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Risk Sentiment Drives Currency Direction Amid Lack Of Data.

By Alex Edwards

It was a steady finish to the week on Friday. GBP/USD made some initial gains but then proceeded to fall back slowly through most of the day amid a lack of any major UK economic data releases. Further trade threats were largely shrugged off by a market that seemed as though it was getting used to this kind of carry on. This time President Trump threatened to impose 20% tariffs on EU auto imports unless the EU removed tariffs on US auto imports.

The reaction hasn’t been quite as neutral this morning however, as markets turn a little more risk averse in the face of growing trade tensions and headlines over the weekend. The WSJ reported over the weekend that there may be further tariffs on Chinese imports on the way.

There isn’t a whole lot of data due out this week, at least as far as GBP/USD is concerned. BoE Governor Carney speaks on Wednesday and may or may not reference monetary policy. US Final GDP is then released on Thursday. It means that trade rhetoric and Brexit headlines will likely continue to dominate direction in currency markets.

The dollar weakened against most of the major currencies on Friday, particularly so vs. commodity currencies as risk appetite improved gradually throughout the day. This came despite Trump’s threats on trade, albeit markets have opened this morning with some apprehension as the negative trade headlines from the weekend have garnered more attention.

Focus this week shifts to key Q2 Final GDP. CB Consumer Confidence and Core Durable Goods Orders are released on Tuesday and Wednesday respectively. Personal Spending and Chicago PMI from the States are released on Friday too.

A series of European PMIs released on Friday morning gave the single currency an early boost. It was the services element of the PMIs that beat market expectations, whilst the manufacturing part printed slightly weaker than market forecasts. EUR/USD then drifted lower in to New York opening but finished with a bit of a flourish as risk demand ebbed and flowed through the joint London/New York sessions.

Looking ahead to this week the the EU Summit on 28th-29th June is likely to be the key market risk event. It will cover many controversial issues including European fiscal budget, the Italian fiscal risks, Brexit and migration. Flash inflation data is also due for release later in the week.

AUS/USD pushed higher on Friday as risk appetite improved. It pushed through the 74 US cent handle to a high of .7445, supported too by rising oil prices. The negative trade headlines over the weekend haven’t helped the aussie dollar’s cause this morning however and it’s slipped back to open in London at .7415, only to recover at time of writing to .7435.

There isn’t much by way of Australian economic data due for release this week so the local unit is likely to take its lead from market risk sentiment and ongoing trade rhetoric.

The Canadian dollar was a big mover on Friday. It fell early on in the day as inflation data printed much weaker than expected with CPI m/m coming in at 0.1% vs. forecasts for a reading of 0.4%. Canadian retail sales data was equally as dreadful with Core Retail Sales m/m printing at -0.1% vs. expectations for 0.5%. USD/CAD moved +120 points higher on the news.

The weakness in the CAD was relatively short lived though, despite the very poor data, as OPEC meetings commenced. OPEC decided on a modest increase in oil production and the market took the news as a bullish sign as the agreed supply increase was lower than expected. Oil prices jumped almost 3-4% on the day.

NZD/USD has tracked the AUD/USD to a large extent over the last day or so. It made steady gains on Friday as risk caught a bid, but has fallen back overnight as markets head into the start of the week with an air of caution, caused in large part by the increasing negative trade talk. Looking ahead this week and the NZ macroeconomic calendar is light with no relevant data releases until Wednesday, at which point we will see the release of both Trade Balance and ANZ Business Confidence. On Thursday, the Reserve Bank of New Zealand Interest Rate announcement is due; the cash rate is expected to remain on hold at 1.75%. Finally on Friday Building Consents are due out for the month of May.