By FXEmpire.com
After a thin eco calendar last week, the economic calendar is better filled this week with the data centered on Tuesday, Wednesday and Thursday. Most important are the retail sales but also the CPI inflation data, Empire State & Philadelphia Fed manufacturing index, the housing starts and building permits and industrial production data are interesting.
In the US, the main question is whether the strength in consumer demand continued in April. During the first three months of the year, US retail sales were remarkably strong, probably due to the extremely mild weather. On a monthly basis, inflation is forecasted to come out flat due to lower food prices, while energy prices will probably have stayed flat. We believe that the risks are for a slightly higher outcome. Core inflation is forecast to remain sticky in April.
Last week, EUR/USD simply continued the downtrend that started on May 01. The pair even dropped below the key 1.2974 support area. There were few economic data on both sides of the Atlantic. However, the outcomes of the French presidential elections and of the Greek Parliamentary elections were seen as marking a new phase in the EMU debt crisis. Political leaders in several European countries face ever more headwinds as their political home base is rejecting ‘EMU-inspired’ policy of fiscal austerity. The focus was on Greece, much more than on France, as there was no political majority in the Greek parliament to meet the requirements of the EU/IMF bailout package. This injected another high dose of uncertainty in the European markets. In the financial press, the debate on Greece leaving or even on a break-up of the EMU intensified. This is of course no help for the single currency. Even more, the most important factor for markets in general and for the euro in particular was that EMU policy makers openly addressed the issue of a Greek exit. It was no longer politically incorrect to comment on the Greek exit, now known as ‘Grexit’. In addition, the developments in the financial sector remain also a source of elevated uncertainty. The rescue plan of the Spanish government as published on Friday failed to convince markets. So, the euro crisis is reaching a new zenith.
EUR/USD dropped below the 1.2974 range bottom. This is a high profile warning! On the other hand, the decline continues to develop in a remarkably orderly way.
At the start of this new trading week, one can only expect more of the same. The political deadlock in Greece continues and new elections (with a euro negative outcome) are highly probable. Contrary to what was the case last week, there are also several interesting eco data on the calendar. Markets will keep a close eye on the US April retail sales as they are an important indicator on the momentum of the US economy at start of the second quarter. Later this week, the US eco data have less market moving potential. A good retail sales report might accentuate the difference in economic momentum between the US and Europe and might support the dollar. However, can you imagine risk aversion in the wake of a weak retail sales report being euro supportive? In the EMU, investors will look out to the ZEW confidence (on Tuesday) and the Q1 GDP growth figures from most EMU member states and for the EMU as a whole. The German/EMU data will get ample attention.
Originally posted here
