Euro still finding favour

23 May, 2017

Our prop desk is looking relatively quiet right now with the absence of economic data leaving many on the sidelines. Some profits have been booked off short USD/CAD and USD/CHF trades, although recent attempts to find gains off long EUR positions have failed to deliver.

Markets are digesting the news of the Manchester terrorist attack, which occurred last night, although we’re not seeing any notable downside pressure on Sterling or indeed a move into safe havens like gold. The economic calendar is set to pick up a little following the slow start we saw to the week, although again there’s not that much on the agenda.

The general theme of support for the common currency is prevailing as an improving political outlook across the Eurozone combines with the idea that the ECB will continue to wind down its easing measures in the months ahead. Notably however there’s still the French national assembly elections to come and failure for Macron’s En Marche! party to secure a majority here would have the potential to reverse this run of good fortune.

The UK public sector net borrowing data for May is due for release at 8.30am GMT and this could provide some fresh direction for Sterling. The last reading showed borrowing to be at its lowest level since the financial crisis although even then it was a little ahead of expectations, so will inflationary pressures take a toll on today’s reading? EUR/GBP has already been inflated in recent days to arguably it would take a big miss to drive further gains here.

With the Federal Reserve eager to stay one step ahead of inflationary pressures, today’s US new home sales reading will be under scrutiny. Although the economy has been faltering of late, a jump higher here will strengthen the case for policy hawks looking to make that next move. As we’ve been reminded before, the June FOMC meeting should be considered as a ‘live’ one, and with central bankers globally backing the case for less monetary easing, the greenback wouldn’t find itself at an explicit disadvantage if rates move a quarter point higher next month.

The Kiwi dollar has been gaining ground against its Aussie counterpart in recent days, recovering most of move posted on May 11th off the back of concerns over the New Zealand economy. Tonight’s trade balance data due at 10.45pm GMT will be worth watching as this print often has the ability to come in some considerable distance from expectations, in turn generating some volatility for the pair.

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