Euro Climbs on German Inflation Build, USD Eases

  • Michael Moran , Senior Currency Strategist at ACY Securities

  • 01.06.2021 06:45 am
  • trading

AUD Steady; RBA to Maintain Policy Settings

Summary: The Euro climbed against the US Dollar and other rivals as Germany’s Annual consumer price inflation rose by 2.4% in May, up from 2.0% in April. The shared currency edged up to 1.2225 from 1.2190 yesterday. Official holidays in the UK and US kept trading subdued with light volumes. A favoured gauge of the US Dollar’s value against a basket of 6 major currencies, the Dollar Index (USD/DXY) eased 0.23% to 89.80 (90.05). The Australian Dollar held steady, rebounding to 0.7730 from 0.7710 ahead of today’s RBA policy meeting and interest rate decision. Market participants are expecting the Australian central bank to maintain policy settings unchanged from its previous meeting. Sterling rose against the overall weaker Greenback, up 0.21% to 1.4205 (1.4187). Against the Japanese Yen, the Dollar pulled back to 109.52 from its 109.85 open yesterday. Over the weekend, USD/JPY hit a high at 110.198. USD/CAD slid to 1.2063 from 1.2075. Against the run of play, the USD/CNH pair (US Dollar – Offshore Chinese Yuan) rallied back to 6.3735 from near 3-year lows (6.3517) yesterday. Yesterday a former Chinese central bank official warned that rapid appreciation of the Yuan was not sustainable.
Wall Street stocks edged lower in subdued holiday thinned trade. The DOW settled at 34,460 (34,565). The S&P 500 dipped 0.32% to 4,195 (4,207 yesterday). Global bond yields were little changed. Data released yesterday saw Japan’s Annual Retail Sales rise 12.0% in March, missing forecasts of a 15.4% climb. Japanese Industrial Production was up 2.5% from 1.7% (revised lower from 2.2%), missing estimates of 4.0%. Japan’s May Consumer Confidence was up at 34.1, beating estimates of 33.2. China’s May Manufacturing PMI reading was at 51.0 against forecasts of 51.3. Germany’s May Harmonised CPI rose to 2.4% from 2.1% in April, against forecasts of 2.5%. Canada’s Q1 Current Account Surplus was at CAD 1.2 billion, against forecasts of a CAD 2.4 billion surplus.

  • EUR/USD – The Euro outperformed, climbing to a 1.2225 finish (1.2190 yesterday) boosted by an acceleration in German’s annual consumer price inflation. Overnight, the shared currency hit a high at 1.22313. The shared currency was also higher against the British Pound with the EUR/GBP cross up 0.3% to 0.8607 from 0.8590.
  • AUD/USD – The Battler rebounding off its 0.7710 open yesterday to finish at 0.7732, up 0.35%. On Friday, the Aussie slumped to a low of 0.7677. Overnight high for AUD/USD was 0.77413. The RBA is expected to maintain its policy settings at the conclusion of its policy meeting today.
  • USD/JPY – eased to 109.52 at the New York close from 109.85. The Dollar rose to 110.198 on Friday, early April highs. Japanese economic data releases mostly beat forecasts although a recent spike in coronavirus cases, 5 weeks ahead of the 2021 Tokyo Olympic Games are keeping traders cautious. Japan has been ramping up its vaccination program.
  • USD/CNH – A warning from a former Chinese central bank official that rapid appreciation of the Chinese Yuan was not sustainable saw the USD/CNH pair rebound off near 3-year and overnight lows at 6.3517 to 6.3735 in late New York. Price action suggests strong buying at the lower levels.

On the Lookout: The Dollar Index (USD/DXY) fell back to the lower end of its recent range to finish the month of May lower. The surprise rise in US inflation in early May saw speculation mount as to whether the Fed would act accordingly. US bond yields rose with the 10-year hitting a peak at 1.69% while the Dollar Index (USD/DXY) soared to 90.80 (May 12). Subsequent Fedspeak, end-of-month adjustments, lower volumes, and the upcoming US Payrolls report (Friday) pressurized the Greenback lower. Trading volumes pick up today with the return of the UK and US from the weekend and holidays yesterday. Economic data reports pick up today with Australia’s AIG Manufacturing Index for May (f/c 61.8 from 61.7) and May Markit Manufacturing PMI (f/c 60.4 from 59.7). New Zealand just reported April Building Permits eased to 4.8% from March’s upwardly revised 19.2%. Australia’s Current Account (April) follows with a surplus of AUD 17.8 billion expected (from surplus of AUD 14.5 billion). China’s Caixin Manufacturing PMI is forecast to climb to 52.1 from 51.9. The RBA Rate Decision and Announcement follows (2.30 pm Sydney). UK Nationwide HPI (May, f/c 0.7% from 2.1%) kicks off European reports. European (Spanish, Italian, French, and German) and Eurozone Manufacturing PMI’s follow next. Analysts expect most PMIs to improve from previous readings. The Eurozone Annual Flash Headline and Core CPI reports follow with May Core CPI forecast to climb to 0.9% from 0.7%. Eurozone Unemployment Rate is forecast unchanged at 8.1%. Canada reports its Manufacturing PMI for May. The US May ISM Manufacturing PMI (f/c unchanged at 61.5) rounds up the day’s data dump.

Trading Perspective: Trading should pick up today as volumes return and market participants await further data releases. This is the countdown to Friday’s US Payrolls report. Yesterday’s moves continue a pattern of short-term trend changes into end-of-month adjustments followed by the US Payrolls report which is normally on the first Friday of every month. The Dollar Index (USD/DXY) closed near the lower end of its 3-year range at 89.80 yesterday. While the Greenback ended on the back foot, expect the US currency to hold its ground heading into Friday.

(Source: Finlogix.com)

  • EUR/USD – The Euro climbed back above the 1.2200 resistance level to finish 0.32% higher against the Greenback. An acceleration in Germany’s annual consumer price inflation in May boosted the shared currency. EUR/USD traded to an overnight high at 1.22313. On the day, immediate resistance lies at 1.2260 followed by 1.2290. Immediate support can be found at 1.2210 and 1.2180. European and Eurozone PMI readings are scheduled for release today with most forecast to show improvements. We are right smack in the middle of what is looking like a 1.2160-1.2260 range.
  • AUD/USD – The RBA is widely expected to keep its Overnight Cash Rate (0.10%) policy settings unchanged at the conclusion of its meeting today (2.30 pm Sydney). The recent lockdown in the state of Victoria due to a rise in coronavirus infections will keep the Australian Central Bank cautious. AUD/USD has immediate resistance at 0.7750 followed by 0.7780 and 0.7810. Immediate support is found at 0.7710 followed by 0.7680. Likely range today 0.7710-0.7760, just trade the range shag the way to go today.
  • USD/JPY – slip-sliding away every so slowly.  The Dollar eased against the Yen weighed by overall USD weakness and mixed Japanese data. USD/JPY traded to an overnight low of 109.35 where immediate support can be found. Resistance lies at 109.95 (overnight high traded was 109.635) followed by 110.20. Japan is ramping up its vaccination program 5 months ahead of the start of the Tokyo Olympics. This is both positive for risk appetite and the Japanese currency. Look for a likely range today of 109.35-110.05.
  • USD/CNH – The Greenback rebounded against China’s Offshore Yuan supported by comments from former Chinese central bank official, Seng Songcheng. Songcheng warned against further Yuan rapid appreciation. Which could suggest a line-in-the sand from Chinese officials on this currency pair at the 6.30-6.35 support area. USD/CNH opened yesterday at 6.3600, trading to an overnight and a near 3-year low at 6.3517. USD/CNH has immediate support at 6.3550 followed by 6.3500 and 6.3450. Immediate resistance can be found at 6.3760 (overnight high at 6.3759) and 6.3820. Look for this currency pair to grind higher in a likely 6.3650-6.3850 range.

Have a good trading day ahead all, Happy Tuesday.
 


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