Major Currencies Tread Water as Markets Await BOE, ECB Outcomes

2012-07-04 06:45:00 Ilya Spivak, Head Strategist, APAC

Talking Points

Eurozone, UK PMIs to Reinforce ECB and BOE Policy Easing Expectations
Thin Liquidity May Amplify Volatility, But Conviction Likely to be Lacking

The US Dollar (ticker: USDollar) oscillated in narrow ranges against the major currencies in overnight trade, with markets settling into consolidation mode as liquidity drained ahead of tomorrow’s US market holiday and traders reserved directional conviction before Thursday’s heavy event risk. The European Central Bank and the Bank of England are both due to deliver their monthly policy announcements, with additional easing expected on both fronts.

Final revisions of service-sector and composite Eurozone PMI readings headline the economic calendar. Expectations call for the metric to confirm that cross-sector economic activity in the single currency area shrank for the fifth consecutive month in June. The pace of contraction is expected to match May’s result, amounting to the fastest retrenchment in three years. UK Services PMI is forecast to show the non-manufacturing sector expanded, but at the slowest rate in seven months.

On balance, the slide in third-quarter UK and Eurozone GDP growth expectations (as tracked by a Bloomberg survey of economists) over the past two months suggests traders ought not to be surprised by sluggish performance itself. The focus snow looks to be on what policymakers are prepared to do about the downturn, meaning today’s releases are unlikely to yield much in terms of trend development until the aforementioned rate decisions come across the wires. With that said, thin liquidity conditions can amplify otherwise shallow moves, so it seems wise not to read conviction into any emerging volatility for the time being.

Asia Session: What Happened

GMT	CCY	EVENT	ACT	EXP	PREV
23:01	GBP	BRC Shop Price Index (YoY) (JUN)	1.1%	-	1.5%
23:30	AUD	AiG Performance of Service Index (JUN)	48.8	-	43.5
1:30	AUD	Retail Sales s.a. (MoM) (MAY)	0.5%	0.2%	0.1% (R+)
2:30	CNY	HSBC Services PMI (JUN)	52.3	-	54.7

Euro Session: What to Expect

GMT	CCY	EVENT	EXP	PREV	IMPACT
7:45	EUR	Italian PMI Services (JUN)	42.5	42.8	Low
7:50	EUR	French PMI Services (JUN F)	47.3	47.3	Low
7:55	EUR	German PMI Services (JUN F)	50.3	50.3	Medium
8:00	EUR	Euro-Zone PMI Services (JUN F)	46.8	46.8	Medium
8:00	EUR	Euro-Zone PMI Composite (JUN F)	46	46	Medium
8:00	EUR	Italian Deficit to GDP (YTD) (1Q)	-	3.8%	Low
8:30	GBP	PMI Services (JUN)	52.9	53.3	Medium
8:30	GBP	BOE Housing Equity Withdrawal (£) (1Q)	-8.0B	-8.5B	Low
8:30	GBP	Official Reserves (Changes) ($) (JUN)	-	-1308M	Low
9:00	EUR	Euro-Zone Retail Sales (MoM) (MAY)	0.0%	-1.4%	Medium
9:00	EUR	Euro-Zone Retail Sales (YoY) (MAY)	-1.0%	-3.4%	Medium