Canadian Dollar Jumps With Oil Rally, Yen Remains Weak

The Canadian dollar is trading as the strongest so far for the week. The rise in the price of oil is providing additional support for the loonie, thanks to the improvement in global risk sentiment. The Aussie and the Euro are also behind. The yen remains the worst performer, followed by the Swiss franc and the dollar, while the pound sterling is mixed. US markets will be back from the holidays and attention will turn to whether last week’s strong rally in equities could continue.

Technically, the focus will remain on rallies in the yen pairs. CAD/JPY is now pressing resistance at 101.13 while GBP/JPY is pressing at 161.83. The breakout of these two levels will resume the rebound from 97.78 and 155.57 respectively. Such developments could trigger an upward acceleration to retest recent highs. It would also confirm that the overall market sentiment continues to improve.

In Asia, at the time of writing, the Nikkei is down -0.19%. Hong Kong’s HSI index is up 0.43%. China Shanghai SSE is up 0.75%. Singapore Strait Times is up 0.41%. Japan’s 10-year JGB yield is up from 0.0138 to 0.247.

Japanese industrial production fell -1.3% m/m in April, and is expected to return to growth in May

Japanese industrial production fell -1.3% m/m in April, much worse than expected -0.2% m/m. It is also the first drop in three months. The seasonally adjusted production index for the manufacturing and mining sectors stands at 95.2 against 100 for the base year 2015.

Manufacturers surveyed by the Ministry of Economy, Trade and Industry had expected production to return to growth in May, gaining 4.8%, followed by an 8.9% increase in June.

Also in Japan, the unemployment rate fell from 2.6% to 2.5% in April, its lowest level in two years. Retail sales rose 2.9% year-on-year, above expectations of 2.6% year-on-year.

China’s manufacturing PMI rose to 49.6 in May, services to 47.8

China’s official manufacturing PMI rose from 47.4 to 49.6 in May, in line with expectations. The Services PMI rose from 41.9 to 47.8, above expectations of 45.2. The PMI Composite also fell from 42.7 to 48.4.

“It showed that manufacturing output and demand have recovered to varying degrees, but the recovery momentum needs to be strengthened,” said Zhao Qinghe, senior statistician at NBS.

WTI Oil Will Erase 120 As EU Immediately Bans 2/3 Of Russian Imports

WTI crude extends the recent rally and is now targeting 120 years. EU leaders finally agreed yesterday to an embargo on oil imports by sea from Russia, which covers more than two-thirds of imports. Another third is delivered through the Druzhba pipeline. In addition, the embargo would be increased to 90% once Poland and Germany, which are connected to the pipeline, stop buying by the end of the year. The remaining 10% are temporarily exempt, including imports to Hungary as well as Slovakia and the Czech Republic.

“This immediately covers over 2/3 of oil imports from Russia, cutting off a huge source of funding for its war machine. Maximum pressure on Russia to end the war,” European Council President Charles Michel said in a tweet.

WTI Crude Oil’s breakout of short-term channel resistance suggests acceleration to the upside. Short term resistance at 118.57 is also removed. As long as 114.27 support holds, further rally would be seen back towards 131.82 high.

Nonetheless, the current rally from 93.47 is tentatively seen as the second leg of the medium-term corrective pattern from 131.82. Therefore, a firm break of 131.82 is not expected at this time, while sideways trades may extend for a bit longer.

Bitcoin heads towards 55 D EMA as short-term rebound resumes

On the back of improving market sentiment, Bitcoin rises through the resistance at 31407 to resume the rebound from 25083. A further rally is now expected at the 55-day EMA (now at 34297). A sustained break there will further confirm the case that the entire decline from 68986 ended with three waves down to 25083.

It is still a bit early to confirm a bullish trend reversal at the moment. But even as a corrective bounce, the firm break of the 44-day EMA should pave the way for a 38.2% retracement from 68986 to 25083 at 41853 at least. For now, this will remain the preferred case as long as support at 27993 holds.

Look forward

The Swiss trade balance, retail sales and GDP will be released during the European session. France’s GDP and consumer spending, Germany’s employment, UK’s M4 and money supply will also be presented. But the focus will likely be on the Eurozone CPI flash. Later today, Canada will release its GDP. The US will release the House Price Index, Chicago PMI and Consumer Confidence.

GBP/JPY Daily Outlook

Daily Pivots: (S1) 160.71; (P) 161.12; (R1) 161.89; After…

The intraday bias on GBP/JPY remains neutral with a focus on the resistance at 161.83. A firm break should confirm that the correction from 168.40 has already ended at 155.57. The intraday bias will be back down to retest the 168.40 high next. however, on the downside, the breakout of 155.57 will extend the correction towards key structural support at 150.96.

Overall, the uptrend from 123.94 (2020 low) is still ongoing. A sustained break of the 61.8% retracement from 195.86 (2015 high) to 122.75 (2016 low) at 167.93 will be a long-term bullish signal and could open the way back to 195.86. This will now remain the preferred case as long as the support at 150.95 holds, even if there is a deep pullback. However, a firm break of 150.95 will indicate a rejection by 167.93 and a downtrend reversal.

Economic Indicators Update

GMT Ccy Events Real Provide Previous amended
22:45 NZD Building permit M/M Apr -8.50% 5.80% 6.20%
23:30 JPY April unemployment rate 2.50% 2.60% 2.60%
23:50 JPY Industrial production H/M Apr P -1.30% -0.20% 0.30%
23:50 JPY Retail Y/Y Apr 2.90% 2.60% 0.90%
01:00 NZD ANZ business confidence in May -55.6 -42
01:30 USD Building permit M/M Apr -2.40% 2.00% -18.50% -19.20%
01:30 USD Credit to the private sector H/M Apr 0.80% 0.50% 0.40% 0.60%
01:30 USD Current account balance (AUD) T1 7.5B 13.4B 12.7B 13.2B
01:30 CNY May manufacturing PMI 49.6 49.6 47.4
01:30 CNY May non-manufacturing PMI 47.8 45.2 41.9
05:00 JPY Housing starts Y/Y Apr 3.00% 6.00%
05:00 JPY May Consumer Confidence Index 33.9 33
06:00 CHF Trade Balance (CHF) Apr. 3.50B 2.99B
06:30 CHF Actual Retail Sales Y/Y Apr -1.40% -6.60%
06:45 USD France Consumption expenditure M/M Apr 1.30% -1.30%
06:45 USD France GDP Q/Q Q1 0.00% 0.00%
07:00 CHF GDP Q/Q Q1 0.30% 0.30%
07:55 USD Germany Unemployment Change May -16K -13K
07:55 USD Germany May unemployment rate 5.00% 5.00%
08:30 GBP Money supply M4 M/M April 0.20% 0.10%
08:30 GBP Mortgage Approvals (GBP) Apr. 72K 71K
09:00 USD Eurozone CPI Y/Y May P 7.70% 7.50%
09:00 USD Euro zone CPI Core A/A May P 3.50% 3.50%
12:30 BODY GDP M/M March 0.50% 1.10%
13:00 USD S&P/CS Composite-20 HPI A/A Mars 20.80% 20.20%
13:00 USD Housing Price Index M/M March 1.80% 2.10%
13:45 USD Chicago PMI May 55.8 56.4
14:00 USD Consumer confidence can 103.9 107.3

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