Economic Announcements
10:00 Retail Sales (EU)
13:30 Non-Farm Payrolls, Unemployment Rate (US)
15:00 Factory Orders, ISM Non-Manufacturing (US)

GBP/USD (‘Cable’)

GBP/USD (daily)
GBPUSD daily (-)

GBP/USD (hourly)
GBPUSD hourly (-)

Technicals (based on daily price data unless otherwise stated)

  • Testing the 200-day moving average and Jul 2014 falling resistance
  • Directional indicators once again diverging bullishly

GBP/EUR

GBP/EUR (daily)
GBPEUR daily (-)

GBP/EUR (hourly)

GBPEUR hourly (-)

Technicals (based on daily price data unless otherwise stated)

  • Consolidation just below the 200-day moving average
  • Stochastics overbought
  • Directional indicators turned back from bullish extremes

EUR/USD

EUR/USD (daily)
EURUSD daily (-)

EUR/USD (4-hours)
EURUSD hourly (-)

Technicals (based on daily price data unless otherwise stated)

  • Bounce off the floor of 7-month rising channel
  • Stochastics still oversold
  • Directional indicators converging bullishly
  • Imminent bullish cross on MACD?

Until next week, Take Care!

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This research is produced by Accendo Markets Limited. Research produced and disseminated by Accendo Markets is classified as non-independent research, and is therefore a marketing communication. This investment research has not been prepared in accordance with legal requirements designed to promote its independence and it is not subject to the prohibition on dealing ahead of the dissemination of investment research. This research does not constitute a personal recommendation or offer to enter into a transaction or an investment, and is produced and distributed for information purposes only.

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