• Michael Moran , Senior Currency Strategist at ACY Securities


• 16.06.2021 06:45 am
trading

US Retail Sales Drop; PPI Prices Rise, EUR Flat, AUD Slips

Summary: A larger than expected fall in US May Retail Sales was offset by a rise in PPI prices which hinted at further inflationary pressures. Ahead of tonight’s Federal Reserve meeting outcome, the Greenback kept its bid against the Japanese Yen, finishing at 110.05 (110.07). US bond yields were little changed with the benchmark 10-year rate at 1.49% (1.50% yesterday). The Dollar Index (USD/DXY), a popular gauge of the Greenback’s value against a basket of 5 major currencies edged up to 90.50 (90.48 yesterday). Sterling eased to 1.4080 (1.4105) despite upbeat UK Jobs data. Average Earnings (Wages) in rose 5.6%, beating forecasts of a 4.9% rise. A delay in Britain’s reopening from lockdown until July 19 continued to weigh on the Pound. The Euro settled at 1.2127 (1.2120) in New York, its third straight finish around this level. Risk leading AUD/USD slipped 0.34% to 0.7685 from 0.7712 yesterday. The Kiwi (NZD/USD) eased 0.29% to 0.7122 while the US Dollar climbed against Canada’s Loonie (USD/CAD) to 1.2187 (1.2145). Dollar/Asians were little changed. USD/CNH (Dollar-Offshore Chinese Yuan) closed flat at 6.4060.
Wall Street stocks finished with mild losses. The DOW was last at 34,300 (34,375) while the S&P 500 settled at 4,247 (4,255 yesterday).
US Headline Retail Sales in May fell -1.3%, more than estimates at -0.6%. April’s Sales number though was revised higher to 0.9% from 0.0%. May Headline Producer Prices (PPI) rose 0.8% beating expectations at 0.6% and April’s 0.6%. Other data released saw the UK’s Unemployment Rate (April) at 4.7%, matching forecasts (4.7%) but better than the previous 4.8%. US May Industrial Production rose 0.8% (m/m), beating estimates of 0.6%. US Empire State Manufacturing Index slipped to 17.4 in May from 24.3 in April.

• AUD/USD – The Aussie closed under 0.77 cents, at 0.7685, its lowest close since June 4. Minutes released from the RBA’s most recent Monetary Policy Meeting saw the Australian Central Bank reiterate that it would not hike rates until actual inflation was within its 2-3% target band. Overnight high traded for AUD/USD was 0.77166.
• USD/JPY – ended its New York session just above the 110.00 level at 110.05. The Greenback hit an overnight high at 110.167 before easing in late NY. While there were no big moves in the benchmark US 10-year bond yield, traders believe that the Fed may overlook wear reports and address the taper issue.
• GBP/USD – slip-sliding away, the Pound lost ground versus the US Dollar to finish at 1.4080 in New York. This was Sterling’s lowest close since mid-May. Sentiment has been building against the British currency weighed by Brexit uncertainty and reopening delays. Mostly upbeat UK Employment data released last night was unable to lift Cable.
• EUR/USD – The shared currency closed around the 1.2120 level for the 4^th day running after trading in a lacklustre 1.2101-1.2141 range overnight. It’s all about the FOMC announcement later tonight for the shared currency.

On the Lookout: Tonight’s (4.00-4.30 am, Sydney Thursday, June 17) Fed meeting outcome and policy announcement could be huge for FX and the US Dollar. The Greenback was mostly higher against its rivals despite a big miss in US May Retail Sales. A higher PPI (which is inflationary) offset the fall in Sales. US bond yields were unchanged, while US equities edged lower at the finish. Will the Fed address the issue of tapering its asset purchases? Market participants will also focus their attention on the Fed’s forward guidance on growth and inflation.
Data released ahead of the FOMC’s verdict kick off with Japan’s April Machinery Orders (f/c 2.7% from 3.7% - Finlogix), and May Balance of Trade (f/c -JPY 91.2 billion from -JPY 255.3 billion April).
Australia releases its Westpac Leading Indicator. Europe starts off with a plethora of UK inflation data. UK CPI May CPI (y/y f/c 1.8% from 1.5% - Finlogix), May Core CPI (y/y f/c 1.5% from 1.3%), UK May PPI Input (y/y f/c 10.6% from 9.9%), UK May PPI Output (y/y f/c 4.5% from 3.9%). China releases its May Retail Sales (y/y f/c 13.6% from 17.7%), Unemployment Rate (f/c 5.1% from 5.1%), Industrial Production (f/c 9% from 9.8%) and Fixed Asset Investment (YTD f/c 16.9% from 19.9%. Canada kicks off North American data with its May Inflation Rate (y/y f/c 3.5% from 3.4%), Core Inflation Rate (y/y f/c 2.4% from 2.3%), and April Wholesale Sales (f/c m/m -0.9% from 2.8%). Finally, the US releases its May Housing Starts (f/c 1.63 M from 1.569 M), Building Permits (f/c 1.73M from 1.73m). The FOMC is not expected to change its Fed Funds Rate, currently at 0.25%.

Trading Perspective: It’s all about the Fed outcome and policy announcement. Any taper talk will see the US Dollar spike higher as speculative shorts will scramble for the exits. Avoidance of any taper talk will see the Greenback lose ground against its Rivals. The Fed is expected to keep its monetary policy unchanged but will reveal its forward guidance. Fed Chair Jerome Powell’s press conference will also be closely followed. We could be in for a volatile session, just handy ahead of what may be another season of Northern Hemisphere summer doldrums. Overnight US bond yields did not move. That may well change early tomorrow morning, so keep an eye out for them as well. Tin helmets on, happy days may be here again!

(Source: Finlogix.com)

• USD/JPY – This currency pair may well be telling the story. The fact that USD/JPY has held up remarkably well despite mixed US data and flat bond yields is remarkable. Overnight, USD/JPY hit a peak at 110.167 before easing to finish at 110.05. Overnight low traded was 109.987. If the Fed talks about the need to begin any taper talk tomorrow morning, USD/JPY could spike up to 110.80 which is strong resistance. Immediate resistance can be found at 110.30. Support on the day lies at 109.95 followed by 109.75. Look for consolidation in a likely range today of 109.90-110.30 first up.
• EUR/USD – The Euro has traded sideways for most of this week following the ECB’s last meeting where officials avoided any taper talk. Speculative Euro long bets are in risk of a shake out should a hawkish picture of the Fed emerge following its meeting and outcome. EUR/USD has immediate resistance at 1.2140 followed by 1.2180. Immediate support can be found at 1.2100 (overnight low 1.21011) and 1.2070. Likely range today ahead pre-FOMC is 1.2085-1.2145.
• AUD/USD – The Aussie traded with a heavy tone overnight, closing at 0.7685, the lowest since June 4. Overnight high for the Battler was 0.77166. With the highs and lows coming lower, the risk is for a downside breakout if the Fed hints of any talk of reducing asset purchases. AUD/USD has immediate support at 0.7675 (overnight low 0.76742) followed by 0.7645. Immediate resistance can be found at 0.7715 and 0.7745. Expect consolidation within a likely 0.7660 and 0.7710 range first up. Looks vulnerable to further downside probes.
• GBP/USD – Sterling came under pressure overnight despite relatively upbeat UK Employment data. Tonight, we see the release of UK CPI data. The British currency’s next big move will be dictated by the US Dollar. A strong Greenback will see further shake-out in the Pound. GBP/USD has immediate support at 1.4050 followed by 1.4030 (overnight low 1.4034). Immediate resistance lies at 1.4115 followed by 1.4135. Expect consolidation between 1.4040-1.4120 first up. Sterling looks set for further falls should the US Dollar rally.

Have a good trading day today, happy Wednesday.