Feelings lifted but Forex Tread Water
Currency markets are treading water today. Sentiments were boosted by the drop in Chinese rates. UK retail sales were stronger than expected. ECB officials continued to raise the prospect of a hike in July. But none of these triggered significant moves in the markets. For the week, the Swiss franc is still the best performer, followed by the British pound and the kiwi. The dollar is the worst performer, finally ending the winning streak. The Canadian and the Yen are the next weakest.
Technically, the focus will remain on EUR/USD’s ability to break through 1.0641 resistance to confirm successful defense of the 2017 low. cross, especially on the EUR/CHF. At the same time, EUR/GBP and EUR/AUD may extend the decline started from last week’s high, after completing ongoing consolidations. Such a development could pull EUR/USD down. Either way, the euro would likely wait until next week to unveil the next move.
In Europe, at the time of writing, the FTSE is up 1.59%. The DAX is up 1.66%. The CAC is up 1.16%. Germany’s 10-year yield is down -0.0071 to 0.945. Earlier in Asia, the Nikkei rose 1.27%. Hong Kong’s HSI rose 2.96%. China Shanghai SSE rose 1.60%. The Singapore Strait rose 1.56%. Japan’s 10-year JGB yield fell from -0.0025 to 0.240.
ECB Visco: We may move rates in July
Ignazio Visco, member of the ECB’s Governing Council, said in an interview with BloombergTV: “We can act gradually, raising interest rates in the coming months.” June is too early as the central bank will end the net purchase of assets. But, “we’ll move after that – after that it means maybe July.”
“Now I think we can get out of this negative territory,” Visco said, referring to the deposit rate, which has been negative since 2014. “Progressive means in my view that we have to understand that we have to move without creating uncertainty in the market.
Elsewhere, Madis Muller, Member of the Board of Governors, said the focus should be on tackling high inflation. Martins Kazaks said he hoped the first hike “would take place in July”.
Out of Germany, the PPI came in at 2.8% m/m, 33.5% y/y in April, above expectations of 1.4% m/m, 31.4% y/y annual.
BoE pill: there is still work to be done to counter inflation
BoE Chief Economist Huw Pill said in a speech that the balance of risks around inflation is “tilted towards inflation proving stronger and more persistent than expected at this baseline.” . Underlying developments that point in this direction include less contestability of UK labor markets by immigrants and EU workers due to Brexit. The broader process of globalization appears to be stalled and perhaps in reverse. The impact of aging and the longer-term health consequences of the pandemic may have led to a decline in labor market participation in the UK.
Pill added that in this context, “it is crucial to avoid any drift towards integrating such an ‘inflationary psychology’ into the pricing process”. So now is the time to withdraw the monetary policy easing.
“It was the need to continue this monetary policy transition that led me to support the 25 basis point hike in the Bank Rate at the MPC meeting in May,” he said. “And, even after this hike, I still view this necessary transition as incomplete. Further work needs to be done. »
UK retail sales rose 1.4% m/m in April, non-fuel sales up 1.4% m/m
UK retail sales rose 1.4% m/m in April, well above expectations of a -0.2% m/m decline. It’s also more than enough to recoup the -1.2% m/m decline in March. Non-fuel sales also rose 1.4% m/m, against an expectation of -0.2% m/m, reversing the decline of -0.9% m/m in March.
However, for the last 3 months compared to the previous 3 months, overall sales fell -0.3% while non-fuel sales fell -0.5%.
New Zealand exports up 17% yoy in April, imports up 15% yoy
New Zealand’s goods exports rose 17% year-on-year to NZ$6.3 billion in April. Imports were up 15% year-on-year to 5.7% NZD. The monthly trade surplus came in at NZD 584 million, compared to an expected deficit of -NZD 350 million.
Exports increased for all major destinations except China, which fell -1.8%. Exports to Australia increased by 4.9%, the United States by 26%, the EU by 26% and Japan by 58%.
Imports from all major partners increased, including China (up 8.9%), EU (up 18%), Australia (up 44%), US (up 29%), Japan (up 0.5%).
Japan’s core CPI rose to 2.5% yoy in April, core CPI to 0.8% yoy
Japan’s headline CPI (all items) rose from 1.2% y/y to 2.5% y/y in April. Core CPI (excluding fresh produce) rose from 0.8% YoY to 2.1% YoY. The core-core CPI (excluding fresh food, energy) rose from -0.7% year-on-year to 0.8% year-on-year.
The core CPI reading of 2.1% was slightly above expectations of 2.0% yoy. It exceeded the BoJ’s 2% target for the first time since March 2015. Also, it should be noted that core-core CPI was positive for the first time since July 2020.
EUR/USD mid-day outlook
Daily Pivots: (S1) 1.0496; (P) 1.0551 (R1) 1.0642; After…
The intraday bias on EUR/USD remains neutral for now. Given the 4-hour MACD bullish convergence condition, the break of 1.0641 resistance will confirm the short-term low at 1.0348, ahead of the long-term support at 1.0339. The intraday bias will be reversed to the upside for the 55-day EMA (now at 1.0774). On the downside, however, a decisive break of 1.0339 will have a larger bearish implication and will target a 161.8% projection from 1.1494 to 1.0805 from 1.1184 to 1.0069.
Overall, the breakout of medium-term channel support suggests downward acceleration. The current decline from 1.2348 (2021 high) likely resumes the long-term downtrend from 1.6039 (2008 high). The decisive break of 1.0339 will confirm this bearish scenario. The next target is a 61.8% projection of 1.3993 to 1.0339 from 1.2348 to 1.0090. This will now remain the preferred case as long as 1.0805 support becomes resistance.
Economic Indicators Update
|22:45||NZD||Trade Balance (NZD) Apr.||584M||-350M||-392M|
|23:01||GBP||GfK consumer confidence in May||-40||-39||-38|
|23:30||JPY||National CPI Core Y/Y Apr||2.10%||2.00%||0.80%|
|06:00||GBP||Retail sales M/M Apr||1.40%||-0.20%||-1.40%||-1.20%|
|06:00||GBP||Retail Sales Y/Y Apr||-4.90%||-7.20%||0.90%||1.30%|
|06:00||GBP||Retail sales excluding fuel H/M Apr||1.40%||-0.20%||-1.10%||-0.90%|
|06:00||GBP||Retail sales excluding fuel Y/Y Apr||-6.10%||-8.40%||-0.60%||-0.20%|
|06:00||USD||Germany PPI M/M Apr||2.80%||1.40%||4.90%|
|06:00||USD||Germany PPI Y/Y Apr||33.50%||31.40%||30.90%|
|14:00||USD||Eurozone consumer confidence May P||-21||-22|