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4:30 AM UK May PMI Construction Index (exp 56, prev 56.6), 5:00 AM Bank of England interest rate decision (expected to leave rates unchanged at 4.00%), 6:00 AM German April manufacturing orders (exp 0.9% m/m, prev 0%), (exp -y/y, -3.5%)
European currencies stand weaker against the dollar than at NY close, following a strong showing in Wall Street and strong services data from the US, outshining its Eurozone counterpart. The dollar was unfazed by news of Israeli tanks storming Yasser Arafat's Headquarters in early Thursday morning shelling his offices after Palestinian suicide bomber killed 16 people in Israel. One Palestinian officer was killed in the attack and at least 6 injured.
European markets await the decisions on interest rates from the Bank of England and the European Central bank, none of which is expected to make any change. Despite a relatively hawkish inflation report published by the BoE last month, the Bank is not seen raising rates as many observers have begun to speculate. Yesterday, the Confederation of British Industry's retail sales index tumbled to a 5-month low in May to 25 from 56.6, hitting its lowest level in 5 months. The report is stark wake up call to Britain's consumer sector, which has long outpaced its manufacturing counterpart. Also expected to dominate is last month's unexpected downward revision in Q1 GDP to 0%, showing that British growth showed no growth for 2 consecutive quarters. Talk circulated that the BoE was dubious of the Office of National Statistics' GDP release.
Cable's continues to be pressure from two fronts, namely a rallying euro--which weighs on EUR/GBP, or by a rebound in the dollar a recovery. This has placed an increasingly strong resistance at $1.4680-00 with interim pressure at 1.4650-60. EUR/GBP yesterday attempted to regain Tuesday's 2 1/2 year highs of 64.60, but it was weighed on by disappointing services data from the Eurozone. Cable is up a third of cent from its NY close facing resistance at $1.46, with subsequent pressure at 1.4635-40. Support stands at 1.4535-40 followed by 1.45.
The ECB is expected to leave rates unchanged at 3.25%, but market players will want to pick up the latest assessment on the bank's outlook at the monthly press conference coinciding with today's meeting. Despite the fact that the flash estimates of the May CPI fell to 2.0%, matching the ECB's comfort level for the first time in 2 years, ECB Chief Duisenberg did say on Tuesday at the central banking conference in Montreal that there were some risks to the Eurozone inflation outlook from rising oil prices, and that food and oil prices were keeping the Eurozone inflation above 2%. Duisenberg added that the expected turnaround in the region's GDP has been confirmed. Nonetheless, the euro's appreciation will certainly play an important role as a inflation dampener, and it would be important to hear whether Duisenberg will echo European officials' recent barrage of statements that the rise in the euro has no restrictive impact on Eurozone growth.
EUR/USD support seen at 93.60 backed by 93.45, below which could pave the way for 92.80 Resistance remains at 94.20, with accumulated pressure at 94.50 and 95.0.
The Swiss franc pares its gains to trade in the 1.5650s after rising on the back of news of renewed violence between Israel and Palestine prompted safe-haven flows in to the swiss currency. USD/CHF faces resistance at 1.570, 1.5745 and 1.5770. Support holds at 1.5630, 1.560 and 1.5540.