Following a test above the historical 1.60 level, the Euro rally against the US dollar lost its steam and the pair retreated lower. Increasing evidence that the Euro zone will not be able to de-couple from US slowdown has kept the pair range-bound since May. The Fed’s recent hawkish shift creates symmetry between their monetary stance and that of the ECB, suggesting the pair may be mired in a range for some time to come.
[B]Trading Tip[/B] – Thursday saw Ireland hold a referendum deciding whether the country will approve the Treaty of Lisbon, a revision of the EU Constitution that was voted down in similar referenda by France and the Netherlands in 2005. At that time, the negative result caused the EURUSD to plummet sharply as pundits debated the continued sustainability of the EU and the single currency. This time around, major European countries opted not to hold referenda, with Ireland being the only country that is constitutionally bound to run it by the voters. The votes are to be tallied Friday and the outcome known around 12pm GMT. This has potential to create substantial volatility. Conservative traders my opt to wait for the outcome of the referendum to be announced and re-evaluate the validity of the range prior to entering orders into the market. To control risk further, we will cancel any unfilled orders should spot close below 1.5400.
[B]Event Risk for Europe and the US[/B]
[B]US [/B]– The week concludes with releases of May’s Consumer Price Index and the University of Michigan’s Consumer Confidence Index. The former is likely to see the headline figure distorted by surging commodity prices, causing traders to focus on the Core reading that excludes food and energy items. The latter will face downward pressure - with the US unemployment rate coming in at a record 5.5% last month, we can expect seldom little by way of consumer confidence as disposable incomes deteriorate and crimp consumption. Next week’s event risk begins with Monday’s release of April’s TIC flows data. Last time around these easily covered the monthly trade gap, with more of the same likely as investors cautiously return to dollar-denominated assets. Tuesday brings the Current Account balance for the first quarter, a metric unlikely to stir much of a reaction due to its backward-looking nature given the major shifts happening currently. Tuesday sees May’s Housing Starts data. The reading bounced back a bit in April after a record low in March and traders will look to see if that can be sustained going forward. Finally, the Philadelphia Fed’s manufacturing gauge for June prints Friday, with traders looking for some sustainability here as well following a pull-up off the lows in last month’s reading.
[B]Europe[/B] – The last significant item on this week’s calendar is the final revision of Germany’s May CPI reading. If this registers substantially higher, the likelihood of a one-off July rate hike will increase. Next week’s docket is no less packed than that of the US. Things start off with May’s Euro-Zone CPI with traders yet again looking for enough price pressure to force the ECB’s hand and raise borrowing costs. June’s German ZEW Survey will offer traders a timely look sentiment for the Euro Zone’s largest economy on Tuesday. Trade data will enter the picture later that day and Friday, when the Euro Zone will show its April Trade Balance and Current Account balances for the month of April. The latter figure has been in precipitous decline since a year ago, with last month’s metric amounting to an 8-year low.
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