27 May, 2015
Yesterday’s US reports revealed small upside surprises. The durable goods figures for equipment beat estimates modestly despite a 0.5% April headline orders drop, while new home sales rose 6.8% in April to partly reverse a March plunge. The GDP growth outlook remains unchanged at 2.5% in Q2. We saw a May consumer confidence rise to 95.4 that defied declines in all other confidence surveys for the month, and the Richmond Fed index bounced as expected to 1 from -3. Only the Dallas Fed index disappointed, with a drop to a -20.8 six-year low from -16.0 in April. Additionally we had Richmond Fed’s Lacker speaking yesterday. He likes June as a “good time to begin considering raising rates,” suggesting that weak Q1 data is transitory and inflation is firming again after oil rebounds from its slide. Lacker is a known hawk in the FOMC.
EURUSD has recouped the 1.0900 level during Asian trade after leaving a one-month low at 1.0863 yesterday. The pair has fallen some 4% in seven of the last eight trading days after making a three-month peak. I suggested yesterday that the support at 1.0845 could work as a target for intraday trades as 61.8% Fibonacci level coincides with daily highs in April. Market turning higher slightly above this level suggests that others are eyeing the same level. Yesterday’s close was outside the lower 2 stdv Bollinger Band and should today’s close be inside the band probabilities of price rallying higher increase. The next significant resistance area is at 1.1084 to 1.1131.
Currency Pairs, Grouped Performance (% Change)
Apart from movements in CHF the price action in other currencies has been relatively small. Money has been moving into CHF from other major currencies and it is up by 40 to 50 basis points or more against all the other currencies except EUR. CHF has been especially strong against the JPY, up by over 0.75% at the time of writing. Euro’s relative strength against CHF adds to the EUR strength we are seeing against the USD and other majors. There is consistent JPY weakness even though the movements have most of the morning been subdued. An exception to this is CHFJPY. USD performance is a bit mixed after hitting a historical resistance level in DXY. From this point of view it’s interesting that EURUSD is close to a support, USDCAD is trading at resistance and NZDUSD close to a weekly support. Also USDCHF is reacting lower from a combination of historical resistance and upper Bollinger bands together with a 50 day SMA.
Main Macro Events Today
German Gfk Consumer Confidence Survey (Jun) rose to 10.2 from 10.1. Economic confidence is improving, as is the willingness to buy, despite the fact that income expectations eased slightly. This is a confirmation that the German recovery remains on track.
Canada BoC Interest Rate Decision is expected to hold rates steady at 0.75%. It will likely maintain a constructive outlook beyond Q1, expecting return to full capacity around the end of 2016. No change in rates through 2015 is expected.
Japan Retail Trade (YoY) is expected to increase by 5.4% in April. Previous result dropped 9.7% y/y in March from a revised -1.7% y/y in February (was -1.8% y/y previously). Large retailers saw a 13.0% y/y plunge after a 1.3% February gain. However, we have to take into account that sales surged in March 2014 ahead of the April tax hike.
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