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Dollar Recovers in Range Bound Markets, No Breakout Yet

The financial markets continue to be range bound today, as traders seem to be holding their bets before Friday’s US job report. Dollar is recovering mildly but it’s held below next term resistance levels. Sterling is currently the stronger one, while Swiss France is the weakest.

Technically, we’re still staying near term bearish on the Dollar in general despite today’s recovery. Key levels to watch include 1.4090 support in GBP/USD, 0.7673 support in AUD/USD, 0.9046 resistance in USD/CHF and 1.2201 resistance in USD/CAD. As long as these levels whole, the next committed move in the greenback is more likely down than up.

In Europe, at the time of writing, FTSE is up 0.14%. DAX is up 0.02%. CAC is up 0.27%. Germany 10-year yield is down -0.0112 at -0.189. Earlier in Asia, Nikkei rose 0.46%. Hong Kong HSI dropped -0.58%. China Shanghai SSE dropped -0.76%. Singapore Strait Times dropped -0.82%. Japan 10-year JGB yield dropped -0.0006 to 0.079.

ECB: Euro unchallenged as the second most widely used global currency

ECB President Christine Lagarde said in an annual review that “the euro remains unchallenged as the second most widely used currency globally after the US dollar”. Share of Euro across various indicators of international currency was stable, averaging around 19% in 2020.

The relative resilience of the international role of the euro despite the pandemic shock stands in contrast to the significant decline observed in the wake of the euro area sovereign debt crisis. “To some extent, this development may reflect the effectiveness of the unprecedented policy support measures and coordinated approach that have prevailed in the euro area during the COVID-19 crisis,” said Lagarde.

On the topic of digital currency, Executive Board member Fabio Panetta said, “depending on its design, a central bank digital currency may support the use of a currency in cross-border payments. However, fundamental forces, such as the quality of economic policies and institutions, as well as the depth of markets, remain the most important factors for international currency status.”

Eurozone PPI at 1.0% mom, 7.6% yoy in Apr

Eurozone PPI came in at 1.0% mom, 7.6% yoy in April, above expectation of 0.9% mom, 7.3% yoy. For the month, industrial producer prices in the Eurozone increased by 1.8% for intermediate goods, by 1.0% in the energy sector, by 0.5% for non-durable consumer goods, by 0.4% for durable consumer goods and by 0.3% for capital goods. Prices in total industry excluding energy increased by 0.9%.

EU PPI came in at 0.9% mom, 7.6% yoy. The highest increases in industrial producer prices were recorded in Ireland (+6.2%), Spain (+2.9%) and Estonia (+2.1%), while the only decreases were observed in Croatia (-0.4%) and France (-0.3%).

Also released, Germany retail sales dropped -5.5% mom in April, versus expectation of -2.0% mom. UK Mortgage approvals rose to 87k in April, M4 money supply rose 0.1% mom.

BoJ Adachi: Post-pandemic era may give a prime opportunity to achieve inflation target

BoJ board member Seiji Adachi said in a speech, “the post-COVID-19 phase may be an opportunity for the services industry to raise the prices of their services while improving their quality.”

“As Japan’s past deflationary phase is characterized by the fact that there were almost no price rises in the domestic demand-oriented services industry, the post-COVID-19 era may afford a prime opportunity to achieve the 2 percent price stability target,” he added.

Australia GDP grew 1.8% qoq in Q1, recovered to above pre-pandemic levels

Australia GDP grew 1.8% qoq in Q1, above expectation of 1.1% qoq. Through the year, GDP rose 1.1%. Head of National Accounts at the ABS, Michael Smedes said: “With 1.8% growth in the March quarter 2021, Australian economic activity has recovered to be above pre-pandemic levels and has grown 1.1% through the year.”

RBNZ Rayner: Unconventional tools to remain mainstream with low interest rates

RBNZ Head of Financial Markets Vanessa Rayner said in speech, “unconventional” monetary policy tools will “likely remain mainstream for as long as global central bank policy rates remain at, or near record lows”. With the OCR at current low level, RBNZ has “less space” to cut interest rates further. Also, there’s a “limit to how negative rates can go before causing adverse side effects”.

“This means that other tools that utilize the balance sheet have become an important part of the ‘package’ of monetary policy instruments that global central banks have turned to,” she added. The tools can work together in different ways, to “better calibrate an ‘optimal package’ of monetary policy tools in response to future shocks”.

Released from New Zealand, terms of trade index rose 0.1% in Q1, versus expectation of -0.4%.

GBP/USD Mid-Day Outlook

Daily Pivots: (S1) 1.4114; (P) 1.4181; (R1) 1.4216; More

Range trading continues in GBP/USD and intraday bias remains neutral. With 1.4090 support intact, further rise is still expected. On the upside, sustained break of 1.4240 will resume larger up trend from 1.1409. Next target is 1.4376 long term resistance. On the downside, however, break of 1.4090 support will extend the consolidation from 1.4240 with another falling leg. Intraday bias will be turned back to the downside for 1.4008 resistance turned support first.

In the bigger picture, as long as 1.3482 resistance turned support holds, up trend from 1.1409 should still continue. Decisive break of 1.4376 resistance will carry larger bullish implications and target 38.2% retracement of 2.1161 (2007 high) to 1.1409 (2020 low) at 1.5134. However, firm break of 1.3482 support will argue that the rise from 1.1409 has completed and bring deeper fall to 1.2675 support and below.

Economic Indicators Update

GMT Ccy Events Actual Forecast Previous Revised
22:45 NZD Terms of Trade Index Q1 0.10% -0.40% 1.30%
23:01 GBP BRC Shop Price Index Y/Y Apr -0.60% -1.30%
23:50 JPY Monetary Base Y/Y May 22.40% 25.20% 24.30%
01:30 AUD GDP Q/Q Q1 1.80% 1.10% 3.10%
06:00 EUR Germany Retail Sales M/M Apr -5.50% -2.00% 7.70%
08:30 GBP Mortgage Approvals Apr 87.0K 85.0K 82.7K
08:30 GBP M4 Money Supply M/M Apr 0.10% 0.70% 0.60%
09:00 EUR Eurozone PPI M/M Apr 1.00% 0.90% 1.10%
09:00 EUR Eurozone PPI Y/Y Apr 7.60% 7.30% 4.30%
12:30 CAD Building Permits M/M Apr -0.50% -5.20% 5.70%
18:00 USD Fed’s Beige Book

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