Throughout the first two weeks of June, central banks once again got the limelight as they were due for their customary policy meetings.
Thursday of last week, we had the European Central Bank that left interest rates unchanged at 0.5 per cent and even the deposit rate was left flat.
The deposit rate now gets heightened attention given that Draghi had said on May 2 that the ECB has “an open mind” towards a negative deposit rate.
Taken against the US dollar, the euro rose to highs last seen towards the end of February, as it embraced highs of 1.33061.
So far this week the currency pair has kept in the range of 1.3177-1.3299; we expect it to find support in the region of 1.3014/1.2810 while to the upside it should find resistance at 1.3364/1.3510.
Towards the end of last week, the Bank of England also remained on hold at 0.5 per cent and made no changes to the Asset Purchases Target. GBP so far continues to gather support and is seeing average gains of 1.63 per cent against most of the majors, despite the losses against the CHF and JPY.
Since month start, the GBP garnered 2.58 per cent against the US dollar, while against the single currency it was up 0.52 per cent.
Data out of the UK last Tuesday showed that industrial production for April eased to 0.1 per cent but was slightly better than the expected “no change”. Manufacturing production for the same period contracted to -0.2 per cent, swinging from the previous 1.1 per cent seen the previous month.
More jobs were added in the US in May. Last Friday, Non-Farm payrolls came out at 175k, exceeding expectations by 12k and surpassing the previous month’s figure of 149k. The unemployment rate ticked higher to 7.6 per cent from a previous 7.5 per cent but nevertheless it seems that the US economy is showing some resilience, despite the effects of tax hikes and the budget cuts.
This week, we had the Bank of Japan’s monetary policy announcement. The Japanese central bank kept rates on hold and disappointed investors because it failed to address recent Japanese Government Bond (JGB) market volatility. Since April the yield on the 10-year benchmark bond bounced from 0.315 per cent to 1 per cent and is currently in the region of 0.89 per cent.
The Japanese yen gained across the board shrugging off two days of decline, as the BoJ’s perceived inaction to attempt to stabilise the JGB yields triggered a reversal of the recent yen sell-off seen in the last days.
After hitting highs of 99.28 throughout Monday’s session, the USD/JPY slipped to 96.47 on Tuesday. In the former part of the week the currency pair traded in the range of 96.47-99.28; we expect support at 94.70/91.98, while resistance should hold price action at 100.44/103.45.
In the former part of this week the euro eyed the ruling of the German constitutional court that began its hearing over the legality of the ECB’s bond-buying program on the back of allegations that the ECB was acting beyond its mandate. Despite the fact that this tool remains so far unutilised, given the possible exposure to German tax payers and with national elections just round the corner in September, the court’s decision will definitely attract attention.
The Aussie continues to lose support; on the Bloomberg Correlation-Weighted Currency Index (BCWI) it shed 3.59 per cent in the former part of the week. The AUD/USD hits lows of 0.9326 at the time of writing, levels last seen in September 2010. Data out of Australia this Tuesday failed to impress investors; investment lending slipped to 1.1 per cent from a previous 1.4 per cent and the Business Conditions Index remained negative at -4.
Among the majors the AUD is only second to the JPY when it comes to year-to-date losses. Recent rate cuts, a fall in commodity prices and a slowing mining sector are leaving their toll on the AUD.
Gold has been unable to recover its shine, given the stronger than expected print for US Non-Farm payrolls for May and a generic optimism over the outlook of the US economy, together with heightened talk of the FED’s tapering of stimulus. It is likely that the yellow metal will continue to drift sideways.
Upcoming FX Key events:
Today: Australian Unemployment rate, US Advance Retail Sales.
Tomorrow: EZ CPI & employment and US Michigan Consumer Sentiment.
Technical Key points:
EUR/USD is neutral. EUR/GBP is neutral. USD/JPY is bullish, target 104.00, key reversal point 93.00. GBP/USD is neutral. USD/CHF is bullish, target 0.99, key reversal point 0.9185. AUD/USD is bearish, target 0.9210 key reversal point 0.9893. NZD/USD is bearish, target 0.7683 key reversal point 0.8312.
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Rudolf Muscat is a senior trader at RTFX Ltd.