EURUSD consolidating above support
USD has recovered overnight with the S&P 500 and Nikkei 225 also closing higher. The US 10 year yields also rallied late last night to close above 2.27%. Fed’s Harker last night was bullish and the probability of a Fed rate hike still remains high (83%) and hence, it is unlikely that FOMC minutes will be able to push the probability of a June rate hike significantly higher given that FOMC minutes are likely to be stale by the recent US political developments.
That said, we will look for any indication of future the pace of tightening and plans for balance sheet tapering. Also, there is a slight downside risk to USD from the FOMC minutes coming in slightly dovish given that FOMC statement had erred on the hawkish side; this scenario, however, is least likely. Elsewhere, ECB President Draghi will speak at 1245 GMT however, we are unlikely to get any hints on ECB June 8th meeting as he is speaking on financial stability.
Oil has had another positive day with WTI front month now pushing above the $51.50 following a reduction of 1.5mn barrels (less than the 2.7mn expected) in the US API crude oil inventories last night. The US EIA will release the official weekly oil stock report today at 1430GMT and risk is skewed to the upside ahead of the OPEC meeting on Thursday Read full article.
The BoC will meet on Wednesday but there is no monetary policy review or press conference. The focus will hence remain on the language that BoC follows with regards to the developments across the border. If the BoC downplays the uncertainty stemming from US political turmoil and provides a similar message to the one that was given previously, we are likely to see CAD upside. That said, any moves in CAD are likely to be tempered ahead of the OPEC meeting.
G10 FX Economic for Wednesday 24/5
The US DoE crude inventory data showed a change of -4.43mn compared to -2.4mn expected; the Brent crude front-month jumped testing $54.60 but we haven’t yet seen a break as the DoE data is on the similar lines as API data last night. We don’t see much correction as risk seems skewed to the upside for oil and commodity bloc currencies as a 9-month extension deal from OPEC meeting on Thursday is very much likely. For OPEC timeline click here. For what is expected from OPEC meeting click here.
The BoC downplayed the uncertainty stemming from US political turmoil and recent inflation rate miss. We see a further CAD upside given that the BoC was fairly hawkish; Governing Council judges that the current degree of monetary stimulus is appropriate at present, and maintains the target for the overnight rate at 1/2 per cent” earlier it said “significant uncertainty on the outlook.”. That said, OPEC meeting on Thursday is also a big event for CAD and this may temper gains.
The [US 10 year yields also rallied] late last night to close above 2.27%. Fed’s Harker last night was bullish and the probability of a Fed rate hike still remains high (83%) and hence, it is unlikely that [FOMC minutes] will be able to push the probability of a June rate hike significantly higher given that FOMC minutes are likely to be stale by the recent US political developments. That said, we will look for any indication of future the pace of tightening and plans for balance sheet tapering. Also, there is a slight downside risk to USD from the FOMC minutes coming in slightly dovish given that FOMC statement had erred on the hawkish side; this scenario, however, is least likely. Elsewhere, [ECB President Draghi] will speak at 1245 GMT however, we are unlikely to get any hints on ECB June 8th meeting as he is speaking on financial stability.
Trending Update for Friday 26/5
The key data for the day remains the US durable goods orders at 1230 GMT but with weak numbers expected we don’t see much downside risk to USD. We will also have the US Q1 GDP 2nd estimate at 1230 GMT followed by Michigan consumer sentiments (final) later on. The USD remains subdued but we didn’t see a large scale sell-off despite the FOMC meeting minutes coming on the dovish side. In our view, the USD risks are now skewed to the upside as most of the bad news is priced in and June rate hike is still very much going ahead (given messages from Fed Bullard and Williams last night).
GBP has taken a turn for the worse exiting a bull channel versus USD; with the UK election poll 2017 narrowing and the UK GDP second estimate getting revised down on Thursday we see upside as limited. That said, the overall trend on GBPUSD is still intact and fall versus EUR have now gone beyond what could be explained by fundamentals alone.
In terms of market sentiments, we have seen Nikkei close 0.61% lower and USDJPY drop 0.64%. JPY is now the top performer in the G10 currencies following above expected Tokyo CPI. The Crude prices have consolidated today after falling sharply yesterday post-OPEC extending oil output cut by 9-month. That said the volatility still remains high and this will continue to impact commodities currencies. In our view, both Oil and commodities currencies (AUD, NZD, CAD and NOK) are likely to improve over the coming days as global outlook looks positive and short-term risks from the US politics are abating.
Trending Update 30th May G10 FX outlook
Nikkei fell 0.5% initially but recovered late in the Asian session to close almost flat (-0.02%) for the day. The European equities have also opened sharply lower with FTSE, DAX and CAC40 down 0.6%, 0.4% and 0.9%, respectively. In terms of the G10 FX, GBP is number one and USD is number 8 followed by SEK at number 10 (the weakest currency today). SEK weakness was due to the Swedish Q1 GDP miss (0.4% vs. 0.9% expected). The Swedish Q4 GDP growth rate was also revised down from 1% to 0.7%. The saving grace was SEK was the April retail sales which came in strong (1.3% vs. 0.5% expected)
Overnight, the Japanese retail sales came in strong above expectations while unemployment rate came in unchanged at 2.8% as expected. Elsewhere Norway’s retail sales were also above expected.
The EUR TWI fell sharply on Monday but is flat for Tuesday with a Doji candlestick pattern seen so far. In our view short-term risk to the EUR downside have increased; that said, there are some key releases today including the Euro-area business confidence at 0900 GMT and German Inflation rate (flash) at 1200 GMT. We will need improved numbers to keep the positive EUR sentiments going.
As for USD risks are now skewed to the upside as most of the bad news is priced in and June rate hike is still very much going ahead (given messages from Fed speakers last week). Also, there is PCE data and the US Non-farm payrolls due later in the week (expected to show strong numbers).
Trending Update 31st May
GBP is choppy moving from one election poll to the next. We are now seeing some sharp dip in Sterling after the YouGov poll forecasted a hung parliament. We see GBP weaken over the coming days as uncertainty over the UK elections grows. Levels to watch on EURGBP on the top side are .8750 and .8790 and on Cable are 1.2762 (21 April low) and 1.2705 (February highs).
The German retail sales came in weaker than expected (-0.2% actual vs. 0.2% expected) while unemployment rate came in unchanged at 5.7%. The unemployment numbers fell by less than expected (-9K actual vs. -15Kexpected). The EUR has had a muted response and we expect moves to be limited ahead of the composite the Euro-area CPI (flash) at 0900 GMT where any surprise will lead to short-term EUR response. Levels to watch on EURUSD are 1.1150 and 1.1200 just after the release and 1.1100 and 1.1265 by end of the day.
In the US session, the Canadian Q1 GDP is due at 1230 GMT; after a slightly hawkish BoC, the risk to CAD is skewed to the upside. The WTI front month is down 1.5% at $49.10 after testing the $50 mark yesterday. That said, the outlook on oil still remains constructive as Oil is still above the OPEC meeting lows and USDCAD bears are very much in play. Also, we see improvement in commodity currencies as risk appetite returns.
