FX Market Update 15-6

Market Briefs
• EUR/USD 0.12%, USD/JPY -0.08%, GBP/USD 0.07%, EUR/GBP -0.01%
• DXY 0.14%, DAX -0.24%, FTSE -0.73%, Brent -1.25%, Gold -0.28%
• EU HICP Final YY, 1.9%, 1.9% f’cast, 1.9% prev
• EU HICP ex F&E YY, 1.3%, 1.3% f’cast, 1.3% prev
• EU Labour Costs YY, 2%, 1.5% prev
• DE Wholesale Price Index YY, 2.9%, 1.4% prev
• IT CPI (EU Norm) Final YY, 1%, 1.1% f’cast, 1.1% prev
• IT Industrial Orders YY NSA, 6.4%, 2.6% prev
• IT Industrial Sales YY WDA, 4%, 3.6% prev
• IT Consumer Prices Final YY, 1%, 1.1% f’cast, 1.1% prev
• Japan’s central bank cuts inflation view, narrowing stimulus-exit path
• China promises fast response as Trump readies tariffs
• Former Trump campaign chief Manafort to ask judge not to jail him
• Bundesbank slashes Germany growth view, says horizon clouded
• Gold slips on stronger dollar; U.S.-China trade war fears loom
• Oil falls as focus moves to prospect of higher supply

Looking Ahead – Economic Data (GMT) 
• 12:30 US NY Fed Manufacturing, 19% f’cast, 20.1 prev
• 12:30 CA Manufacturing Sales MM, 0.6% f’cast, 1.4% prev
• 12:30 CA Securities Cdns C$, -1.90 bln
• 13:15 US Industrial Production MM, 0.2% f’csat, 0.7% prev
• 13:15 US Capacity Utlization MM, 78.1% f’cast, 78% prev
• 14:00 US U Mich Sentiment Prelim, 98.5 f’cast, 98 prev
• 14:30 US ECRI Weekly Index, 148.7 prev
• 14:30 US ECRI Weekly Annualized, 2.6% prev

Looking Ahead – Events, Other Releases (GMT) 
• 17:30 Fed’s Kaplan speaks in Texas

Commentary and Analysis

EUR/USD off lows on profit-taking, surging labour costs 
• EUR/USD 1.1543-1.1615 rise in Europe
• Recovery largely due to the big extent of ECB inspired decline from 1.1853
• Clear need for a correction with 1.1661 38.2% of the fall seen last 24 hours
• EZ labour costs also surged to 2% way over 1.4% f/c and highest since 2011
• So soon after the ECB and coupled weaker euro will challenge H2 2019 view
• However, huge EUR/USD longs at risk to hawkish Fed, prospect wider rate gap
• Key support @ 1.1448 50% 1.0340-1.2556 rise and 100/200-WMAs 1.1426/16

USD/JPY bulls halted after June’s 2nd biggest one-hour drop
• USD/JPY had been making good progress, but gains have been halted in London
• Friday sees 110.90 to 110.39 drop in London, as near-term bulls buckle
• Also 2nd biggest one-hour drop of June so far (open 110.76, close 110.52)
• Bulls staged resolute fight back to register close above Fibo
• BoJ stands pat as eyed, that caused USD/JPY to rise
• BoJ Gov Kuroda: Growth moderate, to stick to current policy

GBP/USD helped off 17-day low by profit-taking on shorts 
• GBP elicited support pre-1.3200/05 after breaking below 1.3229
• Subsequent rise to threaten 1.3300 aided by some profit-taking on shorts
• 1.3300 is a former support level. 1.3301 = 38.2% of 1.3446-1.3212
• 1.3446 = Thursday high on UK retail sales beat, pre-dovish ECB rate guidance
• 1.3205 was six-month low on May 29. 1.3200 is an option barrier level
• Large 1.3250 option expiry for 10am ET NY cut (1400GMT), GBP 967mn strike

AUD/USD remains under pressure on US/China trade concerns
• Global trade concerns continue to weigh on the risk-sensitive AUD
• Trump is expected to unveil revised China tariff list today
• China promises fast response as Trump readies tariffs
• AUD/USD revisited 0.7454 (Asia one-month low) in early European trade
• Subsequent climb to 0.7480 aided by some profit-taking on short positions
• AUD/USD fell by 1.4% Thursday, its steepest one-day decline since Feb 2

GBP braces for another long week of Brexit politics 
Sterling will once again be at the mercy of Brexit politics next week, with a House of Commons debate on finalising Brexit laws scheduled for Wednesday (June 20). GBP/USD broke below the 1.3300 level for the first time since May 29 on Thursday after pro-EU MPs in the Tory Party said PM May had offered them much less than they were expecting in a new amendment setting out parliament’s role in shaping Brexit. The pound’s fall came 48 hours after it caught a bid when the same group of pro-EU Tory MPs backed the government in a key Commons vote on shaping Brexit, on expected concessions. With the bad blood between May and her europhile backbenchers getting worse, a rebellion can’t be ruled out. Indeed, Ladbrokes has shortened the odds of May no longer being PM at month-end to 5/1, from 6/1 Tuesday and 10/1 last week. Sterling will take a knee-jerk hit if May faces a Tory leadership challenge or unexpectedly resigns.

German politics add to euro’s travails after ECB hit 
A threat to the survival of Germany’s CDU-CSU/SPD coalition government adds to the euro’s woes after the single currency’s steep slide on the back of the ECB’s dovish rate guidance Thursday. Chancellor Merkel (CDU) has so far failed to placate leaders of the CDU’s Bavarian sister party in a dispute over migrant policy ahead of a Bavarian regional election in October, with the CSU to decide on further steps at a meeting on Monday. If the dispute cannot be settled, Merkel may be forced to sack her CSU Interior Minister Seehofer. This would trigger a German government crisis which could spur further liquidation of long EUR positions. IMM speculators upped gross EUR long positions by 9% in the three weeks to June 5–a period which encompassed Italian political turmoil, to help maintain a hefty gap over gross EUR shorts . Some of those euro longs may be jettisoned if EUR/USD breaks below 1.1500 (option barrier level). 1.1510 was the 10-month low on May 29, at the height of Italian political turmoil

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Futuro del peso mexicano 15-6

Dollar Slips While Escalating Trade Tensions May Roil Markets

  • Market attention shifts from central banks to trade tensions
  • The growth trajectories of the two largest economies are diverging
  • Investors are still struggling to make sense of this week’s central bank meetings
  • The yen is stronger even though the BOJ lefts rates on hold and downgraded its inflation assessment
  • Central Bank of Russia is likely to keep rates steady at 7.25%
  • The massive amount BRL swaps being issued will likely have negative consequences
  • COP should start to suffer more due to rising political risks
50 HMA= 474.90
100 HMA= 476.50
Futuro del peso mexicano 15 - 6

Futuro del peso mexicano 13-6

The May Producer Price Indices for final demand were firmer than expected, with the all-items index (mkt +0.3% m/m, +2.8% y/y) up 0.5% m/m and 3.1% y/y, while the ex-food and fuels index (mkt +0.2% m/m, +2.3% y/y) rose 0.3% m/m to reach +2.4% y/y. Our preferred core measure (ex-food/fuels/trade), however, ticked up just 0.1%, so take the previous data with a grain of salt.

50 HMA= 484.80
100 HMA= 486.80
Futuro del peso mexicano 13 - 6

FX Market Update 12-6

Market Briefs
• EUR/USD 0.11%, USD/JPY 0.11%, GBP/USD 0.17%, EUR/GBP -0.06%
• DXY -0.06%, DAX -0.14%, FTSE -0.4%, Brent 0.39%, Gold -0.12%
• Trump, Kim agree on denuclearisation, but deal seen symbolic
• China suggests N.Korea sanctions relief as Trump, Kim meet
• DE ZEW Economic Sentiment, -16.1, 14 f’cast, -8.2 prev
• DE ZEW Current Conditions, 80.6, 85 f’cast, 87.4 prev
• German upswing remains robust despite U.S. tariff threat -OECD
• GB Claimant Count Unem Chng, -7.7k, 31.2k prev
• GB ILO Unemployment Rate, 4.2%, 4.2% f’cast, 4.2% prev
• GB Employment Change, 146k, 110k f’cast, 197k prev
• GB Avg Wk Earnings 3M YY, 2.5%, 2.6% f’cast, 2.6% prev
• FR Non-Farm Payrolls Rev, 0.20%, 0.30% prev
• OPEC will squeeze oil buffer to historic lows with an output hike
• In Brexit showdown, British PM May faces issue of “meaningful vote”
• With rate hike in the bag, focus turns to Fed’s policy language
• Gold dips on strong dollar post Trump-Kim meeting; Fed in focus
• Oil edges up, but bulls remain wary ahead of OPEC meeting

Looking Ahead – Economic Data (GMT)
• 12:30 US Core CPI YY, NSA, 2.2% f’cast, 2.1% prev
• 12:30 US CPI YY, NSA, 2.7% f’cast, 2.5% prev
• 12:55 US Redbook YY, 4% prev

Looking Ahead – Events, Other Releases (GMT) 
• N/A U.S. Federal Reserve’s Federal Open Market Committee starts in Washington
• 14:00 Senate Committee votes on the nominations of Richard Clarida to be Fed vice chairman and Michelle Bowman to be a member of the Fed Board of Governors in Washington

Commentaries and Analyses

EUR/USD up in Europe as rates lend the euro a hand (nL1N1TE0AO) 
• EUR/USD soft in Asia trading lower within a 1.1803-1.1741 range
• Pair supported in Europe rising 1.1757-1.1809
• Interest rate mkts ahead FED/ECB shift in support of a higher EUR/USD
• US/German 10-year spread narrows to 245bp, tightening by 14bp since end-May
• Further 1bp tightening would take spread to narrowest since mid-May
• EUR 8 shorts estab since start May. Break 1.1840 or 1.1700 will excite

USD/JPY, sold in Ldn after US-NK summit, vulnerable to squeeze (nL1N1TE0AM)
• USD/JPY selling in late Asia, throughout Ldn could see short squeeze from NY
• Few details on how NK denuclearisation will be achieved weighs on USD/JPY
• USD/JPY rose from 110.00 to hit 110.49 in Asia, ahead of the easing in Ldn
• Bulls had earlier leapt over 200-DMA to focus on key Fibo
• Japanese exporter offers said to be in size at 110.50 and above
• Widening UST-JGB spread underpin USD/JPY bulls ahead of Fed

GBP/USD reclaims 1.34 handle after dip on UK earnings miss (nL1N1TE095) 
• Cable fell to 1.3380 in knee-jerk reaction to below f/c UK earnings data
• Headline earnings +2.5%, ex-bonus earnings +2.8%, both 0.1% below f/c
• Larger than expected rise in employment is silver lining for GBP bulls
• 146k vs 110k f/c. ILO jobless rate 4.2%, as expected
• Rally from 1.3380 topped out a pip shy of 1.3419 (pre-UK data high)
• 1.3343 was early Europe one-week low. 1.3345-1.3441 was Monday’s range

AUD/USD elicits support from ‘positive’ Trump-Kim summit (nL1N1TE08R)
• Risk-sensitive AUD ticks up to 0.7623 vs USD after Trump/Kim summit
• Trump, Kim sign agreement but few specifics
• 0.7621 was Asia high and Monday’s high. 0.7627 was last Friday’s high
• Interim low between Monday’s high and Asia high was 0.7584
• AUD/USD could extend north if US CPI data softer than expected at 1230GMT
• US CPI f/c +0.2% MM, +2.7% YY. Core CPI f/c +0.2% MM, +2.2% YY

COMMENTS
Higher USD yield, RBNZ to sap NZD/USD strength 

With U.S. interest rates about to become the highest of all in developed markets and risk appetite underpinned by the U.S.-North Korea agreement, the dollar is looking an attractive buy especially against the New Zeland dollar. A potentially dovish RBNZ at the end of the month and the fact that speculators are short of the greenback versus the kiwi may makes this the best dollar long play. This week the Fed Funds target is expected to rise to 2%, making the dollar’s yield the highest within developed FX markets and with stocks holding their long-term uptrends and vols in FX majors low, that big carry is going to attract a lot of demand. On the flip side, the new RBNZ Governor Orr struck a dovish tone at his first meeting on May 10 and with NZD/USD around 1% stronger than it was on May 10, the RBNZ is almost certainly going to repeat that dovish view on June 27. The 55-DMA at 0.7089 and daily Ichimoku cloud 0.7100-0.7175 provide strong resistance to sell against.

Widening UST-JGB spread spur USD/JPY bulls ahead of Fed  
The U.S. Federal Reserve is widely expected to raise interest rates for the second time this year, the focus is on whether the central bank will hint at raising rates a total of four times in 2018 which would spur USD/JPY gains. Meanwhile, the BoJ is widely to maintain its loose monetary policy on Friday. The 10-year UST-JGB yield spread will therefore likely remain a key influence over USD/JPY in coming days. The relationship (30-day log correlation) between USD/JPY and the UST/JGB spread since May 9 has been above +0.50, the threshold which means the two variables register a daily close in the same direction more often than not. Increased risk appetite in recent days in the run-up to today’s Trump-Kim summit, saw USD/JPY vault the 200-DMA at 110.19. Though Trump, Kim signed an agreement after the summit it had few details on how denuclearisation will be achieved, capping pressure on the safe-haven yen. If the 10-year UST-JGB yield spread continues to widen, this will help secure a USD/JPY bullish daily close above the 200-DMA.

Futuro del peso mexicano 12-6

US-Korea Summit Fails to Impress Investors

  • Investors appear largely unimpressed with the summit
  • With the G7 political theater behind us and the historic US-North Korean summit also over, attention returns to the macro situation
  • Redenomination risk in Italy continues to retract
  • The US reports May CPI figures today
  • USD/MXN is back above 20.50 and approaching the Friday high near 20.6550; India reports May CPI and April IP

50 HMA= 487.70

200 HMA= 493.50

 

Futuro del peso mexicano 12- 6

FX Market Update 11-6

Market Briefs

• EUR/USD 0.24%, USD/JPY 0.42%, GBP/USD -0.31%, EUR/GBP 0.55%
• DXY 0.01%, DAX 0.48%, FTSE 0.7%, Brent -0.94%, Gold -0.18%
• N.Korean, U.S. officials air differences on eve of summit; Trump stays positive
• “Fair trade, fool trade”, Trump’s tweets spew ire on NATO allies, Trudeau
• GB Apr Industrial Output YY, 1.8%, 2.7% f’cast, 2.9% prev
• GB Apr Manufacturing Output MM, -1.4%, 0.3% f’cast, -0.1% prev
• GB Apr Manufacturing Output YY, 1.4%, 3.1% f’cast, 2.9% prev
• GB Apr Goods Trade Balance (GBP), -14.04 bln, -11.35 bln f’cast, -12.29 bln prev
• Britain’s May to urge Conservative unity before parliament’s votes
• Mexico minister calls for ‘flexibility’ in reworking NAFTA
• Bitcoin tumbles as hackers hit S.Korean exchange Coinrail
• Oil prices slip as U.S. and Russian supplies grow
• Gold dips on uncertainty about Fed, U.S.-N.Korea summit

Looking Ahead – Economic Data (GMT) 
• 15:00 New York Fed Survey of Consumer Expectations (May)

Looking Ahead – Events, Other Releases (GMT) 
• 15:00 Angela Merkel meets heads of the IMF, WTO, the World Bank, the ILO and the OECD for talks in Berlin
• 15:45 FedTrade operation taking 30-year Ginnie Mae (max $510 mn)
• 17:20 German Finance Minister Peter Altmaier speaks at opening of CEBIT Business Fair for Innovation and Digitization

Commentary and Analysis

EUR/USD rally loses momentum as focus turns to Fed (nL1N1TD07Q)

• Italy vow to stay in euro boosts EUR/USD to 1.1821 in Europe
• Italy 10-year yield currently down 22bp on the day at 2.91%
• EUR/USD rally loses momentum with pair dropping to 1.1790 ahead NA open
• Those short are pinning hopes coming Fed hike boosts USD Wednesday
• However, the weaker euro is certain fuel for ECB hawks on Thursday
• Over 1.1845 may spark squeeze. Bears need sub 21-DMA 1.1738

USD/JPY sees biggest one-hour gain of June as risk rebounds (nL1N1TD06I)

• Asia saw USD/JPY’s biggest on one-hour gain of June in Asia as NK is focus
• Ldn subsequently builds on this to register the fourth latest one-one gain
• Wider 10-yr UST-JGB spread also fuelling USD/JPY’s latest rise
• USD/JPY bulls rebound to focus once again on the 200-DMA
• Japanese exporter offers remain in size above 110.00, could limit gains
• Officials air differences on US-NK summit eve; Trump positive

Sterling hurt by very disappointing UK economic data (nL1N1TD06X)

• GBP/USD down to 1.3361 intra-day low on much worse than expected UK data
• Apr mfg output -1.4% vs +0.3% f/c, biggest drop since Oct 2012 nL4N1TD2Y7
• Industrial output -0.8% vs +0.2% f/c. Construction output +0.5% vs +2.0% f/c
• Goods trade deficit GBP 14.035bln vs 11.35bln f/c, widest since Sept 2016
• Data misses are blow for hawks advocating BoE rate hike on Aug 2
• 1.3441 was early Europe high (pre-UK data). 1.3355 was Friday’s low

AUD/USD supported by rise in risk appetite pre-Trump/Kim (nL1N1TD07Y)

• AUD/USD elicited fresh support pre-0.7600 after retreating from 0.7616
• 0.7616 was European am high. 0.7602 was pullback low from 0.7614 Asia high
• Ascent to 0.7614 spurred by rise in risk appetite: Nikkei closed up 0.48%
• 0.7575 was early Asia low after tense weekend G7 meeting
• Trump-Kim summit in Singapore Tuesday, AUD could react to it
• 0.7560 was AUD/USD low Friday on decline in risk appetite

COMMENT

May’s Brexit test to dictate GBP/USD’s direction 
Cable could rise towards 1.36, a key technical level, if Tory PM May successfully navigates a tricky week in the UK parliament, when MPs will be voting on the shape of Brexit. May will today continue efforts to persuade rebel MPs to back her government, ahead of House of Commons votes on Tuesday and Wednesday. Pro-EU Tory MPs have to reflect on the fact that shooting May’s Brexit plan down could weaken her leadership and result in a “hard” Brexiteer succeeding her in number 10 ahead of Britain’s scheduled EU exit in March 2019. Sterling could fall sharply if that came to pass. Ladbrokes currently quotes 11/8 for May to be replaced as PM this year versus 2/1 seven days ago. Ladbrokes and Paddy Power make prominent eurosceptic Michael Gove the favourite to be the next Tory leader, with William Hill making ardent Brexiteer Jacob Rees-Mogg the favourite. 1.36 approximates to cable’s 200-day moving average.

S.Africa rand could see brief reprieve post-Fed
Like other emerging market FX, the South African rand is at the mercy of the Fed and ECB meetings this week though an overbought USD/ZAR could be ripe for a pullback. An FOMC interest rate rise is already heavily discounted but there’s still room for a post-hike knee-jerk rally in USD/ZAR should the Fed up the hawkish rhetoric. However, price action since last week’s topside break-out has tipped the charts into overbought territory and a retreat may be on the cards after the FOMC. A drop back inside the 30-DMA Bollinger envelope 13.0105 could be a viable objective with the daily tenkan at 12.87 offering value. Any pullback though would provide an opportunity to pick up dollars at cheaper levels before the fundamental backdrop takes the rand lower again

Futuro del peso mexicano 11-6

Drivers for the Week Ahead

  • The Federal Reserve, the European Central Bank, and the Bank of Japan hold policy meetings
  • Trump positioned himself as an outsider at the G7 summit
  • Before the ECB meeting, both Italy and Greece will sell 12-month T-bills
  • We expect continued EM FX weakness, which should lead to more policy responses
Bstops 497  Sstops 485
50 HMA= 488.90
200 HMA= 495.6
Futuro del peso mexicano 11- 6

FX Market Update 8-6

Market Briefs
• EUR/USD -0.42%, USD/JPY -0.37%, GBP/USD -0.06%, EUR/GBP -0.33%
• DXY 0.31%, DAX -0.84%, FTSE -0.72%, Brent -0.93%, Gold 0.18%
• DE Industrial Output MM, -1%, 0.3% f’cast, 1% prev
• DE Trade Balance, EUR, SA, 19.4 bln, 21 bln f’cast, 22 bln prev
• G7 leaders set to clash with combative Trump over tariffs, trade
• Germany urges European unity in face of trade tensions with U.S.
• For high-stakes summit with Kim, Trump trusts his gut over note cards
• Brace for a possible “Brexit meltdown” but don’t panic, UK’s Johnson cautions – BuzzFeed
• China’s export growth steady in May, import growth faster but not from US
• France calls for more German ambition on the euro zone
• It’s up to Italy to tackle its debt pile – German FinMin
• Gold edges up ahead of G7, but dollar recovery caps gains
• Oil prices fall on dip in China demand, surging U.S. output

Looking Ahead – Economic Data (GMT) 
• 12:15 CA House Starts, Annualized, 218k f’cast, 214.4k prev
• 12:30 CA Capacity Utilization, 86% prev
• 12:30 CA Employment Change, 17.5k f’cast, -1.1k prev
• 12:30 CA Unemployment Rate, 5.8% f’cast, 5.8% prev
• 14:00 US Wholesale Invt(y), R MM, 0% f’cast, 0% prev
• 14:00 US Wholesale Sales, MM, 0.3% f’cast, 0.3% prev

Looking Ahead – Events, Other Releases (GMT) 
• No major econ events scheduled

Commentary and Analysis

Weak German data and jump for Italy yields hit EUR/USD
• Interest rate markets quickly unwind the moves previously supporting EUR/USD
• Spec of hawkish ECB forgotten as focus reverts to still elevated Italy risk
• UST/Bund 10-yr spread 6bp wider wiping most of the week’s 9bp narrowing
• Italy 10-year yield jumps as high as 3.12%
• CB buying dips underpins EUR/USD but pair still down around 50 ticks
• German Apr IP -1% vs 0.3% f/c. German trade surplus narrows weaker export

GBP/USD softer as EUR/USD falls on Italian bond yields rise
• Cable drop to threaten 1.3400 spurred by EUR/USD fall from 1.1810 to 1.1772
• EUR/USD fall influenced by Italy bond yields rise nL5N1TA0R3
• EUR/GBP down to 0.8773 (two-day low). 0.8791 was Asia low and NY low
• GBP was negatively impacted by Brexit politics Thursday: 1.3368 = cable low
• Johnson says there could be a “Brexit meltdown” – Buzzfeed
• 1.3453 was rally high from 1.3368 on BoE’s upbeat Ramsden

USD/JPY 5th biggest one-hour June drop as risk aversion up
• London sees 5th biggest one-hour USD/JPY drop of June as bears tighten grip
• Spot falls from 109.85 to 109.28 today, 1.1B 109.00 NY cut options beckons
• Downside USD/JPY fears grow in the options market
• Yen is in demand from risk averse flows via spot and options
• USD/JPY bears are now focused on tenkan at 109.19, close below will weaken
• Tenkan line is wide watched by traders, especially in Tokyo

AUD/USD threatens Monday’s low on loss of risk appetite
• AUD/USD eyeing Monday’s low of 0.7558 after breaking below 0.7576
• 0.7576 was the early Europe low and a Fibo support level
• Recovery rally from 0.7576 topped out five pips shy of 0.7600
• AUD losses fuelled by risk aversion: Hang Seng closed -1.8%
• DAX -1%, S&P e-mini -0.6%. Ldn copper -1.05
• 0.7500 among AUD/USD bear targets (0.7514 = June 1 low after NFP/AHE beats)

USD vulnerable to selling as Fed, ECB eyed (nL2N1T9275)
The dollar could see another round of selling ahead of next week’s Federal Reserve and ECB meetings given its struggle to gain upward traction despite the recent rebound in U.S. Treasury yields. Technicals also suggest further falls, with the USD index, which tracks the greenback versus a basket of six currencies (the euro and the yen are its two biggest constituents), registering its first negative 14-day momentum reading since mid-April. A resumption of EUR/USD gains would have a huge negative effect on the dollar index as despite intraday weakness, euro bulls retain the upper hand going into next Thursday’s ECB meeting where the central bank looks set to discuss an end to its QE. Yen is in demand from risk averse flows via spot and the options market. USD/JPY seems to be heading for a test of 109.00, putting further downward pressure on the USD index. The dollar normally falls in June, a daily close by the index below the 30-DMA (which is at 93.383) will pave the way to 92.440 Fibo — 38.2% of the 88.251 to 95.030 (2018) rise.

UK wages may offer GBP reprieve from Brexit travails 
An upside surprise in UK earnings data next Tuesday may offer the pound a reprieve from its Brexit travails which are back in focus with crunch votes next week. The earnings report is due before a series of UK House of Commons votes on Brexit scheduled for Tuesday evening, before the focus likely turns to UK inflation data Wednesday. Headline earnings growth is forecast at 2.6%, unchanged from previously, with ex-bonus earnings growth forecast at 2.9%. An earnings beat would be a further boost for hawks advocating a BoE rate hike on Aug 2, following this week’s hawkish shift in BoE expectations–which helped inflate GBP/USD to a 16-day high of 1.3472. Annualized CPI is forecast to rise to 2.5% from April’s 13-month low of 2.4%. UK ONS May retail sales data, due Thursday, adds to the event risk for GBP next week. Annualized retail sales growth is forecast to rise to 2.4% from 1.4% in April.

Italy risk and Fed hike to send EUR/USD back to 1.15 
Italy risk remains elevated yet EUR/USD is 270 pips above last week’s low and with the Fed set to hike next week may have been set-up for a fall. A sell-off looks very likely with a 1.1500 retest to follow any close below the 21-DMA at 1.1745. Italian bonds suggest risks for the euro remain very high with the 10-year yield 3.09 percent compared to a closing high last week of 3.10 percent, (traded high 3.38 percent). Yet EUR/USD has staged a rally of almost 3 percent from the lows seen during the turmoil last week. Current EUR/USD strength is even more surprising considering the pair usually undergoes a period of pressure ahead of a U.S. hikes with moves down ahead Dec and March Fed moves around 2 percent. For a change there’s a EUR/USD drop has not been factored in relation to higher U.S. rates but the spread for benchmark U.S./German bond yields is only 10bp below the high for the divergence driving EUR/USD down