Eurodollar in a key zone ahead of the US retail sales report scheduled for 01:30 pm BST❗
Today's trading session is full of important macro data releases. At the beginning of the day, elevated volatility was triggered primarily by weaker-than-expected retail sales and industrial production data in China. For the China, however, this is not the end of the story, as the PBoC, the central bank there, decided to cut SLF, MLF and Reverse Repo rates, once again reinforcing expectations for decisive moves to stimulate the depressed state of the Chinese economy. The morning's data in Europe was topped by the UK and the British pound, which reacted with gains to the country's historic wage growth reading.
However, investors' attention now turns to data from the US, namely retail sales data for July. As analysts point out, sales are expected to show an increase on a monthly basis to 0.4% against the last reading of 0.2%.
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Data compiled by Bloomberg agencies indicate a 0.13% standard deviation, so with a median of 0.4%, a possible surprise of dynamics below 0.2% could sharply lower expectations for further rate hikes by the Fed, which would benefit the euro. Source: Bloomberg Finance L.P.
It is also worth mentioning that concurrently with the retail sales reading we will learn the important CPI inflation report from Canada. In this matter, it is worth paying attention to whether the reading will come in above expectations, as swaps no longer assume further rate hikes in this country.
In the FX market today we are seeing very high volatility ahead of the data reading. The EURUSD pair is gaining close to 0.3% today due to a rise in swap quotes, which are currently indicating that the ECB will decide to hike interest rates by another 25 basis points. As recently as the beginning of the month, the market assumed that the ECB would not decide to raise rates again. The data for the US Fed no longer assume such hikes.
Comparison of market valuations of the ECB forward rate. Source: Bloomberg Finance L.P.
The euro is gaining against the US dollar close to 0.3% 1.5h before the US retail sales data reading. The pair is currently attempting to move above the zone of recently broken local lows and the limit set by the 100-day exponential moving average (purple curve). Source: xStation 5
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