Swiss franc remains firm in various markets, dollar weak

Forex market trading is fairly quiet today, with major pairs and crosses stuck in yesterday’s range. Other markets are also treading water with European indices and US futures up slightly. Treasury benchmark yields are mixed. Gold pulls back slightly while oil prices are also in range. As for the week, the dollar remains the worst performer, followed by the canadian and the aussie. The Swiss franc is the strongest, followed by the euro and the kiwi.

Technically, US equities have been very resilient this week, but there is no clear trend reversal yet. Should the general sentiment improve further, it is likely that AUD/JPY will eventually break through the 91.15 resistance to resume the rebound from the 87.28 low. Such a development, if it occurs, would also confirm that the correction from 95.73 is complete, and would bring a retest of this high. In this case, the stock markets should also register a strong rebound, or something is wrong below.

In Europe, at the time of writing, the FTSE is up 0.12%. The DAX is up 0.84%. The CAC is up 0.78%. Germany’s 10-year yield is up from 0.010 to 0.964. Earlier in Asia, the Nikkei fell -0.27%. Hong Kong’s HSI index fell -0.27%. China Shanghai SSE rose 0.50%. The Singapore Strait increased by 0.93%. Japan’s 10-year JGB yield rose from 0.0232 to 0.235.

Initial jobless claims in the United States fell to 210,000 continuing claims up to 1.348 million

US initial jobless claims fell -8,000 to 210,000 in the week ending May 21, in line with expectations. The four-week rolling average of initial claims rose by 7,000 to 207,000.

Continuing claims increased by 31,000 to 1,346,000 in the week ending May 14. The four-week rolling average for continuing claims fell -14,000 to 1,348,000, the lowest since January 17, 1970, when it was 1,340,000.

Also released, Q1 GDP was revised down from -1.4% annualized to -1.5%. The GDP price index was revised upwards from 8% to 8.1%.

Retail sales in Canada stagnate in March, autos and parts contracted sharply

Retail sales in Canada were flat in March, worse than expected with a 1.5% increase month-on-month. Sales rose in 10 of 11 subsectors, led by gasoline (up 7.4%). However, sales by motor vehicle and parts dealers (-6.4%) erased the gains observed in the other subsectors.

For the first quarter as a whole, sales rose 3.0%, the largest quarterly increase since the third quarter of 2020. Preliminary data indicates that sales rose 0.8% month-on-month in April.

BoJ Kuroda: Exiting accommodative monetary policy will not be easy

BoJ Governor Haruhiko Kuroda reiterated in parliament today that ultra-loose monetary policy should be maintained for now. Consumer inflation is expected to moderate further next year and beyond, having exceeded the 2% target this year, solely on the back of soaring energy prices.

Nonetheless, Kuroda also noted that when the time comes, the BoJ will plan an exit from the ease policy. “The key would be how to raise interest rates and shrink the BOJ’s expanded balance sheet,” he said. “The BOJ can combine various means and ensure market stability by executing a smooth exit from the ease policy. I must add, however, that it will not be easy,” he said.

Regarding exchange rate depreciation, Kuroda said that the Fed’s rate hike would not necessarily weaken the yen, if it also caused stock prices to fall.

Prime Minister Fumio Kishida said in the same parliamentary session: “Sharp moves in the yen are not desirable. While a weak yen benefits exports and businesses with overseas assets, it hurts households and some businesses through higher costs.

RBNZ Orr: Biggest risk is embedded inflation expectation

RBNZ Governor Adrian Orr told a parliamentary committee today that ‘the biggest risk for this country right now is allowing the current high CPI inflation to embed itself in current future inflation expectations”.

Orr said a recession is not predicted for New Zealand, although he cannot rule it out. The challenges to growth stemmed from significant downward revisions to global growth, especially China.

USD/CNH has finished falling, returning to 6.83

Today’s decline in the yuan suggests that the short-term recovery is already complete and there is further downside risk. The sale came after Chinese Premier Li Keqiang held a rare high-level meeting on economic support measures yesterday. It is seen as a sign that the government is deeply concerned about the impact of the extension of severe pandemic shutdowns in many major cities, including Shanghai.

USD/CNH decline from 6.8372 likely ended at 0.6477, just before the 38.2% retracement from 6.3057 to 6.8372 at 6.6342. A strong rebound should be seen up to 6.8372 and possibly above. Key resistance, however, still remains a 61.8% retracement from 7.1961 to 6.3057 to 6.8560. USD/CNH could still be rejected by this fibonacci level on the second attempt.

USD/CHF mid-day outlook

Daily pivots: (S1) 0.9599; (P) 0.9621; (R1) 0.9645; After…

USD/CHF bearish momentum is fading as in the 4-hour MACD. While further decline cannot be ruled out, the decline should be contained by a 61.8% retracement from 0.9193 to 1.0063 to 0.9525 to bring a bounce. On the upside, minor resistance above 0.9763 will bring the upside bias back for recovery. However, a sustained break of 0.9525 will lead to a deeper decline to the support at 0.9459.

Overall, the downtrend from 1.0342 (2016 high) should have already ended with three waves down to 0.8756 (2021 low). The rise from 0.8756 is likely a medium term uptrend in itself. The next target is a 161.8% projection of 0.8756 to 0.9471 from 0.9149 to 1.0306, which is close to 1.0342 (2016 high). This will remain the preferred case as long as the resistance at 0.9459 becomes support.

Economic Indicators Update

GMT Ccy Events Real Provide Previous amended
23:50 JPY Business services price index Y/Y Apr 1.70% 0.90% 1.30%
01:30 USD Private capital expenditure Q1 -0.30% 1.50% 1.10% 2.30%
12:30 BODY Mars M/M Retail Sales 0.00% 1.50% 0.10%
12:30 BODY Retail sales excluding Autos M/M Mar 2.40% 2.20% 2.10%
12:30 USD Initial jobless claims (May 20) 210K 210K 218K
12:30 USD Annualized Q1 GDP P -1.50% -1.30% -1.40%
12:30 USD Q1 GDP price index P 8.10% 8.00% 8.00%
14:00 USD Door-to-door sales pending M/M Apr -1.70% -1.20%
2:30 p.m. USD Natural gas storage 83B 89B

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