Morning Call: It's 'May Day' for the UK
Today's Brexit vote is the crucial risk event for markets as Prime Minister May faces a near-certain defeat of her proposed deal.
Bread and circuses appeased the masses in ancient Rome. Data and summits do the same for modern day FX markets. The US dollar was on the defensive when New York opened, and it continued in that vein until the release of May retail sales. The headline June number was 0.5%, m/m, in line with forecasts but the 0.5% upward revision to the May result was the kicker. It was the fifth consecutive monthly gain.
The news injected a bit of a bid into the US dollar. EURUSD, which had started the session at 1.1685, had risen to 1.1724 before the data release and touched 1.1704 immediately afterwards. However, the impact of the data is dissipating, and prices are on the rise again. EURUSD broke above intraday resistance at 1.1695 this morning, which should revert to support. The uptrend is intact while prices are above 1.1695 and looking for a break above 1.1725 to extend gains to 1.1760.
Sterling is tracking higher, supported by the broad US dollar sell-off and continuing positive sentiment from President Trump’s comments about a “tremendous" US/UK, post-Brexit deal. GBPUSD rallied from 1.3266 at the New York open to 1.3291 when the retail sales report was released. However, the post-data losses are being retraced. Minor support in the 1.3245-50 area is guarding the intraday uptrend line that comes into play at 1.3220 on a 30-minute chart. A break above 1.3290 targets 1.3370.
Wall Street opened with a fizzle. Expectations for robust quarterly earnings, supported by better than expected earnings from Bank of America (BAC: NYSE) were dampened, in part, by oil price concerns. WTI oil prices continued lower overnight after peaking at $71.50/barrel on Friday. Prices opened at $70.05 today and are trading at $68.69/barrel. Traders are concerned about rising Russia and Saudi oil production and fear that Opec production quotas are being ignored. The risk that a US/China trade war would lower global growth is another worry. WTI has support in the $67.70-$68.50 area. If broken, $64.40 is a likely target.