The EUR and GBP in the Spotlight, with June Service Sector PMIs in Focus

Macroeconomic data is on the heavier side out of the Eurozone this morning, with finalized service sector PMI numbers for June scheduled for release, together with May’s retail sales figures.

We saw the manufacturing sector holds its ground for the Euro bloc, despite an easing in manufacturing activity in Spain in particular, the key figure having been the uptick in manufacturing activity in Germany.

Today’s figures will provide the markets with further evidence on whether the ECB will continue to shift on its monetary policy outlook ahead of the next monetary policy decision, with tomorrow’s minutes of particular interest for the markets, keen to understand whether any more formal discussions have been held on the asset purchasing program and a revision to the timing of the much talked about tapering.

At the time of the report, the EUR managed to make up some lost ground against the Dollar, rising by 0.14% to $1.13623, though direction through the day will be hinged on the private sector and retail sales figures, which are forecasted to be EUR positive, after which we can expect market positioning ahead of key stats through Thursday and Friday out of the U.S and of course the ECB and FOMC meeting minutes, due out tomorrow.

The upside in the EUR held back any gains in the Dollar Spot Index, which stood flat at 96.206 at the time of the report, any major moves following last week’s volatility and the start of the week recovery likely to be on hold ahead of this afternoon’s factory orders, which will provide some direction, but certainly nothing sustainable ahead of tomorrow’s stats and minutes.

Of more interest will be today’s service sector PMI number out of the UK, with last week’s hawkish commentary having provided the pound with some solid gains and near-term support. Today’s figures will need to be stable at a minimum for the markets to continue buying into the BoE Governor’s shift in outlook towards monetary policy, any deterioration in economic conditions at the end of the 2^nd quarter likely to complicate the decision making process at the next Monetary Policy Committee meeting.

Forecasts are for the pace of expansion within the service sector to ease marginally, which will likely have a downward impact on the pound, particularly when considering the contribution of service sector activity to the UK economy, though for the pound to begin moving back to this year’s lows, Carney will need to retract last week’s comments.

At the time of the report, the pound was up just 0.03% at $1.29234, with cable easing from intraday highs ahead of today’s figures.

The quiet middle part of the week is certainly unlikely to last. It’s nonfarm payroll week after all and, with the G20 summit kicking off, the increased tension between China and the U.S, not to mention a first meeting between Putin and Trump, will likely to be watched carefully. The deterioration in relations between the U.S administration and China is certainly not one to be taken lightly.

As things stand, the Dollar is likely to be under pressure through the day, with U.S stats on the lighter side, leaving direction in the hands of macroeconomic data out Europe.