• Michael Moran , Senior Currency Strategist at ACY Securities


• 19.05.2021 12:00 pm
trading

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).

• GBP/USD – soared above the 1.4200 level following upbeat UK Jobs data. The British Pound hit an overnight and February peak at 1.42202 before easing to close at 1.4186. UK Prime Minister Boris Johnson eased several restrictions on Monday despite fears of a rise in a new Indian variant of Covid infections.
• EUR/USD – The Euro extended its rally against the Greenback, finishing as best performer among the majors. EUR/USD traded to 1.2234 overnight, near 3-month highs, before easing to settle at 1.2225. Bullish sentiment for the shared currency continued to grow as traders expect activity to pick-up as lock-down restrictions are relaxed in the Continent. Eurozone CPI data are due for release tonight.
• USD/SGD – The Greenback slumped against the Singapore Dollar to 1.3295 (1.3347), a loss of 0.48%. Economists forecast growth to remain strong despite Singapore’s latest restrictions to battle new wave Covid-19 cases, which resulted in a 2.04% stock rally.
• AUD/USD – The Aussie Batter jumped to an overnight peak at 0.78136 before easing to settle at 0.7795. RBA meeting minutes revealed that Australia’s policy makers saw an improved economic outlook with no risk to any upside surprises in inflation.

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.

• EUR/USD – Technically the shared currency looks poised to see further gains. EUR/USD closed above 1.2210 (February 2021 highs), hitting a peak at 1.2234. The Euro has immediate resistance at 1.2240 followed by 1.2280/1.2300 (strong). Immediate support can be found at 1.2190 and 1.2160. Eurozone inflation is not forecast to rise, with expectations matching previous data. Expect the Euro to consolidate between a likely 1.2160-1.2240 range. With the speculators long of Euro bets, the preference is to sell into any Euro rallies.
• GBP/USD – Speculators are also long of GBP bets. The latest IMM report saw Sterling long bets climb by 1.9%, the most among the currencies. GBP/USD has immediate resistance at 1.4210 followed by 1.4250. Immediate support can be found at 1.4170 and 1.4140. Much of the good news is priced into Sterling, with hardly anyone focussing on possible negative news. Brexit still poses challenges for the UK. But the biggest impediment remains the overextended long GBP bets. Look for a likely range of 1.4140-1.4240. Prefer to sell rallies.
• AUD/USD – The Aussie caught up with the other majors, boosted by the Kiwi’s ascent. The Battler climbed to 0.7814 before easing back to 0.7795 in late New York. Aussie traders will be looking to the US Dollar and Asians as a guide for the next moves. AUD/USD has immediate resistance at 0.7810 followed by 0.7840. Immediate support can be found at 0.7780 and 0.7740. Expect consolidation within a likely range of 0.7760-0.7810. Preference is to sell into strength.
• USD/SGD – the Dollar’s slump against its Singapore’s counterpart was due to a robust outlook for the Singapore economy and a rise in local stocks. USD/SGD fell to an overnight low at 1.3283 before rising to settle at 1.3292. Immediate support for USD/SGD lies at 1.3250, which is strong and should hold. Immediate resistance can be found at 1.3330 and 1.3370. Look for a likely trade between 1.3270-1.3370 today. Prefer to buy USD dips to 1.3250.

Happy Wednesday and trading all.