Echoing Dallas Fed President Kaplan's comments from yesterday, San Francisco Fed President Daly today said that the tariffs imposed by the Trump administration on Chinese imports could help push inflation closer to the Fed's 2% target.
- Political drama continues to weigh on the GBP.
- Uninspiring PMI data from Europe doesn't allow euro to gather strength.
- Coming up on Friday: Retail sales data from the UK.
The EUR/GBP pair dropped below the 0.88 handle today but didn't have a difficult time reversing its direction and moving into the positive territory. At the moment, the pair is trading at 0.8820, adding 0.16% on a daily basis. In case the pair finishes the day higher, its winning streak will increase to 17 days.
Earlier today, the shared currency came under pressure after the Markit Manufacturing PMI and Services PMI's preliminary readings for May came in below market expectations. Meanwhile, in its April 10 meeting minutes, the European Central Bank noted that recent data were even weaker than expected and that the inflation was "uncomfortably below" the bank's aim.
On the other hand, Sir Geoffrey Clifton-Brown, treasurer of the 1922 Committee, today claimed that British Prime Minister Theresa May would face a no-confidence vote if she does not announce her resignation data by this Friday. Although the PM's spokesman said that he was not aware of an announcement on Friday, markets are not expecting to PM May to remain in her position. Additionally, government whip Mark Spencer today said the vote on the Withdrawal Agreement Bill won't be taking place in the week starting June 3, confirming the lack of support for the deal. The latest chatter suggests that the PM is planning to rewrite the WAB.
On Friday, the UK's Office for National Statistics will publish the retail sales data and there won't be any macroeconomic data releases from the euro area.
Technical levels to consider
- Swiss Franc extends gains across the board even after US Dollar reversal.
- USD/CHF having the worst performance in months heads for the lowest close since mid-April.
The USD/CHF was falling modestly on Thursday amid increasing demand for safe-haven assets. Recently it accelerated to the downside on the back of a sharp decline of the US Dollar across the board. The DXY dropped from multi-week highs back to the 98.00 area erasing important daily gains.
The greenback lost strength and reversed sharply following the release of weaker-than-expected US data and amid concerns about the US-China trade war. The Swiss Franc is being supported by the ongoing Brexit drama, the weak EZ data and also the trade war worries.
Against the Euro, the Swiss franc reached today the highest level in a month and moved closer to the 2019 and 2018 lows. While versus the US dollar is having the biggest daily gain in months.
The USD/CHF broke below 1.0065 first and then the 1.0050 zone that capped the decline last week. As of writing, trades at the lowest since April 16 at 1.0039, down almost 60 pips for the day. Short-term technical indicators favor further losses.
“On the back of resurfacing US-China trade tensions, CHF has been slow to appreciate - with USDCHF declining 1% off the 1.0230-40 resistance level. When compared to a 2.5% drop in USDJPY, this suggests that there is some upward stickiness in USDCHF. This could be due to perceived softness in Euro area sentiment. Nonetheless, we like the CHF from a haven perspective”, said Jeremy Stretch and Bipan Rai analysts at CIBC.
AUD/USD daily chart
AUD/USD is trading in a bear trend below its main simple moving averages (SMAs) while at multi-month low. The Aussie has been consolidating its losses in the last four days.
AUD/USD 4-hour chart
AUD/USD is in a range below its main SMAs while bulls are attempting to form a base. The current USD weakness can give AUD/USD a boost.
AUD/USD 30-minute chart
The Aussie is close to challenging the 0.6900 figure while trading above its main SMAs. A break above the level can send AUD/USD towards 0.6930 and 0.6960 resistances. Support is at the 0.6860 level.
Additional key levels
- DXY reverses dramatically from weekly highs and drops into negative territory.
- Euro remains among worst performers but erased losses versus US Dollar.
The EUR/USD pair reversed significantly over the last two hours and erased daily losses. The euro went from trading at the lowest since May 2017 to print fresh daily highs in a few minutes.
After the beginning of the American session, EUR/USD bottomed at 1.1106, slightly below the previous year-to-date low seen at 1.1110. It started to rebound and accelerated to the upside following the release of US economic data. It climbed more than 50 pips from the lows and printed a fresh daily high at 1.1166.
As of writing trades at 1.1160, marginally positive for the day. A consolation around current level would be a positive signal for the euro and could point that a short-term bottom has been reached today.
The PMI report showed that the Flash US Composite Output Index dropped to at 50.9, a 6-month low, the Service Index fell to the lowest in 39 months at 50.9 and the manufacturing declined to 50.6, lowest in nine years. Also, the new home sales report showed lower-than-expected numbers, favoring the reversal in the US Dollar.
Despite the change in the USD daily trend, equity prices are consolidating heavy losses in Europe and Wall Street. The DOW JONES is falling 1.35% and the NASDAQ 1.50%. Among currencies, the Yen and the Swiss Franc are the top performers. Gold is also rising sharply, reflecting the demand for safe-haven assets.
- 10-year US T-bond yield drops to lowest level since Dec. 2017.
- US stocks suffer heavy losses on Thursday.
- US Dollar Index fails to hold above 98.
The USD/JPY pair met a renewed selling pressure in the American trading hours amid intensifying flight-to-safety and touched its lowest level in a week at 109.68. As of writing, the pair was down 0.6% on a daily basis at 109.70.
Earlier today, U.S. Secretary of State Mike Pompeo claimed that Huawei was "deeply tied" to the Chinese Communist Party and said that more U.S. companies would cut ties with the company, further escalating the tensions. The 10-year Treasury bond yield extended its daily slide and slumped to its lowest level since December of 2017 and major U.S: equity indexes started the day in the negative territory with the CBOE Volatility Index, Wall Street's fear gauge, jumping nearly 20%.
On the other hand, the IHS Markit's Flash PMI report revealed that the business activity in both the manufacturing and service sectors in the U.S. expanded at a much slower rate than expected in May and weighed on the greenback.
Following a rally to its highest level in nearly two years at 98.37, the US Dollar Index reversed its course and slumped to the 98 area, not allowing the pair to stage a recovery.
Later in the session, FOMC members Kaplan, Daly, Bostic, and Barkin will be delivering speeches. However, the risk perception is likely to remain as the primary driver of the pair's action. In the early Asian session, inflation data from Japan will be looked upon for fresh impetus.
Technical levels to watch for
DXY daily chart
The US Dollar Index (DXY) is trading in a bull trend above its main simple moving averages (SMAs).
DXY 4-hour chart
The greenback didn’t find acceptance above the 2019 high at 98.34. Although the market reached 98.34 on an intraday basis this Thursday it seems unlikely the market is going to close above this level.
DXY 30-minute chart
DXY bears brought the index below the 98.10 level as they are testing the 200 SMA. The momentum is turning negative as 97.83 and 97.77 support might be the next bearish target. Further down lies 97.45 support. Resistances are at 98.10 and 98.34 levels.
Additional key levels
GBP/USD daily chart
GBP/USD has been under extreme selling pressure in the last weeks of trading.
GBP/USD 4-hour chart
GBP/USD is trading below its main simple moving averages a suggesting bearish bias in the near term.
GBP/USD 30-minute chart
GBP/USD is trading below its main SMAs suggesting a bearish bias in the short term. As the USD is slightly weaker across the board bulls are attempting a recovery above 1.2600 figure. The trend remains down and bulls would need to initially break 1.2700 to create a meaningful recovery. With the USD slightly weaker it remains to be seen if bears can continue to drive the currency pair to new lows below 1.2600 figure this Thursday.
Additional key levels
Major equity indexes in the U.S. started the day sharply lower on Thursday as the heightened U.S.-China trade war tension continues to weigh on the market sentiment. The CBOE Volatility Index, Wall Street's fear gauge, was last up nearly 18% on the day to confirm the intensifying flight-to-safety. At the moment, the Dow Jones Industrial Average was down 1.43% on the day while the S&P 500 and the Nasdaq Composite were losing 1.27% and 1.55%.
Earlier today, U.S. Secretary of State Mike Pompeo said that there was a real risk from China to the U.S. national security and said that he believed more U.S. companies would cut ties with Huawei.
Among the 11-major S&P 500 sectors, the Energy Index is losing 3.3% on the day amid a 5% drop witnessed in the price of the barrel of West Texas Intermediate. The Industrials Index and the Technology Index are both down around 2%. The defensive Utilities Index is the only sector in the positive territory in the early trade.
• Disappointing German/Euro-zone data weighed on the shared currency.
• The global flight to safety underpinned JPY and added to the selling bias.
• A sustained break below 122.00 mark might open room for further decline.
The EUR/JPY cross tumbled back closer to multi-month lows, albeit has still managed to hold its neck above the 122.00 round figure mark.
The cross extended this week's retracement from the 123.70-75 region and added to the overnight modest losses, with a combination of negative forces exerting heavy downward pressure through the early North-American session on Thursday.
The shared currency was weighed down by today's disappointing release of flash manufacturing PMIs from the Euro-zone and Germany - the region's largest economy. Adding to this, the German IFO also missed consensus estimates and added to the selling bias.
Meanwhile, the global flight to safety, amid growing worries over a full-blown US-China trade war continued benefitting the Japanese Yen's relative safe-haven status and further collaborated to the pair's intraday slump to the 122.00 neighborhood.
A follow-through selling below the mentioned handle will confirm a near-term bearish breakdown and set the stage for an extension of the ongoing downward trajectory towards challenging the key 120.00 psychological mark in the near-term.
Technical levels to watch
In its 'Flash U.S. PMI' report, the IHS Markit said that the Manufacturing PMI in May dropped to 50.6 from 52.6 in April while the Composite PMI fell to 50.9 from 53. Both of these reading fell short of the market expectations and with the initial reaction the US Dollar Index retreated from the 2-year high that it set in the last hour at 98.37 and was last seen up 0.2% at 98.27.
Key takeaways from the press release
- The seasonally adjusted IHS Markit Flash U.S. Services PMI Business Activity Index posted 50.9 in May, down from 53.0 in April, to indicate a notable slowdown in service sector business activity.
- Chris Williamson, Chief Business Economist: "Growth of business activity slowed sharply in May as trade war worries and increased uncertainty dealt a further blow to order book growth and business confidence."
- “The slowdown has been led by manufacturing, but shows increasing signs of spreading to services."
- "Trade wars remained top of the list of concerns among manufacturers, alongside signs of slower sales and weaker economic growth both at home and in key export markets."
Sacha Tihanyi, deputy head of emerging markets strategy at TD Securities, explains that the Chinese policymaker rhetoric has emphasized the near-term importance of the 7.00 level in USDCNY, while the reintroduction of the counter-cyclical factor in the daily fixing attempts to stabilize CNY and tame the pace of CFETS depreciation.
“We believe that past any near-term consideration over disorderly CNY adjustment, the 7.00 level will be allowed to eventually fall if seen as fundamentally necessary. Considerations regarding the need to adjust against tariff impact as well as preserve FX reserves against much higher external debt levels should dominate China's priorities.”
“We remain bearish CNY, seeing the need for further macro adjustment, and the risk that additional U.S. actions drag on China's economy, during a drawn-out trade war. We thus continue to see 7.20 achieved in the coming months (though the near-term defence of 7.00 may delay that), and the potential for a surge in offshore renminbi points and CNH-Hibor funding costs.”
According to Peter Vanden Houte, chief economist at ING, there were few surprises in the minutes of the European Central Bank's April Governing Council meeting with the central bank pretty much remaining in wait-and-see mode.
“The members of the Council acknowledged that there is a more protracted soft patch, but they believe a more solid growth rate in the second half of the year is still to be expected. That said, the risks surrounding the growth outlook remained tilted to the downside.”
“Underlying inflation remains muted and inflation expectations have declined. However, the Governing Council still thinks that stronger wage growth should lead to higher inflation and that there is still no sign of inflation expectations becoming unanchored.”
“Cost efficiency, excess capacity and the need for consolidation were seen as the reasons for low bank profitability. While further analysis was deemed warranted about the impact of persistently low and negative interest rates on the banking sector, policymakers still believe that the negative deposit rate has contributed to increased lending volumes.”
“Members agreed that the Governing Council should also consider in its regular assessment whether the preservation of the favourable implications of negative interest rates for the economy called for the mitigation of their possible side effects, if any, on bank intermediation. So in essence, the tiering of the deposit rate could be considered if and when the bank believes that the side-effects of negative rates have become too big.”
“The pricing of the new TLTRO-III operations should be data-dependent and take into account a thorough assessment of the bank-based transmission channel of monetary policy, as well as further developments in the economic outlook.”
EUR/USD daily chart
EUR/USD is trading in a bear trend below its main simple moving averages (SMAs) while the market is printing a new 2019 low at 1.1106.
EUR/USD 4-hour chart
EUR/USD is trading below its main SMAs suggesting a bearish bias in the near term.
EUR/USD 30-minute chart
EUR/USD finally made a significant move down after four days of tight ranges. The bears brought the currency pair to a new 2019 low. If the sellers can manage to overcome the 1.1110 support then they could target 1.1070 to the downside. As the volatility has been extremely low in the last days, the market might enter a consolidation before attempting another drop. Resistances are seen at 1.1140 and 1.1180 level.
Additional key levels
- Wholesale sales in Canada rose more than expected in March.
- WTI dropped below $60 to weigh on the loonie.
- US Dollar Index jumped to fresh 2-year highs above 98.30.
The USD/CAD pair gained traction in the early American session and rose to a fresh weekly high of 1.3493 as the loonie failed to capitalize on the upbeat data and the USD continued to gather strength. As of writing, the pair was up 0.47% on the day at 1.3492.
According to Statistics Canada, wholesale sales in March increased by 1.4% on a monthly basis following February's dismal 0.2% reading and surpassed the market expectation of 0.9%. However, the pair didn't have a difficult time preserving its bullish momentum as falling crude oil prices weighed on the commodity-sensitive CAD. After closing the previous day 2.6% lower, the barrel of West Texas Intermediate extended its slide and fell to its lowest level in two months near $59.
On the other hand, the heavy selling pressure European currencies amid political uncertainties ramped up the market demand for the greenback and allowed the US Dollar Index to advance to its highest level since May of 2017 at 98.37 to provide an additional lift to the pair.
The IHS Markit's Manufacturing and Services PMI data will be watched next. Later in the session, several members of the FOMC are scheduled to deliver speeches, which are unlikely to receive a significant reaction from the market.
• The prevalent risk-off mood underpins the commodity’s safe-haven demand.
• The ongoing USD bullish run seemed to be the only factor capping further gains.
Gold built on its intraday positive move and spiked to fresh weekly tops, around the $1284 region in the last hour, albeit retreated a bit thereafter.
With investors looking past Wednesday's release of the latest FOMC meeting minutes, which reaffirmed the central bank's patience stance on interest rates, deteriorating global risk sentiment boosted demand for traditional safe-haven status and helped the precious metal to catch some fresh bids on Thursday.
The recent escalation in the US-China trade tensions continued weighing on investors’ appetite for perceived riskier assets and the same was evident from a fresh round of selloff across equity markets. This coupled with a sharp intraday slump in the US Treasury bond yields further benefitted the non-yielding yellow metal.
The latest leg of a sudden upsurge during the early North-American session could further be attributed to some near-term short-covering move above 100-hour SMA, albeit the ongoing US Dollar bullish run kept a lid on any strong follow-through up-move for the dollar-denominated commodity, at least for the time being.
On the economic data front, the US initial weekly jobless claims came in better than expected and further fueled the greenback strength, lifting it beyond the 98.00 handle to near two-year tops. Thursday's US economic docket also features the release of manufacturing & services PMI, which might now be looked upon for fresh impetus.
Technical levels to watch
EUR/USD fell below 1.1110, hitting the lowest level since June 2017. The currency pair has been pressured by several factors.
Trade tensions between the US and China are not abating. Chinese President Xi Jinping talked about the "long march" and hinted that rare earth materials may serve as bargaining chips in the negotiations. US Treasury Secretary Steven Mnuchin said the US still intends to slap new tariffs on China.
The Federal Reserve does not plan to cut interest rates anytime soon. The meeting minutes from the latest rate decision revealed that the Fed remains in wait-and-see mode.
German Manufacturing PMI dropped to 44.3 points, indicating a contraction in the most important sector in Europe. Moreover, the IFO Business Climate from the largest economy dropped below expectations.
The EU elections are underway and populist parties are projected to make big gains, lowering the chances of further integration.
EUR/USD hit a low of 1.1107. Support is seen at 1.1025 and 1.0900. Resistance awaits at 1.1135 and 1.1170.
- Prices of WTI break below the $60.00 mark.
- EIA reported a nearly 4.5M barrel build on Wednesday.
- Broad-based risk aversion weighs on crude prices.
Prices of the barrel of the American reference for the sweet light crude oil are sharply lower on Thursday, breaking below the psychological $60.00 mark, or new2-month lows.
WTI breaches the 200-day SMA
Crude oil has accelerated the downside after breaking below the key support at the 200-day SMA in the $60.20 region, always tracking US-China trade concerns and a moderate pick up in the risk aversion.
Prices of the West Texas Intermediate came under strong and renewed selling pressure today after failing to extend the weekly up move beyond the $63.70/80 band earlier in the week, where emerges a Fibo retracement of the October-December decline.
In the meantime, unabated jitters on the US-China trade war and escalating tensions around Huawei (in the US) and Apple (in China) have coupled with the uptrend in US crude oil supplies, particularly after the API and the EIA reported unexpected builds during last week.
What to look for around WTI
Prices of the WTI appear to have met moderate resistance in the $63.70 region, or multi-day peaks, sparking a sharp correction lower. In the broader picture, and supporting prices, appear rising US-Iran tensions, turmoil in Libya, the so-called ‘Saudi put’ and the ongoing OPEC+ deal to cut oil output. However, US-China trade concerns remain far from abated despite the lack of fresh headlines as of late and emerge as the main hurdle for a more serious advance in crude oil.
WTI significant levels
At the moment the barrel of WTI is losing 2.89% at $59.40 and faces the next support at $57.95 (100-day SMA) followed by $55.51 (38.2% Fibo of the October-December drop) and then $54.37 (low Mar.8). On the flip side, a break above $63.74 (61.8% Fibo of the October-December drop) would aim for $64.66 (high Apr.30) and then $66.46 (2019 high Apr.23).
Jan von Gerich, analyst at Nordea Markets, explains that the ECB’s April monetary policy account implies that the bank needs more data to guide its future monetary policy steps.
“Despite the weakened outlook, entirely new easing measures are not on the table, as the ECB concentrates on forward guidance and the TLTROs.
- The ECB is not close to announcing new monetary policy measures
- Confidence towards the baseline economic scenario within the ECB weakened
- Worries about lower inflation expectations on the increase
- Governing Council far from united on the side effects of negative rates and the TLTRO terms – more data needed”
“The April monetary policy account did not include major new signals or hints about where monetary policy is heading. There was a lot of discussion on the economy and the uncertain outlook, with some Governing Council members were more worried than others.”
“The ECB’s baseline remains that while the manufacturing sector has taken a hit, the services sector continues to do better and the soft patch the economy is experiencing will turn out to be only temporary.”
“The incoming economic data have not been all bad since the April meeting. Q1 GDP numbers surprised to the upside as did April inflation, while the recent PMIs raise new worries. Against this background, the ECB is probably not feeling an immediate need to act. While we expect another extension of forward guidance and relatively easy terms for the targeted longer-term refinancing operations (TLTROs) to be announced in June, further important data releases, such as the May inflation number on 4 Jun, will be out before the meeting and will impact the decision.”
Oil daily chart
On the daily chart, WTI (West Texas Intermediate) is declining sharply as it is now trading at levels not seen since late March. WTI is trading below its 50 simple moving averages (SMAs) while testing the 200 SMA near $60.00 a barrel.
Oil 4-hour chart
WTI is trading below its main SMAs suggesting bearish momentum in the medium term. A break below 60.00 figure can open the gates to the 58.00 support.
Oil 30-minute chart
In the short term, bears can target 59.50 and the 59.00 figure to the downside. Resistance is seen at 61.50, 61.00 and 62.80 levels.
Additional key levels
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