The forex markets are generally quite quiet today with many European countries on holiday. Nonetheless, Aussie is trading broadly higher as boosted by Chinese services data. Canadian Dollar also strengthens as oil price is lifted mildly by geopolitical news in Middle East. The greenback tried to recovery against Europeans and Yen but lost momentum in early European session. Meanwhile, Sterling showed little reaction to the terrorist attack in London as markets are holding their breath ahead of UK election. Services data are the main focus for today but markets will look through them to key events on Thursday.
UK election race tightens up
The race continued to tighten up ahead of UK General Election on Thursday. According to a poll by Survation for The Mail on Sunday, support for Conservative dropped further to 40%, while that for Labour rose to 39%. That is, the Tories are only have a 1-point lead over Labour. On other hand other, a ComRes poll showed that support for Conservatives rose one to 47% and that for Labour also rose one 35%. In that case, Tories still maintained a 12-point lead. In the middle, Opinium poll for the Observer found that support for Conservatives was down 2 points to 43%, and that for Labour was up 2 to 37%. That was a 6-point lead.
While the Conservatives are still leading, the trend is certainly worrying for them. But one should also take into consideration that the support for Labour leader Jeremy Corbyn is still far off Prime Minister Theresa May. And that could be the determining factor for the election. Nonetheless, a hung parliament is a realistic possibility and a Labour win can certainly not be ruled out. And without a landslide Conservative win, it would be a disgrace to PM May as her rationale to call for the snap election in the first place was to consolidate support for the Conservative Party, and more importantly for herself, in the Brexit negoation with the EU.
Meanwhile, despite suggestions to delay the election, senior Cabinet minister David Davis indicated that there is no way to legally suspend or delay the general election following Saturday’s terrorist attack at London Bridge. Prime Minister May affirmed on Sunday morning that the election "will go ahead as planned".
Euro firm ahead of ECB
Euro stays firm as markets await ECB rate decision later in the week. Recent strong confidence data and hard data have raised speculations that the ECB would change to a less dovish tone in the upcoming meeting on June 8. Hopes are rising that the policymakers would take a more benign view of the economy. They might even drop some of the commitments to increase stimulus, if needed. Tapering announcement is unlikely in June. However, a more upbeat ECB might pave the way for a tapering announcement at the September 7 meeting.
Saudi Arabia, Egypt, Bahrain, and the UAE cut ties with Qatar
Saudi Arabia, Egypt, Bahrain, and the United Arab Emirates cut the diplomatic ties with Qatar, for the latter on its tie to terrorism. In particular, Saudi Arabia’s state news agency accused Qatar of embracing "multiple terrorist and sectarian groups aimed at disturbing stability in the region, including the Muslim Brotherhood, ISIS (Islamic State) and al-Qaeda". The Emirates news agency staid that Qatar "support, funding and embrace of terrorist, extremist and sectarian organizations." WTI crude oil trades mildly up today as markets are starting to reprice-in some geopolitical risks. But it’s struggling to gain any momentum back to 50 handle.
On the data front…
Australia TD securities inflation rose 0.0% mom in May. China Caixin PMI services rose to 52.8 in May. UK PMI services will be the main feature in European session. Eurozone will also release PMI services final. US will release ISM non-manufacturing, factory orders, labor market conditions index and non-farm productivity.
AUD/USD Daily Outlook
Daily Pivots: (S1) 0.7393; (P) 0.7419; (R1) 0.7467; More…
AUD/USD’s recovery’s from 0.7370 extends higher today but it’s staying in range of 0.7370/7516. Intraday bias remains neutral for the moment. As long as 0.7516 resistance holds, deeper fall is expected. Below 0.7328 will resume the decline from 0.7748 to 0.7144/7158 support zone. On the upside, break of 0.7516 resistance will indicate near term reversal and turn bias back to the upside.
In the bigger picture, we’re still treating price actions from 0.6826 low as a corrective pattern. And, as long as 38.2% retracement of 0.9504 to 0.6826 at 0.7849 holds, long term down trend from 1.1079 is expected to resume sooner or later. Break of 0.6826 low will target 0.6008 key support level. However, firm break of 0.7849 will indicate that rise from 0.6826 is developing into a medium term rebound, rather than a sideway pattern. In such case, stronger rise should be seen to 55 month EMA (now at 0.8091) and above.
Economic Indicators Update
| GMT | Ccy | Events | Actual | Forecast | Previous | Revised |
|---|---|---|---|---|---|---|
| 1:00 | AUD | TD Securities Inflation M/M May | 0.00% | 0.50% | ||
| 1:00 | AUD | TD Securities Inflation Y/Y May | 2.80% | 2.60% | ||
| 1:45 | CNY | Caixin PMI Services May | 52.8 | 51.4 | 51.5 | |
| 7:45 | EUR | Italy Services PMI May | 55.3 | 56.2 | ||
| 7:50 | EUR | France Services PMI May F | 58 | 58 | ||
| 7:55 | EUR | Germany Services PMI May F | 55.2 | 55.2 | ||
| 8:00 | EUR | Eurozone Services PMI May F | 56.2 | 56.2 | ||
| 8:30 | GBP | Services PMI May | 55 | 55.8 | ||
| 12:30 | USD | Non-Farm Productivity Q1 F | -0.20% | -0.60% | ||
| 12:30 | USD | Unit Labor Costs Q1 F | 2.40% | 3.00% | ||
| 14:00 | USD | ISM Non-Manufacturing Composite May | 57.1 | 57.5 | ||
| 14:00 | USD | Labor Market Conditions Index Change May | 3 | 3.5 | ||
| 14:00 | USD | Factory Orders Apr | -0.20% | 0.20% |
