Euro Surges Broadly on German Business Sentiment, DAX Hits Record

Euro surges broadly today, while German DAX and Stoxx 600 hit new record highs. Strong German business climate reading gave sentiments a strong lift. For now the common currency is only out-performed by New Zealand Dollar, and followed by Swiss Franc. On the other hand, positive market sentiment makes Yen the weakest one, followed by Dollar and then Sterling.

Technically, EUR/USD’s break of 1.2244 confirms resumption of rise from 1.1703 for 1.2348 high. EUR/JPY also breaks 133.42 resistance to resume medium term up trend. Now, one focus will be on EUR/CHF. Euro’s underlying strength would really be confirmed if 1.1026 resistance is taken out firmly to indicate completion of consolidation pattern from 1.1149.

In Europe, at the time of writing, FTSE is down -0.09%. DAX is up 0.69%. CAC is up 0.10%. Germany 10-year yield is down -0.0142 at -0.151. Earlier in Asia, Nikkei rose 0.67%. Hong Kong HSI rose 1.75%. China Shanghai SSE rose 2.40%. Singapore Strait Times rose 0.72%. Japan 10-year JGB yield dropped -0.0070 to 0.075.

ECB Stournaras: Not the right to think about transition from PEPP to APP

ECB Governing Council member Yannis Stournaras said that “I cannot say we are out of the woods yet”, as “there has been an acceleration in vaccinations but there are still travel restrictions ”

Also, there is no reason to make any change to the PEPP purchases at the moment. It’s not the right time yet to shift from PEPP to APP purchases. He added, “of course, at some point in the future this will occur, there’s no doubt about that. We have to think about a smooth transition from PEPP to APP.”

He also talked down the threat of inflation and said, “as the economy gets out of the pandemic, supply-side bottlenecks make their appearance but this is expected to smooth out over time.”

Germany Ifo business climate rose to 99.2, economy is picking speed

Germany Ifo business climates rose to 99.2 in May, up from 96.8, above expectation of 98.1. That’s the highest level since May 2019. Current assessment index rose to 95.7, up from 94.1, above expectation of 95.5. Expectations index rose to 102.9, up from 99.5, above expectation of 101.0.

Looking at different sectors, manufacturing rose from 25.1 to 25.7. Services rose from 3.5 to 13.7. Trade rose from -0.5 to 8.4. Construction rose from 0.7 to 2.8.

Ifo said: “Companies were more satisfied with their current business situation. They are also more optimistic regarding the coming months. The German economy is picking up speed.”

Germany Q1 GDP contraction finalized at -1.8% qoq, still down -5% from pre-pandemic level

Germany Q1 GDP contraction was finalized at -1.8% qoq. It’s down -3.4% yoy on price-adjusted bases, down -3.1% yoy on price- and calendar-adjusted bases. Comparing prepandemic level in Q4 2019, GDP was still down -5.0%.

Looking at some details, household final consumption expenditure was down -9.1% yoy. Gross fixed capital formation did not contribute to year-on-year growth. Fixed capital formation in machinery and equipment dropped -0.7% yoy, and in construction by -1.6% yoy. Government final consumption rose 2.5% yoy. Exports of goods and services dropped -0.6% yoy. Total imports dropped -3.0% yoy.

All sectors were down on a year earlier. In particular, services dropped -13.9% yoy. Gross value of manufacturing was still down -1.2% yoy despite improvement in the second half. Information and communications was the only sector that saw noticeable growth of 0.7% yoy.

Australia exports rose to record high in Apr, on metalliferous ores

According preliminary estimates, Australia export of goods rose AUD 13m (0% mom) to AUD 35.95B in April, hitting a record high. Import of goods dropped AUD -1.9B, (-7% mom) to AUD 25.81B. Trade surplus widened to AUD 10.14B, up from March’s AUD 8.23B, the third highest on record.

ABS said, “following strong exports in March 2021, metalliferous ores increased another 1 per cent in April 2021 to record a historic high of $16.5 billion, driving record high exports”. The increase in coal exports was driven by thermal coal, up $203 million, with an increase of $116 million to India. Australian coal exports to India have been steadily rising since mid-2020, following a substantial reduction in Chinese demand for Australian coal.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.2183; (P) 1.2206; (R1) 1.2240; More….

EUR/USD’s rise from 1.1703 resumes by breaking 1.2244 temporary top today. Intraday bias is back on the upside for retesting 1.2348 high. Firm break there will resume larger up trend from 1.6039 for 1.2555 cluster resistance next. On the downside, however, break of 1.2160 support will delay the bullish case. Intraday bias will be turned back to the downside to extend the consolidation pattern from 1.2348 with another falling leg.

In the bigger picture, rise from 1.0635 is seen as the third leg of the pattern from 1.0339 (2017 low). Further rally could be seen to cluster resistance at 1.2555 next, (38.2% retracement of 1.6039 to 1.0339 at 1.2516). This will remain the favored case as long as 1.1602 support holds. Reaction from 1.2555 should reveal underlying long term momentum in the pair.

Economic Indicators Update

GMT Ccy Events Actual Forecast Previous Revised
6:00 GBP Public Sector Net Borrowing (GBP) Apr 31.0B 34.2B 27.3B
6:00 EUR Germany GDP Q/Q Q1 F -1.80% -1.70% -1.70%
8:00 EUR Germany IFO Business Climate May 99.2 98.1 96.8
8:00 EUR Germany IFO Current Assessment May 95.7 95.5 94.1
8:00 EUR Germany IFO Expectations May 102.9 101 99.5
13:00 USD S&P/Case-Shiller Home Price Indices Y/Y Mar 11.70% 11.90%
13:00 USD Housing Price Index M/M Mar 1.40% 0.90%
14:00 USD Consumer Confidence May 119.9 121.7
14:00 USD New Home Sales Apr 950K 1021K
14:00 USD Richmond Fed Manufacturing Index May 19 17

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