Trade ideas & Daily market report June 11th 2021
The dollar edged higher ahead of Thursday’s New York open with amid position adjustment. The ECB held interest rates at 0.0% following the latest policy meeting and there were no changes to the asset-purchase programme. The bank upgraded its GDP growth forecasts for 2021 and 2022 with next year’s projection increased to 4.7% from 4.1% seen in March. The 2021 inflation forecast was revised to 1.9% from 1.5% with the 2022 forecast projected at 1.5% from 1.2%.
According to President Lagarde, inflation will rise further in the short term due to base effects, temporary factors and the increase in energy prices. She added that it was important to trends in the services sector and underlying inflation is still subdued. Lagarde also noted that any premature tightening poses a threat to growth and inflation. The near-term risks were described as balanced while the council is a little bit more upbeat over the outlook than three months before.
Lagarde also stated that it was too early to talk of tapering bond purchases and, although there was choppy trading the rhetoric overall was close to market expectations with only a brief dip lower in EUR/USD.
US consumer prices increased 0.6% for May, above consensus forecasts of 0.4% with the year-on-year rate increasing to 5.0% from 4.2%. This was also above expectations of 4.7% and the highest reading since September 2008. There was a further strong increase in used vehicle prices for the month with a further strong increase in transport services prices. Core prices increased 0.7% on the month compared with expectations of a 0.4% increase while the annual rate increased to 3.8% from 3.0%. This was above expectations of 3.4% and the highest rate since May 1992 which maintained concerns that the increase is more than just transitory.
The dollar briefly strengthened on the data, but gains reversed quickly as yields failed to respond. There were also expectations that the dollar would remain vulnerable if there was no response from the Federal Reserve at next week’s policy meeting. There was choppy trading with little underlying conviction as EUR/USD consolidated around 1.2170. The US dollar remained on the defensive on Friday as yields remained low with EUR/USD edging higher to 1.2190.
Chinese new loans increased CNY1500bn for May after a CNY1470bn increase the previous month and slightly above consensus forecasts, although total social financing was slightly below market expectations and there were still some reservations that the Chinese credit cycle was peaking.
US initial jobless claims declined to a fresh 14-month low of 376,000 in the latest week from a revised 405,000 previously, although this was slightly above consensus forecasts. Continuing claims declined to 3.50mn form 3.76mn, reinforcing confidence in the labour market. US bond yields edged higher following the jobless claims and inflation data, but there was a quick reversal with the 10-year yield back below 1.50% which dampened potential US currency support.
Overall, USD/JPY failed to hold highs near 109.80 and retreated to below 109.50. There was report that a bipartisan group of US Senators had reached agreement on the infrastructure plan, but bond yields continued to decline and the dollar remained on the defensive.
Confidence in the Japanese economy and yen remained weak, but USD/JPY was unable to make headway as it traded around the 109.40 area.
Sterling dipped lower in early Europe on Thursday with a GBP/USD break to 1-month lows below 1.4100 triggering further selling. There were further reservations surrounding the Delta variant developments within the UK with doubts that restrictions in England would be lifted as well as unease over trade friction with the EU.
The UK currency gained some protection from solid risk conditions. After finding support below 1.4100, there were GBP/USD gains to around 1.4170 while EUR/GBP traded just below 0.8600. Sterling was also supported by expectations that the Federal Reserve and ECB would maintain loose policies over the medium term.
UK GDP increased 2.3% for April, in line with expectations, but the industrial production data was weaker than expected for the month and construction activity also declined. Sterling was unable to make further headway following the data as GBP/USD traded around 1.4175 with EUR/GBP close to 0.8600.
The Swiss franc maintained a firm tone in early Europe as German bond yields moved lower. EUR/CHF did find some support below the 1.0900 level with some speculation that the National Bank would intervene to curb any further appreciation, but the franc maintained a firm overall tone.
EUR/CHF consolidated just below 1.0900 with USD/CHF held around 0.8950. Expectations of dovish policies from the ECB and Federal Reserve continued to limit any potential selling on the Swiss currency with EUR/CHF held just below the 1.0900 level.
AUD/USD + USD/CAD
The Australian dollar edged lower ahead of the New York open, but AUD/USD found support close to 0.7720 and rallied to 0.7750 as the US dollar lost ground again.
The Australian dollar was unable to make headway on Friday despite the weaker US dollar with AUD/USD held just above 0.7750.
The Canadian dollar briefly lost ground following the US CPI data, but regained ground later in the session with stronger oil prices also providing support. Overall, USD/CAD was unable to hold above the 1.2100 level and retreated to 1.2070 before settling around 1.2090.
Oil prices edged lower on Friday with USD/CAD around 1.2085.
The Norwegian krone continued to lose ground on Thursday following the much weaker than expected data.
After spiking to 10.14, EUR/NOK retreated sharply to near 10.07 amid expectations that the Norges Bank would still look to raise interest rates at the September meeting.
There was little change on Friday with USD/NOK around 8.26.
The headline Swedish inflation rate declined to 1.8% for May from 2.2% previously and below consensus forecasts of 2.0%. The underlying rate also declined to 2.1% from 2.5% and slightly below expectations of 2.2%.
EUR/SEK strengthened to 10.08 before a retreat to 10.04 at the European close as equities posted net gains. The krona held firm on Friday with USD/SEK around 8.24.
There were no negative shocks from the ECB policy meeting and underlying recovery hopes continued to underpin sentiment. There was also relief over the Wall Street reaction to inflation data with the Eurostoxx index edging to a fresh record high, although there was still an element of caution.
The German DAX index posted a marginal decline with a 0.25% retreat for the French CAC 40 index.
Major UK stocks drew support from global recovery hopes, although there was an element of caution over domestic developments. A sterling recovery hampered sentiment to some extent after the New York open with the FTSE 100 index closing 0.1% higher.
Although the inflation data was above consensus expectations, there was relief over a measured reaction in Treasures while the jobless data underpinned confidence in the recovery. The S&P 500 index posted a 0.45% gain to a fresh record high.
US futures edged higher on Friday, but Asian bourses were unable to respond with Japan’s Nikkei 225 index closing marginally lower while there was a 0.1% advance for the Australian ASX index.
China’s Shanghai index traded 0.5% lower in late trading with Hong Kong’s Hang Seng index 0.6% higher.
Oil prices were underpinned by the latest labour-market data which maintained expectations over a strong economic rebound.
There was a spike lower on reports of an Iranian deal, although these rumours were denied quickly.
From lows near $68.70 p/b. WTI rebounded quickly to trade above $70.0 p/b.
Crude was unable to sustain highs on Friday with WTI trading around $70.0 p/b with Brent around $72.25 p/b.
Despite a brief dip after the US data, precious metals regained ground quickly as US yields remained low and the dollar retreated.
Longer-term concerns over higher inflation also underpinned confidence.
Gold rallied to the $1,895 per ounce area while silver advanced to near $28.00 per ounce.
Gold advanced to $1,900 per ounce on Friday with silver at 1-week highs around $28.20 per ounce.
Cryptocurrencies moved higher early in Europe on Thursday, but were unable to sustain the gains.
Bitcoin pushed above the $38,000 level before a retreat to below $37,000 at the European close despite a slightly weaker US dollar and net gains in US equities.
There were further concerns over Chinese action against cryptocurrency operations, but a weak dollar and loose central bank policies continued to provide net support with bitcoin above $37,000 on Friday.
Ether pushed to highs above $2,600 before a sharp retreat to near $2,400 with a recovery to around $2,480 on Friday.
Major events for the day ahead: (times in BST)
15.00: US University of Michigan consumer confidence index