USD: Shots fired

Political noise out of Europe and the US taking the wheel Tuesday morning as investors head into a shortened trading week. Last week, president Trump gave an unusual speech at the NATO summit, calling for allies to fulfill higher financial contributions to the group. The speech was unusual for a few reasons; first, Trump openly criticized the NATO alliance as ‘obsolete’ during the campaign trail, and secondly that he called out the other G7 nations in such a public manner. A speech from German Chancellor Angela Merkel is being characterized as retaliatory. In a campaign event, Merkel cited the US as an unreliable partner, saying that “the times when we could completely rely on others are, to an extent, over.” Although the Chancellor did not call out President Trump by name, she said that her realization had come “in the last few days” following the NATO summit.

With politics fading out some of the hard data, including personal income and spending which picked up in April, we will be looking for manufacturing data on Thursday and the monthly jobs report on Friday.


EUR: EUR all I need

While Angela Merkel’s comments drive a higher euro, ECB President Mario Draghi is pushing for it to go lower. Draghi continues to stress that the euro area still needed “an extraordinary amount of monetary support” to support inflation. A stronger than expected economic recovery has pushed investors to a more hawkish tilt towards ECB policy, cries that have not been answered.

Alongside other policy makers, Draghi maintains that inflationary pressures remain subdued despite topline gains in growth. While his efforts caused a slight dip in the euro, it seems that investors are still eager to ‘buy the rumor, sell the fact’ and euro remains supported near 1.12.

We will be closely watching the flash inflation estimate for the currency bloc on Wednesday as well as speeches from other ECB policymakers to see whether they keep in line with Draghi’s dovish tilt.


GBP: May the force be with you

British Prime Minister Theresa May is enjoying the spotlight in UK politics… or not. With the snap elections just over a week out, polls are showing that May’s 20 point lead has eroded into the single digits. The Prime Minister called the elections in an effort to capture a larger majority for her party within Parliament, but a disastrous reversal on a controversial social care reform that has been dubbed “the dementia tax” has certainly hurt her conservative party.

We have seen sterling slide after reports as these polls numbers surface, and we expect political headlines to guide the pound with the election so close.


CAD: Of oil and the USA

Topline data out of Canada on Wednesday will include GDP growth figures for the first quarter of the year. After growth slowed from Q3 to Q4 of last year due to weaker domestic demand, analysts are looking for a pickup in the first three months of the year. Business investment slowed at the end of last year, but a pickup in this sector could help fulfill the 3.6% annual growth that analysts are looking for in Q1.

Canadian dollar is tracking oil prices lower on Tuesday morning as we continue to chase US political headlines. With tensions running high after the NATO summit, we anticipate that developments in the realm of US politics to play heavily in USDCAD.


AUD: Domestic data in focus

Outside of tracking risk appetite and commodities, we are looking to a few key data points out of Australia this week. Building permits rose more than expected in April after a significant drop in March which marked a five-month low. A pickup in the private sector led the 4.4% gain.

Private sector credit for business, housing, and personal spending will shed some light on the consumer market Wednesday, followed by retail sales on Thursday. A survey of manufacturers also due Thursday will give some insight on what manufacturers are experiencing and expecting over the horizon.


JPY: Hungry for risk

With the political noise in Europe and the US, we can expect the yen to follow broader trends in risk appetite. Reaction to polling ahead of the UK snap elections next week will be front and center. As investors position themselves for month-end.

Domestically, we are looking at industrial production figures for March on Wednesday, manufacturing and construction data Thursday, and capping the week off with consumer confidence readings Friday.