US AM Digest: TRY Plunge Continues, GBP Supported on Retail Sales Rebound

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US Market Snapshot via IG: DJIA -0.3%, Nasdaq 100 -0.2%, S&P 500 -0.2%

Major Headlines

  • UK Retail Sales rebound in April
  • CAD, MXN weighed by US Auto Import probe

GBP: Renewed life in the Pound today after UK retail sales rebounded in April to beat expectations across the board. However, rate hike expectations are largely unchanged with an August rate hike seen 33% having dropped from 40% following yesterday’s subdued inflation report, while a November rate hike is seen at 74%. GBPUSD hovering above 1.34, although risks remain tilted to the downside with support seen at 1.33.

USD: Yesterday FOMC minutes indicated that the central bank will go ahead with a June rate hike, however, the report had been met with a dovish response as 10yr US bond yields dipped below 3%. This had been due to the Fed highlighting that rate hikes will be gradual and that they will accept inflation overshooting its target. As such, the USD bid has run out of steam this morning, slipping back below the 94.00 handle, while expectations for 3 additional rate hikes have also been reigned in.

CAD, MXN: NAFTA concerns have weighed on the Canadian Dollar and Mexican Peso relative to the US Dollar after the US launched a Section 232 investigation into auto imports, which is currently biggest stumbling block for NAFTA progress thus far. Adding to the pressure in CAD has been softer oil prices, subsequently pushing USDCAD back towards 1.29, a break above will see the pair run into resistance at 1.2920-25.

EUR: Little of note from the latest ECB minutes, which had been hinted by President Draghi at the last monetary policy decision, while the minutes are typically out of date. In terms of some of the comments, the council judged that uncertainty of outlook had increased, adding that the slowdown had been broad-based, bear in mind that this account had been taken prior to the downside misses seen in the latest Eurozone HICP, PMIs and consumer confidence data. Nonetheless, the Euro is better supported this morning and consolidates above 1.17 amid the softer USD.

TRY: The freefall continues for the Turkish Lira with USDJPY up another 4% today. This is in spite of yesterday’s emergency 300bps rate hike by the Turkish Central Bank to stem the fall in TRY. However, in the run up to the election on June 24th the plunge in the Turkish Lira shows no sign of slowing down, while questions will be raised on whether the central bank will deliver another rate hike if the fall persists (next policy meeting scheduled for June 7th).

DailyFX Economic Calendar: Thursday, May 24, 2018 – North American Releases

DailyFX Webinar Calendar: Thursday, May 24, 2018

IG Client Sentiment Index: USDCAD Chart of the Day

USDCAD: Retail trader data shows 41.2% of traders are net-long with the ratio of traders short to long at 1.43 to 1. The number of traders net-long is 12.6% lower than yesterday and 8.7% lower from last week, while the number of traders net-short is 9.3% higher than yesterday and 6.2% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests USDCAD prices may continue to rise. Traders are further net-short than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger USDCAD-bullish contrarian trading bias.

Five Things Traders are Reading

  1. S&P 500 Technical Analysis – Consolidation Solid So Farby Paul Robinson, Market Analyst

  2. Trade Wars: USD Weakens, Havens Rise as Autos Drive Into the Spotlight
    by Martin Essex, MSTA , Analyst and Editor
  3. GBPUSD Rises After Some Retail Therapyby Justin McQueen, Market Analyst
  4. Turkish Lira Under Pressure Again After Brief Rate Hike Boost” by Martin Essex, MSTA , Analyst and Editor
  5. NZD/USD Technical Analysis: Critical Range Floor Under Pressureby Ilya Spivak , Senior Currency Strategist

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— Written by Justin McQueen, Market Analyst

To contact Justin, email him at Justin.mcqueen@ig.comFollow Justin on Twitter @JMcQueenFX

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