USD: Higher, personal income rises, consumption flat, Chicago PMI posts unexpected decline
JPY: Higher, deflationary pressures accelerate, household spending falls and unemployment rises
EUR: Lower, China has no plans to sell EU debt, Italian and Spanish debt worries
GBP: Lower, consumer confidence declined for the 3rd month in a row
CAD and AUD: AUD & CAD lower, US equities trade lower in reaction to weak US data
USD traded mixed Friday with EUR initially supported by a statement from Chinese officials reaffirming China’s commitment to EU investments. EUR gains were limited by ongoing EU debt worries with focus shifting to Italy and in reaction to weaker US equities. GBP traded lower pressured by report of a decline in UK consumer confidence. JPY traded lower in reaction to report that deflationary pressures accelerated in Japan last month. Commodity currencies opened higher tracking firmer equity markets and a rally to a two-week high in the price of crude oil. Crude oil traded above $ 75 a barrel in Friday’s trade. US economic data was mixed with personal income rising and consumption flat. US personal saving rate was the weakest since September 2009. Chicago PMI came in below expectation final and Michigan sentiment came in slightly higher. Commodity currency gains were limited by report of weak US spending and a decline in Chicago PMI.USD traded to the day’s highs in reaction to report that the The Fed plans short term auctions. The auctions could be eventually used as a tool to tighten monetary policy. Risk sentiment remains the main driver for Forex trade. Focus turns to central bank policy meetings in Australia and Canada Tuesday. The RBA is expected to hold rate policy unchanged. It’s a close call for the BOC with Canadian dealers expecting the BOC to hike rates 25 basis points. The impact and fallout from the EU debt crisis may encourage the RBA and BOC to maintain steady rate policy.
Today’s US data:
April personal income rose by 0.4%, a 0.5% rise was expected. April consumption was flat, a 0.3% rise was expected. May Chicago PMI came in at 59.7, a reading of 63 was expected. May Michigan sentiment came in at 73.6, a reading of 73.5 was expected.
Upcoming US data:
Monday US markets are closed for Memorial Day holiday. Next week’s US economic calendar includes the June 1st release of April construction spending, May ISM and May auto sales. Construction spending is expected to fall by 0.1 % compared to a 0.2 % rise last month. The ISM index is expected at 59.7 compared to 60.4 last month. Auto sales are expected at 8.8mln. On June 2nd May ADP employment and April pending home sales Index will be released. The ADP report is expected at 51k compared to 31k last month. Pending home sales index is expected at 106.2 compared to 102.9 last month. On June 3rd initial jobless claims for week ending 05/29 will be released expected at 452k compared to 460k last week. On June 3rd final Q1 productivity and unit labor costs will also be released along with April factory orders and May ISM nonmanufacturing index. Q1 productivity is expected unchanged at 3.6% and unit labor costs are expected at -1.7%. Factory orders are expected to rise by 1% compared to 1.1% last month. The ISM nonmanufacturing index is expected 55.6 compared to 55.4 last month. On June 4th May non farm payrolls and unemployment will be released. Nonfarm payrolls are expected to rise by 495k compared to 290k last month. The unemployment rate is expected to dip by 0.1% to 9.8%.
JPY traded lower pressured by a shift in risk sentiment as equity markets rally and in reaction to report that Japan’s deflation accelerated last month. Global equity markets traded higher extending gains made Thursday which were sparked by assurances from China that China does not plan to sell its EU debt. Japan’s April core CPI declined by 1.5% year-over-year. Japan’s Finance Minister Kan said that moderate deflation continues in Japan. Japan also reported weakening of the Japanese labor market with unemployment for April rising 0.1% to 5.1% and April household spending declined by 6.3%. The one bright spot in today’s economic data from Japan was retail sales for April which rose by 0.5%. On balance today’s economic data from Japan suggest that the recovery remains uneven. The continued deflationary pressures in Japan will increase the likelihood of more Japanese government pressure directed at the BOJ to take action to combat deflation. JPY downside was limited by weaker US equities.
Next week’s Japanese economic calendar includes the May 31st release of April industrial output, housing starts and construction orders. Industrial output is expected at 1.8% to 1.2% last month. Housing starts are expected at 3% compared to 7.5% last month. Construction orders are expected 20.8% compared to 42.3% last month.
Key technical levels to watch in USD/JPY include support at 89.26 the May 25th low with resistance at 90.75 the May 24th high and 91.88 the May 20th high.
EUR traded mixed struggling to hold early gains as report that China does not plan to sell its EU debt is overshadowed by ongoing worries about the EU debt crisis. A report Wednesday in the Financial Times which suggested that China may consider reducing its exposure to EU debt sparked the most recent volatility in the markets with stock markets coming under heavy pressure Wednesday and equity markets posting sharp rebound Thursday. The equity market rebound is attributed to a statement from China that they have no plans to sell EU debt. The Chinese news helped to stabilize the global markets temporarily reducing fears of contagion risk from the EU debt crisis. Focus turns to Italy and concern about upcoming Italian debt maturities. There is report in the European press warning that the Italian bond market may experience worse selling pressure than Greece. EUR gains are also limited by a statement from the ECB’s Bonello that the European recovery has been hurt by deleveraging. China’s finance minister said that the EU debt crisis will affect the global economic recovery. EUR price direction will continue to track news in regard to the EU debt crisis. Morgan Stanley raised its year end USD EUR forecast to 1.16 from 1.24 because the EU debt crisis has undermined ECB credibility
Next week’s EU economic calendar includes May 31st release of EU April M3 expected at -0.2% compared to -0.1% last month along with EU May business climate index expected at 0.20 compared to 0.23 last month. May HICP will also be released on May 31st expected at 1.6% compared to 1.5% last month. On June 1st German April retail sales will be released expected at -1% compared to -2.4% last month along with German May unemployment expected unchanged at 7.8%. EU May manufacturing PMI will be released on June 1st expected at 57.3 compared to 57.6 last month along with EU April employment expected unchanged at 10%. On June 3rd EU May service is PMI Index will be released expected at 55.2 compared to 55.6 last month.
The technical outlook for the EUR is negative as EUR trades below 1.2300. Expect EUR support at 1.2143 the May 21st low with resistance at 1.2453 the May 28th high.
GBP traded lower pressured by report of a decline in UK consumer confidence. UK May GFK consumer confidence came in at -18 compared to -16 last month. This marks the third consecutive monthly decline in UK consumer confidence. The decline in consumer confidence reflects concern about the impact of upcoming UK spending cuts and tax hikes which are needed to reduce the record UK budget deficit. The decline in consumer confidence may revive concern about the strength of the UK economic recovery. There was limited market reaction to a statement from UK PM Cameron that’s the BOE needs to make sure to keep CPI under control. BOE policy outlook is clouded by recent UK economic data including today’s weaker consumer confidence which suggest that the recovery may be slowing and rising UK inflation. UK inflation rose at 3.7% which is well above the BOE’s 2% target. BOE officials expect UK inflation to moderate in the months ahead but if it does not the BOE will be faced with a tough policy decision. The OECD said that the BOE faces credibility issues because of recent rise in UK inflation. According to the OECD the BOE should begin to normalize rate policy in the second half of the year and start to reduce its emergency funding program. If the UK economic data continues to weaken it will make it difficult for the BOE to move towards normalization of monetary policy by year-end.
UK markets will be closed Monday for Spring Bank holiday. Next week’s UK economic calendar includes the June 2nd release of April money supply, mortgage approvals consumer lending and May PMI construction. The money supply is expected to rise by 0.1%. Mortgage approvals are expected at 48k compared to 51k last month. Consumer lending is expected at 9bln compared to 9.6blnlast month. The PMI construction index is expected at 57.5 compared to 58 last month.
CAD traded mixed initially supported by a rebound in global equity and commodity markets. Crude oil prices rallied above $ 75 a barrel and equity markets traded higher in Asia, Europe and the US. CAD traded lower as equities declined in reaction to report of weak US consumption and manufacturing data. Canada’s Q1 current account deficit came in near expectation at -7.82bln. The current account deficit has been narrowing for the past few months as Canada’s export sales have been rising. Focus turns to next Tuesday’s BOC policy meeting. There is a significant debate in regard to the outlook for BOC policy in light of the current turmoil in global markets and uncertainty about global growth outlook. Some analysts have argued that the EU debt crisis fallout will force the BOC to delay its rate hike cycle. Bloomberg carried an article Tuesday that says that BOC Governor Carney is prepared to hike rates in June in reaction to strong Canadian domestic growth and the recent boom in commodity demand from Asia. Canada reported its fastest growth in a decade with strong gains in employment and accelerating inflationary pressures. The BOC has not raised rates since July of 2007. Reuters reported last Friday that despite EU debt crisis and Chinese growth worries all the Canadian dealers expect the BOC to hike rates 25bps in June.
Next week’s Canadian economic calendar includes the May 31st release of March GDP expected at 0.4% along with April IPP1 and RMPI.IPPI is expected at -0.2% compared to -0.4% last month and RMPI is expected at 0.6% compared to 0.8% last month. On June 1st the BOC will hold a policy meeting. The central bank is expected to leave rates unchanged at 0.25% On June 4th May unemployment growth, unemployment rate, April building permits and May Ivey PMI will be released. The unemployment rate is expected unchanged at 8.1% with employment growth at 90k compared to 108.7 K. last month. Building permits are expected to rise by 6% compared to 12.2% last month. Ivey PMI is expected at 55 compared to 58.7 last month.
The technical outlook for CAD is mixed as USD/CAD trades below 1.0800. Look for near-term support at 1.0427 the May 20th low with resistance at 1.0706 the May 27th high.
AUD traded mixed with overseas gains limited by report of weaker US consumer spending and lack of follow-through rally in US equity markets and the price of crude. AUD traded sharply higher Thursday supported by firmer equity markets and in reaction to a consultant report which suggests that the RBA may soon resume its tightening cycle. There has been a great deal of uncertainty about RBA policy outlook and whether the RBA will soon pause in its tightening cycle. Part of this uncertainty is attributed to recent RBA policy minutes and statements from RBA officials who suggest that Australia’s interest rates are close to average. Additionally, recent Australian economic data has been mixed. Until the global equity and financial markets exhibit signs of stability the AUD remains vulnerable to speculation that the current market turmoil will encourage the RBA to delay plans for another rate hike. Focus turns to next Tuesday’s RBA policy meeting. The RBA is expected to leave rate policy unchanged. AUD price direction is closely tracking risk sentiment.
Next week’s Australian economic calendar includes the May 31st release Q1 companies’ profits and Q1 current account. Company profits are expected at -2.5% compared to -1.2% last quarter. The Q1 current account is expected at 15bln compared to 17.5bln last quarter. On June 1st April building approvals and retail sales will be released. Building permits are expected at -11% compared to 15.3% last month. Retail sales are expected to rise by 0.7% compared to 0.3 % rise last month. The RBA policy meeting will be held on June 1st. The RBA is expected to hold interest rate policy unchanged at 4.5%. On June 2nd Q1 GDP will be released expected at 0.4%. On June 3rd April trade balance with released expected at -0.20bln compared to -2.08bln Last month.
The technical outlook for the AUD is mixed as the AUD rallies back above 8500. Expect AUD support at 8300 with resistance at 8552 the May 28th high.