FX market outlook

FX market outlook

Posted on Friday, July 28 2017 at 8:42 am GMT+0000

Positive eurozone data supports euro; dollar under pressure ahead of GDP figures

As Asian traders were about to close the trading week, the dollar was pressured again, with the dollar index falling a tenth-of-a-percent to 93.76. The euro gained as a string of data came in as expected, leaving no room for disappointment.

Economic data out of Japan signaled a sustainable growth in the second quarter, underpinning the Bank of Japan’s buoyant economic view. Japan’s economy expanded 1.0% annually in the first quarter, showing positive growth for more than a year. Analysts remain optimistic about GDP expansion in the quarter to June-end amid a pick-up in private consumption, which comprises 60% of the economy. Household spending rose 2.3%, up for the first time since February 2016 and posting the highest gain since August 2015. The unemployment rate fell to 2.8% in June, confirming a tightening labor market. However, inflation remained far from the central bank’s target of 2.0%. The core consumer price index mirrored a 0.4% gain in May and matched analysts’ expectations for June. Looking at the forex market reaction, the yen reacted positively to the string of upbeat data, rising against the greenback. Dollar/yen opened at 111.22, but fell to 111.04 ahead of European trading.

As European traders were looking to start the day, France and Spain released their flash consumer prices for July and second-quarter GDP growth numbers, supporting the euro’s gains. Most figures came in as expected, bar monthly consumer spending in France, which fell 0.9% versus expectations of a 0.2% decline. Also, Spanish HICP came above forecasts, growing 1.7% in July. Preliminary second quarter GDP in France grew 0.5%, relative to the prior quarter, while the Spanish economy expanded at a pace of 0.9%, as expected. Later in the session, July economic sentiment for the eurozone and German preliminary CPI will be released. Euro/dollar was last up to trade above the 1.17 handle at 1.1704.

The rest of the day looks busy in terms of economic data releases as well. Dollar traders will be analyzing a string of data out of the US. The Commerce Department is due to release its advance second-quarter GDP estimate today. Consensus suggests that the US economy grew at an annual rate of 2.6% in April-June quarter, outperforming the 1.4% expansion from the first quarter. Following yesterday’s trade deficit and wholesale inventories data, some analysts revised their growth expectations, suggesting a gain of 3.5%. The Commerce Department will also report advanced core PCE prices for the second quarter, which are forecast to rise 0.8%, below a 2.0% gain achieved in the first quarter. The final reading of the University of Michigan Surveys of Consumers Sentiment Index for July is expected to remain unchanged at 93.1 from the previous month.

On the political front, President Trump’s actions regarding Senate’s newly approved sanctions against Russia will be closely monitored.

Statistics Canada will report the monthly expansion of the Canadian economy in May. Analysts are estimating a gain of 0.2%, which would support expectations of the economy maintaining its strong growth momentum this year. Dollar/loonie was last trading at 1.2544.

Oil prices edged lower but were still near eight-week highs, buoyed by a decline in US inventories and OPEC’s ongoing efforts to curb production. WTI was last trading at $49.00 a barrel while Brent was at $51.47 a barrel.

Gold prices were broadly flat during the Asian session after some pressure at the end of the US session yesterday. The precious metal was last trading at $1,259.44 an ounce.