Dollar Lacks Momentum for Rebound Despite Jobless Claims Dropped to 28 Year Low

Dollar is attempting a recovery today but stays weak against Japanese Yen. Risk aversion remains the main theme in the global financial markets with all major European indices trading in red at the time of writing. US futures also point to lower open. Upbeat economic data from US provide little support to the greenback as traders stay deeply concerned with US President Donald Trump’s political turmoil. Initial jobless claims dropped 4k to 232k in the week ended May 13, better than expectation of 240k. That’s also the lowest level in more than 28 years since 1973. Claims has now stayed below 300k handle for 115 straight week, longest stretch since 1970. Continuing claims dropped 22k to 1.9m in the week ended May, lowest since 1988. Continuing claims also stayed below 2m level for the fifth straight week. Philly Fed survey rose to 38.8 in May, beating expectation of 18.5.

Sterling jumps after retail sales

Sterling surges today after much better than expected sales data. Headline sales rose 2.3% mom in April, beating expectation of 1.10% mom. That’s also a notable improve over March’s figure of -1.4%. GBP/USD finally gathers momentum to resume recent rally and surges past 1.3 handle. Nonetheless the Pound is still trading down against Euro, Swiss Franc and Japanese Yen for the week. A key to outlook of Sterling remains on BoE expectations. It’s now rather clear that the central bank would tolerate overshooting inflation before having a clear picture on the result of Brexit negotiation.

Also, there are criticism that BoE’s forecasts of 1.9%, 1.7% and 1.8% growth in 2017, 2018 and 2019 are too optimistic. The projections were based on the assumption of a very smooth Brexit, which is seen as unlikely. According to a Reuters Poll, 50 out of 60 economists surveyed are less optimistic than BoE about growth prospect for this year. And for 2018, 47 out of 58 economists are less upbeat.

ECB: June a good time to start considering exit

As indicated in the accounts of April 27 ECB monetary policy meeting, officials have indicated that June would be a good timing to start considering exit from stimulus. The accounts noted that "it was felt that the Governing Council’s communication should be adjusted in a very gradual and cautious manner as, the current juncture, monetary and financial conditions were particularly sensitive to changes in communication." And, "after a long period of very accommodative monetary conditions, even small and incremental changes in communication could have strong signalling effects when interpreted as heralding a change in the monetary policy stance."

Nonetheless, ECB governing council member Bostjan Jazbec warned that "none of us dares to declare the victory yet." He used an analogy that "you don’t go skiing immediately after you took off the cast of your last skiing accident." Also, he mentioned the so called "taper tantrum" in US back in mid-2013 when the talk of Fed tapering triggered violent market reactions. And he noted that "any abrupt changes to our measures, which all work in combination, would not be welcomed by the European economy".

Elsewhere…

Japan GDP rose 0.5% qoq in Q1, above expectation of 0.4% qoq. GDP deflator dropped -0.8% yoy, below expectation of -0.7% yoy. Australia employment grew 37.4k in April, above expectation of 5.0k. Unemployment rate dropped to 5.7%, below expectation of 5.9%. Consumer inflation expectation rose 4.0% in May.

GBP/USD Mid-Day Outlook

Daily Pivots: (S1) 1.2919; (P) 1.2955; (R1) 1.3004; More…

GBP/USD’s soars to as high as 1.3047 so far today. Intraday bias remains on the upside as current rise would target 1.3444 key resistance. At this point, price actions from 1.1946 are still viewed as a corrective pattern. Hence, we’d expect upside to be limited below 1.3444 to complete the correction. Though, break of 1.2844 support is needed to indicate short term topping. Otherwise, further rise would be in favor in case of retreat.

In the bigger picture, fall from 1.7190 is seen as part of the down trend from 2.1161. There is no sign of medium term reversal yet. Sustained trading below 61.8% projection of 2.1161 to 1.3503 from 1.7190 at 1.2457 will target 100% projection at 0.9532. Overall, break of 1.3444 resistance is needed to confirm medium term bottoming. Otherwise, outlook will remain bearish.

Economic Indicators Update