Week In FX Americas – US Sentiment Unchanged, Focus On ECB

• UoM consumer sentiment little changed
• Households anticipate lower incomes
• Will retail spending be effected?
• Market focus turns to the ECB

To sell in May and go away never really materialized for capital markets. Even month-end volatility is a disappointment. Event risk focus now looks to the ECB for hope next week. Will Draghi and company following through aggressively enough to combat low inflation and lending issues? Capital markets needs them to, otherwise the remainder of Q2 will be laboriously unexciting, except for a month of World Cup football.

Draghi has dropped many hints about next weeks meeting and investors have not been adhering to one particular outcome just yet. Many expect the ECB is going to cut its policy interest rate and/or announce targeted liquidity measures, with a view to supporting bank lending. Other expects a mixture of the above with cuts to deposit rates and some money market liquidity measures. The problem for the EUR bear is that any or all may not be enough to weaken the single unit currency outright. All the recent open market talk seems to have set the “expectations bar extraordinary high” and whatever is finally announced next week may not be a big enough of a surprise to punish the EUR to weaker levels.

In the US, on Friday saw the final May reading of UoM consumer sentiment. Its headline was little changed from the preliminary reading (pushing to 81.9 from 81.8). Digging deeper, the current conditions index was revised down to 94.5 from 95.1, but the expectations index was revised up to 73.7 from 73.2. Despite the month-over-month decline, the headline average was similar to the first four-months of this year (81.7). This would suggest that consumers might be ignoring the weak Q1 economy. Nearly half of all households anticipated a decline in inflation adjusted incomes and living standards over the next 12-months. Will the softer print convince many to revise down their estimates for retail spending?

Expect geo-political and event risk to be dealt with within the confines of the already established tight trading ranges, at least until investors get a better understanding of what Draghi and company is all about on June 5th.