Week In FX Americas - Assets Close Out With No Interest

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 |  Includes: FXC, MXNS, UDN, UUP
by: Dean Popplewell

By Dean Popplewell

  • US Consumer Sentiment slips in May
  • Equities and Bonds price action the start of a reversal?
  • Yellen and FOMC on traders radar

In relative term, the markets are ending the week on the quiet side, especially after the much-craved volatile scenes witnessed in forex on Thursday. Even weaker data produced stateside cannot seem to convince the dollar index to penetrate its tight range a day after threatening to spike higher.

The University of Michigan consumer sentiment saw weakness in early May, with the headline dropping back to 81.8 from 84.1. Last month's print was the highest in 10-months, while this month's preliminary is still the second highest of the year.

Digging deeper into the report showed the index of current conditions took the hardest hit, down to 95.1 from 98.7 (lowest in six-months). The expectations index slipped to 73.2, which is still the second highest in nine-months. Neither the weak GDP nor the strong NFP report has had much of an influence on the headline according to the Survey's Director Richard Curtin. "Consumers judged the current state of the US economy as being the most favorable in 10-years" he said. It was individuals concerns about wages that seemed to hurt overall sentiment.

Euro bonds and equities are also taking a breather after their abrupt sell-off on Thursday that was fueled mostly by signs of sluggish economic growth. Trades concentrated in the riskiest part of the eurozone (Greece, Spain, Portugal and Italy) were obviously becoming a tad overcrowded, proven by the late spiraling moves this week. This market will have to wait and see if the latest shake out has managed to take enough froth off those asset classes. Next week the market will be looking to the long-term investor. Will they feel comfortable to buy again or are the declines a beginning of a reversal? It really is the first major set back in prices this year. If the ECB is to act on its own rhetoric on June 5th this drop will not be long lasting. If investors truly believe that Draghi and company will cut the deposit rate "money will be forced down the credit ladder and into the periphery" leading again to further equity records and lower yields.

Other major events next week:

Tuesday:

  • Fed Head Yellen will deliver opening remarks at the New York University Graduates Commencement Ceremony. Traders scrutinize all her public engagements as they are often used to drop subtle clues regarding future monetary policy.
  • FOMC Meeting Minutes: It's a detailed record of the FOMC's most recent meeting, providing in-depth insights into the economic and financial conditions that influenced their vote on where to set interest rates. No surprises expected as the Fed remains on cruise control with "lower for longer"

WEEK AHEAD

* GBP Consumer Price Index

* GBP Bank of England Minutes

* USD Fed Releases Minutes from April 29-30 FOMC Meeting

* GBP Gross Domestic Product

* CAD Consumer Price Index