Euro Softens on Weak Economic Sentiment, Yen Selloff Remains the Main Theme

There is basically no change in the Yen selloff theme in the markets. But buying focus has shifted to commodity currencies, as led by Aussie and Kiwi, as well as Sterling. Euro is turning a touch weaker after poor German sentiment data, while the Pound is supported by job data. Dollar is sluggish as traders await the next moves in US yields and stocks.

Technically, CAD/JPY is set to take on 91.16 high as rally accelerates. Firm break there will resume larger up trend from 73.80 to 61.8% projection of 73.80 to 91.16 from 84.65 at 95.37. Such development could be a prelude to corresponding breakout in other commodity Yen crosses, like 85.78 high in AUD/JPY and 80.17 high in NZD/JPY.

In Europe, at the time of writing, FTSE is down -0.48%. DAX is down -0.38%. CAC is down -0.58%. Germany 10-year yield is up 0.0016 at -0.117. Earlier in Asia, Nikkei dropped -0.94%. Hong Kong HSI dropped -1.43%. China Shanghai SSE rose 0.25%. Singapore Strait Times dropped -0.05%. Japan 10-year JGB yield dropped -0.0012 to 0.096.

Germany ZEW dropped to 22.3 in Oct, outlook dimmed noticeably

Germany ZEW Economic Sentiment dropped from 26.5 to 22.3 in October, below expectation of 20.4. That’s the fifth decline in a row. Germany Current Situation Index tumbled sharply from 1.9 to 21.6, well below expectation of 29.5, and the first decline since February.

Eurozone ZEW Economic Sentiment dropped from 31.3 to 21.0, below expectation of 26.5. Eurozone Current Situation dropped -6.6 pts to 15.9. Eurozone inflation expectations indicator dropped -3.0 pts to 17.1. But 49.1% of experts still expect inflation to rise further in the next six months.

ZEW President Professor Achim Wambach said: “The economic outlook for the German economy has dimmed noticeably. The further decline of the ZEW Indicator of Economic Sentiment is mainly due to the persisting supply bottlenecks for raw materials and intermediate products. The financial market experts expect profits to go down, especially in export-oriented sectors such as vehicle manufacturing and chemicals/pharmaceuticals.”

UK employment back to pre-pandemic level in Sep

UK number of payroll employees rose 207k to record 29.2m in September, returning to pre-coronavirus pandemic level in February 2020. For the three months to August, unemployment rate dropped to 4.5% in August, down from 4.6%, matched expectations. Employment rate rose 0.5% on the quarter to 75.3%. Average earnings including bonus rose 7.2% 3moy. Average earnings excluding bonus rose 6.0% 3moy.

Japan wholesale prices rose 6.3% yoy in Sep, highest in 13 years

Japan corporate goods price index, a PPI equivalent, rose 6.3% yoy in September, above expectation of 5.9% yoy. That’s also the highest level in 13 years. Yen based wholesale import prices rose a record 31.3% yoy. Petroleum and coal costs rose 32.4% yoy. Wood products spiked 48.3% yoy.

Some analysts noted that the surge in wholesale prices would be absorbed mainly by businesses, with little impact on consumers. But according to a BoJ survey published on Monday, 68.2% of Japanese households are expecting prices to rise a year from now, up from 66.8% three months ago. Median projection of inflation a year from now rose to 3.0%, up from June’s 2.0%.

Australia NAB business confidence jumped to 13, but condition tumbled to 5

Australia NAB Business Confidence jumped sharply from -6 to 13 in September. Strong improvement was seen in New South Wales (up 52 pts to 27) and Victoria (up 16 pts to 5). Business Conditions, however, dropped from 14 to 5. Trading condition dropped from 20 to 10. Profitability condition dropped from 15 to 2. Employment confidence dropped from 9 to 1.

NAB said, “Interpreting this month’s results really depends if you are an optimist or a pessimist. Businesses are really looking forward to reopening, and confidence increased markedly on the back of NSW and Victoria’s reopening roadmaps. The rise in confidence suggests they see the roadmaps that have been announced as sufficient to allow activity to really rebound in the coming months.”

“Still, confidence is more about hope for the future than what is happening in the present. On that front, conditions really deteriorated which shows that lockdowns are taking a toll, despite the resilience the economy has shown through this period.”

EUR/AUD Mid-Day Outlook

Daily Pivots: (S1) 1.5663; (P) 1.5761; (R1) 1.5823; More

EUR/AUD’s decline continues today and hit as low as 1.5643 so far. The break of 100% projection of 1.6434 to 1.5907 from 1.6232 at 1.5705 and near term falling channel support indicates downside acceleration. Intraday bias stays on the downside for 161.8% projection at 1.5379 next. On the upside, above 1.5754 minor resistance will turn intraday bias neutral and bring consolidations. But recovery should be limited below 1.5907 support turned resistance to bring another decline.

In the bigger picture, rise from 1.5250 medium term bottom is seen as a correction to the down trend from 1.9799 (2020 high) only. With 38.2% retracement of 1.9799 to 1.5250 at 1.6988 intact, such down trend is expected to resume at a later stage. Firm break of 1.5250 will target 61.8% retracement of 1.1602 (2012 low) to 1.9799 at 1.4733. In any case, sustained break of 1.6988 fibonacci level is needed to indicate long term reversal.

Economic Indicators Update

GMT Ccy Events Actual Forecast Previous Revised
23:01 GBP BRC Like-For-Like Retail Sales Y/Y Sep -0.60% 1.50%
23:50 JPY Bank Lending Y/Y Sep 0.60% 0.80% 0.60%
23:50 JPY PPI Y/Y Sep 6.30% 5.90% 5.50% 5.80%
0:30 AUD NAB Business Confidence Sep 13 -5 -6
0:30 AUD NAB Business Conditions Sep 5 14
6:00 GBP Claimant Count Change Sep -51.1K -58.6K
6:00 GBP ILO Unemployment Rate (3M) Aug 4.50% 4.50% 4.60%
6:00 GBP Average Earnings Including Bonus 3M/Y Aug 7.20% 8.40% 8.30%
9:00 EUR Germany ZEW Economic Sentiment Oct 22.3 20.4 26.5
9:00 EUR Germany ZEW Current Situation Oct 21.6 29.5 31.9
9:00 EUR Eurozone ZEW Economic Sentiment Oct 21 26.5 31.1
10:00 USD NFIB Business Optimism Index Sep 99.1 99.7 100.1

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