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Global core bonds book gains
In a dull European session bonds were modestly supported by equities. In the afternoon, weaker than expected US eco data and comments by EU’s Juncker on the next IMF aid tranche pushed the Bund future and the US June Note Future through the recovery highs.USD dollar hammered by disappoiting US eco data
Yesterday, there was still a lot of market chatter on the Greek debt crisis. Quotes from EU’s Juncker on the IMF disbursement to Greece temporary hit the euro. However, at the end of the day, dollar weakness prevailed as the US currency lost interest rate support after higher than expected jobless claims and a disappointing Q1 GDP releaseUS Equities reversed early losses on Thursday despite another bunch of weak economic data. The S&P ended the session 0.40% higher supported by strength in consumer sectors. This morning, most Asian shares trade in positive territory.Markets were spooked yesterday by comments from EU's Juncker as he said the IMF could withhold the next slice of aid to Greece due next month. Later, Juncker clarified that if EU and IMF inspectors were convinced by the new Greek austerity measures, there would be no problem with the June aid tranche.The G8 leaders are expected to approve billions of dollars in aid to new Arab democracies with a programme designed to foster change sweeping North Africa and the Middle East.Japan's main price gauge rose in April for the first time in more than two years, but underlying prices and consumption remained weak in the aftermath of the March earthquake.Banks in the EU could evade part of the tighter Basel III capital requirements under draft legislation implementing the new globally agreed standards across the 27-member bloc, the FT reported.British consumer confidence jumped the most in 18 years in May, helped by unusually strong weather. The GfK NOP consumer confidence barometer jumped from a two-year low of -31 to -21, while an unchanged reading was expected.Today, the eco calendar is well-filled with the European Commission's consumer confidence indicators, euro zone M3 money supply, the first estimate of German CPI inflation, US pending home sales, personal income and spending and the final figure of Michigan consumer confidence
On Thursday, there was no consistent story to steer the price action in EUR/USD. The cross rate jumped higher in Asia as sentiment on risk improved and commodities rebounded. EUR/USD was in the 1.4160/70 area at the start of trading in Europe. European equities tried to join the positive momentum from Asia, but the move had no strong legs. There were hardly any eco data in Europe and the news flow on Greece or other European issues initially also failed to inspire trading. EUR/USD held a sideways trading range in the upper half of the 1.41 big figure. The US eco data disappointed as the weekly jobless claims were higher than expected and the Q1 GDP wasn't revised higher as expected by markets. Risky assets nosedived, but EUR/USD surprisingly returned to the 1.4200 area. The decline in US bond yields apparently weighed on the dollar. However, the next 'incident' on the Greek drama capped any further gains of the single currency. EU's Juncker was quoted as he indicated that the IMF expected the EU to step in if the Fund could not make the planned disbursement on June 29. This suggested that the IMF payment might be at risk, which would have nasty financial and political implications. EUR/USD dropped from the 1.4200 area to the 1.4070 area. At the same time, there were rumours that president Obama had raised the issue of the recent weakness of the euro at the G8 meeting. At the end of the day, the news flow finally seemed to be negative both for the euro and the dollar, as the latter lost further interest rate support, too. So, the 'Juncker'-correction slowed and EUR/USD closed the session at 1.4145, compared to 1.4088 on Wednesday evening. The least one can say, is that EUR/USD made some remarkable swings yesterday. The Greek debt crisis intensifies, but at least for now, the dollar is not strong enough to profit from it. EUR/USD are looking for some kind of balance of weaknesses.
Today, the calendar of eco data is better filled compared to the previous days. In Europe, the M3 data, the EU confidence indicators and the preliminary German CPI data for May will be published. Usually, European economic data are not really a big issue for markets. However, with the peripheral debt crisis again in the spotlight, we keep an eye on overall sentiment on the European economy and on the developments in peripheral countries. We put the risk for confidence to have deteriorated more than expected. The German inflation data are interesting input going into the June ECB meeting. The risks for this report are probably to the downside of consensus (2.7%), too. So, the European data probably won't be euro supportive. In the US , the personal income and spending data, the Final Michigan consumer confidence and the pending home sales will be published. These are not the most important data for markets. The G8-G20 summit continues in Paris, but for now this didn't yield any important news for markets. So, global sentiment on risk and any (unexpected) developments on Greece still have to potential to move the markets. US markets prepare for a long weekend. So, in case of a soft news flow, investors may be reluctant to take unnecessary risks. Taken all together, there is no reason to see the euro rushing higher, today. That said, the dollar is not in good shape either. In this context, one might see more erratic-like trading has had been the case over the last 24 hours. However, for now we don't see much ground for the euro to move materially higher from here.
We had a LT bullish strategy for the EUR/USD cross rate based on the different policy approach between the ECB and the Fed. However, extreme euro long positioning made the cross rate vulnerable to a correction. The recent correction started as the ECB didn't signal a rate hike in June as markets expected. Renewed uncertainty on Greece and the commodity correction reinforced the repositioning in EUR/USD, too. Last week, the pair showed some tentative signs of bottoming out off from the intermediate low at 1.4048, even as the rebound was far from spectacular. The pair reached a minor new high at 1.4345 on Friday, but from there, a sharp sell-off kicked in again. The pair dropped temporary below the 1.4048/00 support on Monday. From there, some consolidation kicked in. At the start of this week, we changed our short-term bias for EUR/USD to negative, as we saw a high chance for the 1.4048/00 support to give away. For now this level holds, but we don't change tactics yet. A sell-onupticks strategy remains preferred. A rebound beyond 1.4346/1.4442 would call of the downward alert in this cross rate.
EUR/USD: rebound continues even as Greek debt crisis intensifiesSupport comes in at 1.4197 (Break-up hourly), at 1.4147 (break-up hourly), at 1.4123 (Reaction low/STMA), at 1.4067/64 (Reaction low hourly), at 1.4047 (Daily envelope) and at 1.3968 (Reaction low).
Resistance stands at 1.4278/94 (Reaction high/1.4294 (Weekly envelope) and at 1.4339 (38% retracement), at 1.4345/51 (20 May high/Broken 50 d MA).
The pair is in neutral territory.
On Thursday, the recent stalemate in the USD/JPY cross rate was broken. The pair still held a tight sideways range slightly below the 82.00 mark during the morning session in Europe. However, disappointing US eco data (claims and Q1 GDP revision) triggered a sharp wave of broad-based USD selling as the US currency lost interest rate support. The pair reached an intraday low at 81.16 and closed the session at 81.29, compared to 81.97 on Wednesday.
This morning, Japanese inflation data came out close to expectations. Interesting, the Tokyo May core inflation was positive (0.1% Y/Y) and this was also the case for the National headline index (0.3% Y/Y). Retail sales in April also declined less than expected. Asian equities are mixed. On the currency markets, broad-based dollar weakness is still the name of the game. USD/JPY is seen in the 81.00 area at the moment of writing
Over the previous month, USD/JPY developed an almost uninterrupted decline off from the early April correction high at 85.53. The move was a correction on the sharp decline of the yen early last month, but also mirrored underlying global dollar weakness. We looked to pick up the USD/JPY cross rate in the 80/81 area. This target area has been reached
So, a tactical USD/JPY long position could be considered. The story on USD/JPY remains ambiguous, but the constructive sentiment on risk has given the pair downside protection of late. Last week, sentiment on risk turned less positive but USD/JPY was/is holding up reasonably well. Yesterday's move suggests that dollar weakness might become the theme for global currency trading. The jury is still out, but if so, this would also affect USD/JPY. We maintain a cautious positive bias for this cross rate. Stop-loss protection to defend return action below 80 remains warranted
USD/JPY: hit by broad-based dollar weaknessSupport comes in at 80.84 (Reaction low), at 80.70/63 (Reaction low/+ weekly envelope), at 80.34 (Reaction low), at 8005 (Boll Bottom), and at 79.57 (Reaction low).
Resistance is seen at 81.40/45 (Reaction high hourly +MTMA/Reaction high), at 81.70/80 (Daily envelope/Breakdown hourly), at 82.21/23 (Reaction high/19 May high) and at 82.74 (Reaction high).
The pair is in neutral territory
On Thursday, EUR/GBP partly tracked the rebound in EUR/USD. The euro jumped higher in Asia and EUR/GBP was traded in the 0.8690 area at the open of the European markets. EUR/GBP tried to regain the 0.8700 mark. However this attempt didn't succeed. Even more, in line with the price action earlier this week, sterling showed reasonably well bid. Once again we didn't see any hard news to explain this relative strength of sterling. So, EUR/GBP soon started drifting south even as EUR/USD remained rather well bid. Later in the session, the euro came again under pressure and the 'Juncker quotes' on the IMF payment to Greece also hammered EUR/GBP. The pair reached a new correction low at 0.8611 and closed the session at 0.8623, compared to 0.8657 on Wednesday evening.
Overnight, the GfK consumer confidence showed a sharp, unexpected improvement (from -31 to -21, -31 expected). However, the release failed to inspire sterling. On the contrary, EUR/GBP joined the broader rebound of the euro in Asia. The Nationwide house prices (0.3% M/M/-1.2% Y/Y) were slightly better than expected, too. We don't expect that this release to have a lasting impact on sterling trading. Later today, there are no important data on the calendar in the UK.
We have a LT EUR/GBP bullish view. The ECB's firmness to rein in inflation contrasts with the BoE MPC's attitude of postponing a rate hike despite ongoing skyhigh inflation readings. The EUR-GBP interest rate differential increased accordingly and pushed the pair beyond the 0.90 mark early May.
Early May, we hoped for a (technical) correction in a market that was positioned overly long euro to (re)enter the market at lower levels e.g. in the 0.8715 to 0.8654 area (previous lows). Until the May 5 ECB press conference, these levels looked very far away, but the post-ECB sell-off made them again more realistic. The target was reached last week, allowing the reinstallation of a buy-on-dips approach. A cautious rebound started, but after Friday's sell-off, the 0.8674/54 support area was again approached and the level was (temporary) broken on Wednesday and again yesterday. A sustained drop below this level would signal that the correction of the euro has further to go. So, the red alert in this cross rate is still on. Tight stop-loss protection on EUR/GBP longs remains warranted. In a LT perspective, we think that the downside risks in EUR/GBP are less compared to EUR/USD. Nevertheless, in a day-to-day perspective, the picture in this cross rate remains fragile.
EUR/GBP drops (temporary?) below the key 0.8654 support, but no sustained break yet .Support comes in at 0.8645 (Break-up hourly), at 0.8329 (Break-up hourly), at 0.8611/04 (Reaction low/weekly envelope), at 0.8574/71 (62% retracement/ Daily Boll Bottom) and at 0.8560 (1st target off 0.8742) and at 0.8534 (10 March low).
Resistance is seen at 0.8674/80 (STMA/Reaction high), at 0.8722/30 (MTMA + Reaction highs), at 0.8752/59 (Reaction high/Breakdown hourly), at 0.8782/92 (Weekly envelope/ breakdown daily).
The pair is in oversold conditions.
The second estimate of US Q1 GDP confirmed the disappointing first estimate. During the first three months of the year, the US economy grew by 1.8% Q/Q, while the consensus was looking for an upward revision to 2.2% Q/Q. The details show a downward revision in personal consumption (2.2% Q/Q from 2.7% Q/Q) and a lower contribution from change in inventories (0.93% from 1.19%), while both nonresidential (3.4% Q/Q from 1.8% Q/Q) and residential (-3.3% Q/Q from -4.1% Q/Q) investment show an upward revision. Government consumption and net-exports remained broadly unchanged compared to the previous reading. Core PCE was slightly downwardly adjusted from 1.5% to 1.4%. Firms started to build up inventories in the first quarter of 2011, limiting the need to build up inventories in the coming months. Also the most recent data show a loss of momentum in the US economy, signalling that also expectations for the coming quarter are rather weak.
After falling significantly in the previous two weeks, US initial jobless claims picked up in the week ended May the 21st. Initial claims rose by 10 000 from an upwardly revised 414 000 to 424 000, while the consensus was looking for a further decline (to 404 000). The less volatile four-week moving average dropped from 440 250 to 438 500. This outcome is somewhat disappointing as it brings an end to the downtrend after the elevated April levels. We had hoped to see the claims falling back below the 400 000 level, which hasn’t happened until now. Also this might be an indication that the recovery in the US is losing momentum. Continuing claims, which are reported with an extra week lag, surprised on the downside of expectations. In the week ended May the 14th, US continuing claims fell by 46 000 from an upwardly revised 3 736 000 to 3 690 000, slightly below the consensus estimate.
In May, Italian business confidence fell more than expected, to its lowest level since October last year. The headline figure dropped from a downwardly revised 102.6 to 101.3, while the consensus was looking for only a slight decline. Sentiment about both the current situation and outlook deteriorated in May. Orders fell from -18 to -20 and the orders outlook dropped from 15 to 12; production weakened from -15 to -16 and production outlook fell from 13 to 11. In both the last quarter of 2010 and the first quarter of 2011, the Italian economy barely grew (both 0.1% Q/Q), clearly underperforming the core EMU countries. As business confidence is now weakening, it sparks fears that the Italian economy might fall back into recession as the recovery in the core EMU countries is losing some momentum
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