Market Brief
Stocks were mainly lower in Asia this morning after a weak session in New York - the S&P 500 lost -0.37%, the NASDAQ -0.13% and the Dow Jones -0.16%. But the biggest loser yesterday was the US dollar. The single currency appreciated more than 2.5% against the greenback while the Aussie gained 2.8% amid dovish comments from Lael Brainard. Federal Reserve Governor suggested that recent data may question the strength of the US economy, and could therefore delay the first rate hike to next year. However, she left the door open for a hike this year, she said “If continued labor market strengthening is confirmed and inflation readings continue to improve, liftoff could come before the end of the year.”
EUR/USD jumped from 1.0918 to 1.1192, the single currency was also supported by better-than-expected EU CPI. Inflation rose 0.3%y/y in May, above the 0.2% median forecast while core measure jumped 0.9%y/y while markets were looking for a 0.7% figure. The data provide a breath of fresh air for the ECB as inflation prints into positive territory for the first time in six months. The euro is currently testing the highs from May 22. Yesterday’s rally could resume today as major data from the Eurozone are due this afternoon. May Markit Services and Composite PMI for Italy, France, Spain, Germany and Eurozone will be released this morning as well as April Eurozone unemployment rate (expected at 11.2%, 11.3% prior read).
In Australia, a less dovish RBA statement confused the market and hurt Aussie bears. However, the Reserve Bank of Australia does not close the door to further rate cuts in case of disappointing data or (too) strong Aussie. The AUD received a fresh boost overnight as Australia’s Q1 GDP printed at 0.9%q/q (sa) versus 0.7% median forecast. AUD/USD broke the 0.7760 resistance and is currently lacking the strength to turn the 0.78 level into a support. This quick AUD/USD rally didn’t modify our bearish view on the Aussie. Nevertheless, we think that the recent upside move in AUD/USD is temporary as traders price in the delay of the first rate hike to the end of the year, or even beyond. Markets are very sensitive to any comments from Fed officials and data from the US and we expect that this situation will last. Expect more USD driven market swings driven.
In Asia, equity markets are broadly lower with the Nikkeidown -0.34%, Hong Kong’s Hang Seng up 0.66%, Shanghai Composite down -0.26% and S&P/ASX 200 down -0.93%. In Tokyo, USD/JPY suffers also from the broad-based dollar sell-off, to some extent, and is grinding lower toward 124. On the downside, the next support stands at 122.55 (Fib 38.2% on April-June rally) while the previous high from June 2 at 125.05 will act as a resistance.
In Europe, equity futures are in green this morning on hopes of a deal between Greece and its creditors (finally?). CAC 40 is up 0.14%, SMI up 0.17% while Euro Stoxx 50 is up 0.17%. German yields are higher this morning with the 10-Year up 24bps over the last 3 days to 0.724% while the 5-Year gained 11bps over the same period. EUR/CHF jumped higher yesterday and managed to stay above the 1.04 threshold during the Asian session. USD/CHF failed at breaking the strong resistance standing around 0.9470 implied by its 50dma and the 38.2% Fibonacci level (on January-March rally).
Currency Tech
EUR/USD
R 2: 1.1534
R 1: 1.1385
CURRENT: 1.1141
S 1: 1.0882
S 2: 1.0521
GBP/USD
R 2: 1.5879
R 1: 1.5800
CURRENT: 1.5346
S 1: 1.5191
S 2: 1.5090
USD/JPY
R 2: 135.15
R 1: 125.64
CURRENT: 124.07
S 1: 122.03
S 2: 118.18
USD/CHF
R 2: 0.9712
R 1: 0.9573
CURRENT: 0.9344
S 1: 0.9287
S 2: 0.8986