Today’s European session was light in terms of economic data with notable market reaction only being evidenced after the release of UK house price data. Market participants are now turning their attention to tomorrow’s main risk events, which have the capacity to generate significant volatility in the markets.
Tomorrow has been dubbed as "Triple Threat Thursday" as three major risk events will dominate investors’ attention. Namely, Brits will be called in to vote in a national election, the European Central Bank will announce its rate decision offering guidance about the eurozone economic outlook going forward and former FBI director James Comey will give a testimony to the U.S. Senate regarding his discussions with President Trump on dropping the investigation into the ex-National Security Advisor Michael Flynn’s alleged connections with Russia.
The dollar index, gauging the greenback against the currencies of six major US trading partners, was virtually unchanged from where it opened the day in late European trading hours after previously falling close to yesterday’s near seven-month low of 96.52. Dollar / yen was marginally down on the day trading at 109.33. Earlier in the day, the pair fell to the near seven-week low of 109.11 as the yen was helped by the risk-averse mood in the markets and falling US Treasury yields failing to attract investments in the US currency. Any setback to the Trump administration’s tax and other fiscal policy plans from Comey’s comments tomorrow have the capacity to hurt the dollar.
Out of Germany, industrial orders for the month of April fell far more than anticipated indicating that the industrial sector did not have a robust start in the second quarter of the year. Specifically, orders declined by 2.1% month-on-month with analysts expecting a 0.4% fall. March’s number was slightly revised upwards to 1.1% (from 1.0% before). Some analysts attributed the poor numbers to the Easter holidays falling in April this year and expect a recovery in the coming months. Euro / dollar didn’t react much to the data.
The euro was hovering around the near seven-month high of 1.1284 hit late last week in the first hours of European trading until a report by Bloomberg suggested that the European Central Bank will cut its inflation forecast in its policy meeting tomorrow. As a result, euro / dollar fell to the six-day low of 1.1203. The single currency has since recovered part of those losses but was still down on the day in late European trading hours.
In terms of UK data, the Halifax house price index showed average UK house prices in the three months to May were, on an annual basis, 3.3% higher relative to the previous year. This marks the slowest growth in four years. Still, the rise in prices was better than the forecasted 3.0%. On a month-on-month basis, prices increased by 0.4% in May, better than the -0.1% expected and the zero growth in prices during April – the result of an upward revision from -0.1%. The housing market has entered a slowdown phase since last June’s Brexit vote as consumers are holding spending, among others, due to higher inflation as a result of a weakening pound. Pound / dollar fell after the release of the data eventually reaching its daily low of 1.2887. The pair rebounded later in the day hitting a two-week high of 1.2971 along the way.
The Australian dollar built on momentum from earlier in the day after GDP data showed the nation extended its record expansion. Aussie / dollar extended gains to rise to the seven-week high of 0.7566 during European trading hours.
Finishing with a quick look at oil, the Energy Information Administration’s (EIA) weekly report showed a buildup in US crude oil inventories amounting to 3.30 million barrels, vastly diverging from expectations of a drop by 3.46m barrels. WTI crude recorded a steep fall after the release of the data, eventually falling to the near one-month low of $45.92 per barrel. Brent crude was also last down on the day, touching a near one-month low of $48.14 a barrel.
