Sterling Selloff Resumes, Dollar Power Continues

Sterling’s selloff resumes today, after job data added to expectation that BoE would lag far behind Fed in tightening. Weak market sentiment sends commodity currencies lower. Thanks to buying against the Pound, Euro is so far the strongest one for today, leading Dollar, Yen and Swiss Franc. But still, Euro is far behind the greenback for the week. Overall, investor might start to turn cautious during the later part of today, as four central bank decisions lies ahead, starting with tomorrow’s FOMC.

Technically, the selloff in the Pound is finally making some progress with EUR/GBP breaking through 0.8617 resistance firmly. A break through 1.1969 support in GBP/CHF would seal the bearish case for Sterling. Such development could push GBP/USD even deeper through 1.2 handle with downside acceleration.

In Europe, at the time of writing, FTSE is down -0.29%. DAX is down -0.18%. CAC is down -0.67%. Germany 10-year yield is up 0.025 at 1.662. Earlier in Asia, Nikkei dropped -1.32%. Hong Kong HSI closed flat. China Shanghai SSE rose 1.02%. Singapore Strait Times dropped -0.97%. Japan 10-year JGB yield rose 0.0013 to 0.256.

US PPI rose 0.8% mom, 10.8% yoy in May

US PPI for final demand rose 0.8% mom in May, matched expectations. For the 12-month period, PPI rose 10.8% yoy, down from April’s 10.9% yoy, below expectation of 10.9% yoy. PPI less food, energy and trade services rose 0.5% mom, 6.8% yoy.

From Canada, manufacturing sales rose 1.7% mom in April, below expectation of 2.1% mom.

Germany ZEW rose to -28 in Jun, less pessimistic but still deep in negative

Germany ZEW Economic Sentiment rose from -34.3 to -28.0 in June, slightly below expectation of -27.5. Current Situation Index rose from -36.5 to -27.6, above expectation of -31.0.

Eurozone ZEW Economic Sentiment rose from -29.5 to -28.0, below expectation of -24.3. Current Situation Index rose 8.6 pts to -26.4.

“Financial market experts are less pessimistic about the economy. However, the economy is still exposed to numerous risks, such as the effects of the sanctions against Russia, the unclear pandemic situation in China and the gradual change of course in monetary policy. So although expectations have improved, they are still deep in negative territory,” comments ZEW President Professor Achim Wambach on current expectations.

Also from Germany, CPI was finalized at 0.9% mom, 7.9% yoy in May.

UK payrolled employees rose 90k in May, unemployment rate unchanged at 3.8% in Apr

UK payrolled employees rose 90k, or 0.3% mom in May. Claimant count dropped -19.7k, versus expectations of -42.5k. Median monthly pay rose 5.4% yoy to GBP 2076.

In the three months to April, unemployment rate was unchanged at 3.8%. Economic inactivity rate dropped -0.1% to 21.3%. Average earnings including bonus rose 6.8% over the year, below expectation of 7.6%. Average earnings excluding bonus rose 4.2% over the year, above expectation of 4.0%.

RBA Lowe: Interest rate will get to 2.5% at some point

In an interview, RBA Governor Philip Lowe said, “Australians need to prepare for higher interest rates”. He expects inflation to get to 7% by the end of the year, and “we need to be able to chart a course back to 2 to 3 per cent inflation”.

Lowe said, “it’s reasonable that the cash rate gets to 2½ per cent at some point… How fast we get to 2½ per cent, and indeed whether we get to 2½ per cent, is going to be determined by events.”

He expects inflation to peak at around 7% in the December quarter this year. Inflation will “clearly be coming down” into the second half of next year.

Australia NAB business confidence dropped to 6 in May, conditions dropped to 16

Australia NAB business confidence dropped from 10 to 6 in May. Business conditions dropped from 19 to 16. Looking at some details, trading conditions dropped from 27 to 24. Profitability conditions dropped from 21 to 17. Employment conditions rose from 11 to 12.

“Lower confidence in May likely reflects a range of risks on the horizon,” said NAB Group Chief Economist Alan Oster. “Businesses are facing a new environment of higher inflation, rising interest rates, and risks to global growth. However, confidence is still at a fairly robust level all things considered.”

EUR/GBP Mid-Day Outlook

Daily Pivots: (S1) 0.8542; (P) 0.8568; (R1) 0.8604; More…

EUR/GBP’s strong break of 0.8617 resistance confirms resumption of rise from 0.8201. Intraday bias is now on the upside for 0.8697 medium term fibonacci level. Sustained break there will carry larger bullish implication and target next fibonacci level at 0.9003. On the downside, below 0.8593 minor support will turn intraday bias neutral first. But outlook will stay bullish as long as 0.8484 support holds.

In the bigger picture, rise from 0.8201 medium term bottom could could either be a correction to the down trend from 0.9499 (2020 high), or a medium term up trend itself. Sustained break of 38.2% retracement of 0.9499 to 0.8201 at 0.8697 will affirm the latter case, and pave the way to 61.8% retracement at 0.9003.

Economic Indicators Update

GMT Ccy Events Actual Forecast Previous Revised
01:30 AUD NAB Business Confidence May 6 10
01:30 AUD NAB Business Conditions May 16 20
04:30 JPY Industrial Production M/M Apr F -1.50% -1.30% -1.30%
06:00 GBP Claimant Count Change May -19.7K -42.5K -56.9K -65.5K
06:00 GBP ILO Unemployment Rate (3M) Apr 3.80% 3.60% 3.70%
06:00 GBP Average Earnings Including Bonus 3M/Y Apr 6.80% 7.60% 7.00%
06:00 GBP Average Earnings Excluding Bonus 3M/Y Apr 4.20% 4.00% 4.20%
06:00 EUR Germany CPI M/M May F 0.90% 0.90% 0.90%
06:00 EUR Germany CPI Y/Y May F 7.90% 7.90% 7.90%
09:00 EUR Germany ZEW Economic Sentiment Jun -28 -27.5 -34.3
09:00 EUR Germany ZEW Current Situation Jun -27.6 -31 -36.5
09:00 EUR Eurozone ZEW Economic Sentiment Jun -28 -24.3 -29.5
10:00 USD NFIB Business Optimism Index May 93.1 93.1 93.2
12:30 USD PPI M/M May 0.80% 0.80% 0.50% 0.40%
12:30 USD PPI Y/Y May 10.80% 10.90% 11.00% 10.90%
12:30 USD PPI Core M/M May 0.50% 0.60% 0.40% 0.20%
12:30 USD PPI Core Y/Y May 8.30% 8.60% 8.80%
12:30 CAD Manufacturing Sales M/M Apr 1.70% 2.10% 2.50% 3.50%

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