The main event risk for Sterling on Thursday will be April’s UK retail sales report which will be vital in providing some insight over the behavior of consumers amid Brexit developments. With wage growth lagging behind inflation, the sales data may come under scrutiny for any signs of falling wages impacting consumer confidence. If retail sales fail to meet expectations and follow the same pattern as they did in March, concerns are likely to heighten over the sustainability of the UK’s consumer-driven economic growth. Although markets are expecting retail sales to rebound in April to 1% due to the Easter holiday, this still may not be convincing enough to brush away Brexit concerns. The Bank of England has already warned of a consumer spending squeeze while the uncertainty blanketing Brexit continues to weigh on sentiment.
Sterling was unnaturally resilient against the bearish sentiment this week with a vulnerable Dollar playing a key role. The British pound/U.S. dollar (GBP/USD) currency pair is at risk of depreciating lower if bulls fail to conquer the 1.3000 resistance level.
It’s all about the “Trump Slump”
The brewing political instability in Washington has raised questions about Donald Trump’s ability to deliver his pro-growth policies, with a growing sense of uncertainty hastening the flight to safety. Global stocks were exposed to downside shocks during trading on Wednesday amid a lack of appetite for risk with Asian, European and American markets concluding depressed. With optimism rapidly diminishing over Trump’s proposed fiscal spending and his administration coming under increasing pressure, the Trump rally seems to be a theme of the past. Stock markets may be in store for further punishment moving forward as political turmoil in the U.S. and ongoing geopolitical tensions are adding to the mounting uncertainty over Trump.
Euro bulls unstoppable?
The euro/U.S. dollar (EUR/USD) currency pair has experienced an incredible appreciation this week with prices marching to a fresh six-month high at 1.1170 as investors embraced the encouraging macro-fundamentals in Europe. A vulnerable Dollar has fuelled the upside rally and is likely to elevate the currency higher in the short to medium term. With the current relief of political risk in Europe also boosting the attraction for the Euro, bulls have won this current battle. Investors may direct their attention towards the ECB meeting minutes and the speech by Mario Draghi this evening which could offer the Euro a further boost if hawks make a guest appearance.
From a technical standpoint, the EUR/USD fulfils the prerequisites of a bullish trend on the daily charts as there has been consistently higher highs and higher lows. A technical correction seems to be pending with bulls potentially exploiting the 1.1100 support level to drive prices higher towards 1.1200.
Emerging market currencies shine
Emerging market currencies heaved a sigh of relief this week with most edging higher after the Dollar sharply depreciated. Concerns over the political instability in the US weighing on prospects for pro-growth policies are likely to expose the Greenback to further downside risks with the resurgence of emerging market currencies taking the shine away from Trump pushing legislative agendas. Bond markets may be poised to rally further as the lingering concerns over slowing growth and the possible threat of the GOP agenda falling apart weigh on sentiment. A rally in the Bond market is good for emerging market appetite as foreign interest increases.