The Canadian Retail Sales dropped by 0.1% on a monthly basis in May when compared to the market expectation of +0.3% and +0.2% last, according to the latest data published by Statistics Canada on Friday.

Further, the core retail volumes (excluding autos) fell 0.3% in May, missing the estimate of+ 0.4% and 0.0% booked in April.

The Canadian dollar extended losses on a negative surprise delivered by the Canadian May Retail Sales data, bolstering the USD/CAD recovery in a bid to test the 1.31 handle.

According to analysts at ABN AMRO, the ECB has been criticized for the asymmetric inflation target, a criticism which has also been levelled at the Fed.

Key Quotes

“Bloomberg reported that European Central Bank staff have begun studying a potential revamp of their inflation goal, according to officials familiar with the matter.”

“Draghi said at the June press conference that "the conviction that we should pursue our objective in a symmetric fashion was also expressed". He has actually been in "camp symmetry" since at least 2016 (speech).”

“The same goes for former chief economist Peter Praet (here). Also Rehn has supported a symmetric approach (here). “Following this policy would help prevent the drifting of inflation expectations persistently below the target.”

“If ECB formally goes for revamping the goal towards "symmetry" around 2% it's dovish and "lower-for-longer". But a caveat would be that given how successful Draghi has been over the years in guiding expectations it ought to be at least partly priced-in. For example, long-term breakeven inflation rates rose only a couple of basis points in a reaction to the Bloomberg story.”

In view of analysts at TD Securities, the University of Michigan's sentiment indicator is expected to show a modest improvement in July to 98.8 from 98.2 before and just a tad below this year's high at 100.

Key Quotes

“Strong stock market performance and a still-solid labor market are likely to be factors behind the improvement. Most of the attention, however, will be on the inflation expectations components that have gained particular relevance in the Fed's reaction function. At 2.3%, 5-10y inflation expectations remain stuck at all-time lows and continue to be an ongoing concern for the Fed.”

  • Dollar strength, souring risk sentiment weighs down on the Aussie.
  • Rally in oil, copper prices slows the fall, as focus shifts to US Consumer Sentiment data.

The AUD/USD pair is on a gradual decline so far this Friday, extending the correction from three-month tops of 0.7082 reached in early Asia.

The spot is seen meandering near daily lows just below the midpoint of the 0.70 handle, as the demand for US dollar when compared to its main rivals remains undisputed, in the wake of less aggressive calls for a July rate cut by the Fed officials.

Moreover, a lack of substantial details about the telephonic conversation between the US and Chinese trade teams combined with no updates on the likely in-person trade meeting left investors in limbo, as they preferred taking profits off the table heading into the key US data and weekly closing.

Despite the corrective move lower, the commodity continues to derive support from the rally in oil and copper that helped slow the pace of declines. Looking ahead, the risk remains to the downside, as the US dollar recovery is likely to strengthen further, with the US Michigan Consumer Sentiment Index seen higher at 98.5 in July vs. 98.2 previous.

Also, any fresh developments around the US-China trade spat and Fedspeak will have a major influence on the price action.

Levels to watch

Analysts at TD Securities point out that the Canadian retail sales for May are the lone data release heading into the weekend and will be a key economic release for the day.

Key Quotes

“TD looks for a 0.3% increase in line with the market consensus, as a pullback in motor vehicle sales weighs on a 0.6% increase in the ex-autos measure (market: 0.4%). After a 0.3% (sa) increase in consumer prices for May, this should leave real retail sales little changed on the month, consistent with some moderation in household consumption after a robust Q1.”

  • USD/TRY met initial support in the 5.60 neighbourhood.
  • US-Turkey tensions back in centre stage on F-35, S-400.
  • Turkey End year CPI Forecast next on tap.

The Turkish Lira has given away initial gains and is now lifting USD/TRY to the vicinity of 5.65, or daily highs.

USD/TRY re-focused on US-Turkey tensions

After four consecutive daily pullbacks, spot is now showing some recovery after briefly testing 2-week lows in sub-5.6000 zone.

Sellers appear to have returned to the Lira after the US excluded Turkey from the F-35 programme, all in response to the purchase of the Russian S-400 defence missile system. Despite Ankara censured the unilateral initiative by the US and advocated for the continuation of the negotiations between both countries, speculations of potential US sanctions have gained momentum in past hours.

Fanning the geopolitical flames, Russia is said to have offered Turkey advanced SU-35 jets.

In the data space, Turkey’s End of Year CPI Forecast is due later, while the flash reading of the US Consumer Sentiment by the U-Mich index will be the salient event in the US calendar.

What to look for around TRY

Recently, the newly appointed CBRT Governor M.Uysal left no doubts the central bank will continue to support price stability in a context of total independence. This view will surely be put to the test at the next monetary policy meeting later in the month. However, the enduring disinflation process looks unabated, as reflected in the performance of consumer prices during June and this could open the door to a potential shift from the central bank to a looser monetary stance, including the palpable chance of rate cuts despite this move on rates appears somewhat untimely in the near term. On another direction, the country needs to implement the much-needed structural reforms (announced in April) to bring in more stability and start a serious recovery in both economic activity and credibility.

USD/TRY key levels

At the moment the pair is gaining 0.71% at 5.6482 and a surpass of 5.7000 (21-day SMA) would expose 5.7556 (100-day SMA) and then 5.7849 (high Jul.8). On the downside, the next support aligns at 5.5971 (low Jul.19) followed by 5.5741 (monthly low Jul.4) and then 5.5639 (200-day SMA).