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USD hit by another data miss; gold and silver push up

by Ashraf Laidi

The recurring disappointment in US retail sales (5th consecutive month below consensus expectations) may have been offset by upward revisions in the March figure, but there is reason for concern over the increasingly consumer-dependent US economy, particularly with the continuous lack of windfall gain to demand from improving weather and falling oil prices in early Q2.

The notable reaction in currency markets is highlighted by the speed at which traders sell US dollars on each and every US data miss -- as the case for a summer Fed hike sustains another blow.

Metals summer resurrection

Gold and silver reveal key improvements on the technical side, with the yellow metal breaking above its 100-day moving average, while retesting its 200-day moving average for the first time in three months.

If the Fed is seen holding rates into Q2 and Q3 due to weakness in growth and employment despite stabilizing inflationary dynamics, then the case for metals is bolstered further. In such a scenario, markets will take a generally USD-negative view, further lifting the usual anti-USD trades (long gold, oil, euros and commodity FX).

BoE balances inflation with rates

The Bank of England’s quarterly inflation report sounded off a dovish tone with regards to its growth forecasts, downgrading 2015 GDP to 2.5% from the 2.9% in February, and lowering 2016 and 2017 GDP projections by 0.3% to 2.6% and 2.4% respectively. Interestingly, the BoE mentioned sterling appreciation and higher interest rate horizon as the basis for its growth downgrades, which in our view is a GBP-positive.

The report had initially weighed on sterling across the board, but we expect the currency to find support near 1.5600 as the Bank of England remains among only two G10 central banks expected to raise interest rates within the next 6-9 months. And let’s not forget those jobs figures—released earlier this morning—prolonged declines in the unemployment rate to 5.5%, while average earnings rising to fresh 4-year highs.

Gold-May-13-2015

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