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Euro Extends Gains, SGD Outperforms, Leads Asian/EMS Rally
Summary: Sterling surged past the 1.42 level for the first time since February following upbeat UK Employment data. The British economy added a total of 84,000 jobs, beating median estimates of 50,000 jobs. Britain’s Unemployment Rate beat expectations falling to 4.8% from 4.9%. The change in the number of Britons claiming unemployment-related benefits during April fell by 15,900 (19,400 March). GBP/USD settled at 1.4186 in late New York trade. Meantime, US April Housing Starts underwhelmed, falling to 1.57 million from 1.73 million previously. The Dollar Index (USD/DXY) which measures the Greenback’s value against a basket of 5 major currencies, slumped to 89.77, down 0.42% (90.17 yesterday). Overall US Dollar weakness enabled the Euro to extend its run higher, gaining 0.57% to 1.2225 (1.2157). The Antipodeans, Aussie and Kiwi took advantage of the Dollar’s drop, jumping to 0.7797 (0.7769) and 0.7245 (0.7215) respectively. In Asia, an advance in Singapore’s stocks (Singapore Straits Times Index) of 2.04% saw the USD/SGD (US Dollar-Singapore Dollar) slide 0.48% to 1.3292 (1.3348). Economists forecast that GDP growth in Singapore would remain robust despite the latest restrictions to battle a new wave of Covid-19 infections. USD/CNH (US Dollar- Offshore Chinese Yuan) lost 0.32% to 6.4220 from 6.4410. Against the Yen, the Dollar eased to 108.95 from 109.22.
Inflation worries saw Wall Street stocks fall for the second day running. The DOW was down 0.88% to 34,070 (34,370) while the S&P 500 slid 0.92% to 4,127 (4,165). Treasury yields were mostly steady. The US 10-year bond yield was last at 1.64% (1.65%) while Germany’s 10-year Bund rate was last at -0.11% from -0.12% yesterday.
Other data released yesterday saw Japan’s Preliminary Q1 GDP fall to -1.3%, missing expectations of -1.1%. The UK’s Average Earnings Index (Wages) dipped to 4.0% in April from 4.5%, missing forecasts at 4.5%. The Eurozone’s Flash Q1 GDP matched expectations at -0.6%, while the EZ Trade Surplus eased to EUR 13.0 billion, from an upwardly revised EUR 23.1 billion, missing median estimates at EUR 20.3 billion. US April Building Permits were steady at 1.76 million (f/c 1.77 million).
On the Lookout: Today sees the release of key inflation data from New Zealand, the UK and the Eurozone and Canada. The Fed’s most recent FOMC meeting minutes are also released later (Sydney 4 am May 20). New Zealand just reported its Q1 PPI Input and Output data. PPI Input rose 2.1% (against f/c of 0.1%) while PPI Output in Q1 rose to 1.2%, beating estimates of 0.2%. The Kiwi (NZD/USD) was little changed at 0.7242. Australia releases its Wage Price Index (Q1), forecast to climb 0.5% against a previous rise of 0.6%. Australia’s Westpac Bank also releases it Consumer Sentiment Index. Japan follows with its Revised Industrial Production (April). The UK starts off Europe with its April Annual CPI, forecast at 1.5% from 0.7%; April Core CPI, forecast 1.3% from 1.1%. UK PPI Input (f/c 1.0% from 1.3%) and PPI Output (f/c 0.4% from 0.5%) follow. The Eurozone releases if Final Estimate (April) CPI (f/c 1.6% from 1.6%) and Final Core CPI (f/c 0.8% from 0.8%). North America sees Canada’s April CPI (f/c 0.2% from 0.5%) and Core CPI (no forecasts, previous was 0.3%). The US Fed FOMC Meeting minutes round up the day’s reports. The FOMC meeting minutes will be closely monitored following last week’s spike in US inflation.
Trading Perspective: Overall bearish sentiment on the Greenback grew, emboldened by downbeat US Housing data against an upbeat UK Employment report. In Europe, markets expect a pick-up in activity and the preference is to stay long of the shared currency. Meantime, in Asia, strong growth in Singapore saw its currency (SGD) jump 0.48% against the Greenback, dragging other currencies in the region higher (Thai Baht, Philippine Peso). The USD/CNH fell to early May lows.
The Fed is not expected to significantly revise its outlook despite last week’s spike in US inflation, which could be keeping USD bears a touch complacent.
No doubt there is scope for the Euro to climb further, leading the Greenback lower, as restrictions are lifted in the Continent. Economic activity is forecast to climb, exceeding that in the US. Even the analysts from a prime US investment house are bullish the Euro. In the old days, we would refer to these forecasts (from prime US investment houses) as reverse-indicators … The only problem, which is not small, is that speculators are long of currencies (EUR, GBP, CAD, AUD) to their eyeballs. Which, as this writer still believes is a danger sign.
Happy Wednesday and trading all.
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