Trade ideas & Daily market report June 3rd 2021
German retail sales declined 4.4% for April following the sharp 7.7% increase the previous month with the year-on-year increase held at 4.4%. The Euro was unable to make headway in early Europe on Wednesday, especially with some expectations that the ECB would maintain a dovish stance at next week’s policy meeting and push back against any paring of asset purchases. Bank President Lagarde stated that it remained committed to preserving favourable financing conditions.
The dollar continued to gain some respite with EUR/USD retreating to lows at 1.2165. The US currency was underpinned by speculation that the Federal Reserve could eventually shift towards a less aggressive policy. Near-term dollar liquidity, however, remains extremely high, especially with the Treasury drawing down the cash balance. The very high level of liquidity will tend to undermine the US currency in the short term, especially while yields remain very low. Overall, the dollar was unable to hold its best levels and EUR/USD recovered to above 1.2200 at the European close.
The Federal Reserve Beige book reported that the economy had grown somewhat faster than in the previous period and that overall price pressures had increased. Production costs had increased rapidly with gradual increases in selling prices amid further supply-chain difficulties. There were also expectations that prices would continue to increase over the next few months. The report maintained concerns over inflation developments, but the dollar struggled to gain more than marginal relief.
EUR/USD settled close to 1.2200 on Thursday with the focus turning towards the jobs data with ADP data on Thursday ahead of Friday’s payrolls report.
The US dollar maintained a firm tone into Wednesday’s New York open, but USD/JPY was unable to challenge the 110.00 level against the Japanese currency. There were no major data releases and Treasury yields were little change which stifled further potential US currency support.
Philadelphia Fed President Harker stated that inflation was likely to be close to 3% in 2021 with GDP growth around 7% before moderation next year. Although he expects the FOMC to keep the Fed Funds rate at a very low level for a long time he added that it may be time to at least think about thinking about tapering bond purchases. The Fed did announce that it was winding down the corporate bond buying programme, which sparked some further speculation over a wider move towards slowing bond purchases, although the corporate buying was a very small part of the overall asset-purchase programme.
The dollar was unable to gain significant support from the Fed rhetoric and USD/JPY drifted towards the 109.50 level against the yen as both currencies struggled for support.
Japan’s PMI services index was confirmed in contraction for May for the 16th successive month as underlying confidence in the economic outlook and yen remained weak. Overall, USD/JPY edged higher to around 109.75 in early Europe with EUR/JPY around 133.85 as yen sentiment remained fragile.
There was a sharp slowdown in UK mortgage lending for April with a decline to £3.3bn from the record £11.5bn for March, although the number of mortgage approvals increased slightly to near 87,000 from 83,400 previously. There was a further net repayment of £0.4bn for consumer credit while corporates also repaid borrowings. There were sharp distortions with a surge in mortgage borrowing for March followed by a sharp dip in April as the higher thresholds were extended to the end of June.
There was further speculation that underlying strength in the housing market would lead to a more aggressive Bank of England monetary policy within the next few months. Global risk appetite was also firm which helped underpin the UK currency despite underlying caution.
From lows near 1.4110 GBP/USD recovered strongly to around 1.4180 at the European close while EUR/GBP found support close to 0.8600.
Prime Minister Johnson reiterated that there was nothing in the data which indicated that the planned June 21st easing of restrictions wouldn’t go ahead which helped underpin sentiment, although there were still calls for a delay. GBP/USD settled near 1.4150 on Thursday with EUR/GBP around 0.8615.
The franc tended to lose ground on Thursday, although there was a significant recovery from intra-day lows. Markets continued to monitor global inflation developments closely given the potential importance for central bank policies and wider asset-price trends.
EUR/CHF found support close to 1.0950, but failed to challenge 1.1000 and settled around 1.0970. USD/CHF was again unable to hold above the 0.9000 level. The franc was little changed on Thursday with USD/CHF around 0.8990 as markets continued to monitor central bank rhetoric.
AUD/USD + USD/CAD
The Australian dollar lost ground into Wednesday’s New York open as the US currency regained territory. AUD/USD dipped to lows around 0.7715 before a recovery to 0.7750 as the US currency stumbled again.
The Australian dollar was hampered by a slightly weaker than expected Chinese Caixin PMI services report and AUD/USD drifted lower to around 0.7730.
USD/CAD held a firm tone early on Thursday, but there was no challenge on 1.2100 and there was a significant retreat to below 1.2050 at the European close.
Traders were still aiming to push the pair below the key 1.2000 level amid reports that the Bank of Canada would cut bond purchases again in the third quarter.
Oil prices held firm on Thursday with USD/CAD fractionally below 1.2050.
The Norwegian krone gradually gained territory on Wednesday as oil prices held firm and overall risk conditions held steady.
EUR/NOK retreated to just below 10.13 at the European close with the krone unable to make headway on Thursday with USD/NOK trading above 8.30.
The Swedish krona was able to post slight gains during the day with EUR/SEK edging below 10.10 before trading just above this level as markets monitored any shift in Riksbank rhetoric.
The services PMI index strengthened to 71.7 for May from 66.6 with USD/SEK around 8.29.
Euro-zone equities posted net gains on Wednesday with further underlying optimism over the economic outlook as coronavirus restrictions are eased. There was no major lead from overseas with the German DAX index gaining 0.2% as only the Spanish bourse recorded a daily retreat
Confidence in a domestic and global economic recovery continued to underpin UK stocks on Wednesday with hopes that a further easing of restrictions in England would take place on June 21st. Overall, the FTSE 100 index posted a 0.4% gain.
Wall Street equities edged higher on Wednesday, although there was significant caution ahead of Friday’s employment report. The main feature was further buying in small-cap speculative stocks and the S&P 500 index posted a 0.1% gain.
Asian bourses posted initial gains, although overall sentiment remained slightly more cautious.
Japan’s Nikkei 225 index gained 0.4% while the Australian ASX index posted a 0.6% advance amid optimism over commodity prices.
China’s Shanghai index traded slightly lower in late trading while Hong Kong’s Hang Seng index traded 0.6% lower.
Oil prices maintained a solid underlying tone on Wednesday with underlying optimism over demand trends.
Prices were resilient when the US dollar secured net gains and the US currency lost ground again towards the European close.
WTI touched the $69.0 p/b level before settling just below this level.
WTI maintained a strong tone on Thursday and traded around $69.30 p/b, the highest level for 32 months with Brent at 25-month highs just below the $72.0 p/b level.
Precious metals remained on the defensive into Wednesday’s New York open as the US dollar regained ground.
There were net gains later in the day as the US currency stumbled again and US yields remained at lower levels.
Gold moved back above $1,900 per ounce with silver also above $28.00 per ounce.
Gold traded just below $1,900 per ounce on Thursday as the dollar edged higher with silver just below $28.00 per ounce.
Cryptocurrencies posted steady gains on Wednesday amid expectations of strong short-term growth in liquidity amid loose central bank policies.
Latest data suggested a further net outflow of funds from bitcoin in the latest week, although there were net inflows to cryptocurrencies as a whole.
There was, however, also evidence that intense volatility was discouraging potential involvement by institutional investors.
A weaker dollar also provided net support in New York with bitcoin strengthening to highs above $38,000.
After an initial retreat in Asia, bitcoin posted further gains to above $38,000.
Ether also posted steady gains to highs around $2,800 in New York with buying on dips in Asia.
Major events for the day ahead: (times in BST)
13.15: US ADP employment report
13.30: US jobless claims
15.00: US ISM non-manufacturing index
16.00: US EIA oil inventories