Markets in Full Risk On, Dollar Tumbles While Euro Surges

Powerful rally in Chinese stock markets push global equities sharply higher today. Europeans indices are all in black, DOW future is up nearly 400 pts while NASDAQ is set to extend record run. Yen and Dollar are both the worst performing ones in risk-on markets. Euro is the strongest this time, and takes Swiss Franc higher as the second strongest. Commodity currencies are strong too but lag below Euro.

Technically, Gold also rises on Dollar weakness today. Focus is back on 1789.02 temporary top. Break will extend recent up trend to 1800 handle first. EUR/USD could test 1.1348 resistance while EUR/JPY could test 122.11 resistance very soon. Break of these levels will indicate completion of recent correction and bring retest of 1.1422 and 124.43 highs.

In Europe, currently, FTSE is up 1.86%. DAX is up 1.96%. CAC is up 1.81%. German 10-year yield is down -0.0018 at -0.432. Earlier in Asia, Nikkei rose 1.83%. Hong Kong HSI rose 3.81%. China Shanghai SSE rose 5.71%. Singapore Strait Times rose 1.38%. Japan 10-year JGB yield rose 0.0224 to 0.046.

EU Hogan pledged to act decisively and strongly if US doesn’t want to settle airbus dispute

EU Trade Commissioner Phil Hogan told European Parliament’s that the US had twice rejected EU’s proposal to settle the 15-year old dispute regarding Airbus subsidies. He added that the commission will take decisive actions against the US.

He said, “I want to reassure people that we are ready to act decisively and strongly on the European Union side if we don’t get the type of outcome that we expect from the United States in relationship to finalizing this 15-year-old dispute.”

“It’s not appreciated the number of 232 investigations that have been launched in recent weeks, perhaps this is political, perhaps it’s more real,” Hogan added. “This is totally unacceptable … and if these investigations go further the European Union will have to stand together and act as well,”

Separately, he also told RTE that “I still believe there will be a deal” with the UK on post Brexit relationship. “The ambition of that deal on the European Union side is real.” However, “I don’t see the same ambition at the moment on the UK’s side so, the ball is in the UK’s court, if they want a deal, there is a deal to be done.

Eurozone Sentix investor confidence rose to -18.2, but upswing could run out of steam in summer

Eurozone Sentix Investor Confidence rose to -18.2 in July, up from -24.8, but missed expectation of -11. That’s the third increase nonetheless. Current Situation index rose to -49.5, up from -61.5. Expectations index, however, dropped to 19.5, down from 21.8.

Sentix Said: “Behind this development is apparently the expectation of investors that the recovery after the ‘lock-down’ will continue but will not lead to a complete ‘recovery’ of the economy…. This means that there has been no improvement in the long-term outlook for investors over the past four weeks. The falling expectations are thus a sign that there is a danger that the ‘upswing’ could run out of steam as early as the summer.”

Eurozone retail sales rose 17.8% in May, above expectation

Eurozone retail sales rose 17.8% mom in May, above expectation of 15.0% mom. Volume of retail trade increased by 38.4% mom for automotive fuels, by 34.5% mom for non-food products and by 2.2% mom for food, drinks and tobacco.

EU retail sales rose 6.4% mom. volume of retail trade increased in all Member States for which data are available, except in Bulgaria, where it remained unchanged. The highest increases were registered in Luxembourg (+28.6% mom), France (+25.6% mom) and Austria (+23.3% mom).

German factory orders rose -10.4% in May, still 30% lower from pre-crisis level

Germany factory orders rose 10.4% mom in May, below expectation of 15.0% mom. Excluding major orders, real new orders in manufacturing rose 8.9% mom. Comparing with February, the month before coronavirus restrictions, new orders were -30.8% lower.

Look at some details, domestic orders rose 12.3% mom. Foreign orders rose 0.8% mom. New orders from Eurozone rose 20.9% mom. New orders from other countries rose 2.0% mom. Intermediate goods rose 0.4% mom. Capital goods rose 20.3% mom. Consumer goods rose 4.7% mom. Automotive rose

Germany Ifo: We could see a wave of insolvencies in the coming months

Ifo said 21% of Germany companies surveyed said the adverse effects of the coronavirus crisis put their very survival in danger. Researcher Stefan Sauer warned “we could see a wave of insolvencies in the coming months. Service sector is the most affected with 27% saying they’re at risk. 21% in retail, 17% in manufacturing, 15% in wholesale and 2% in construction said coronavirus is threatening their survival.

UK PMI construction rose to 55.3, return to growth has been achieved

UK PMI construction rose sharply to 55.3 in June, up from May’s 28.9, well above expectation of 47.0. While new orders stabilized, employment fell again. Also, lack of materials availability pushed up input costs.

Tim Moore, Economics Director at IHS Markit: “As the first major part of the UK economy to begin a phased return to work, the strong rebound in construction activity provides hope to other sectors that have suffered through the lockdown period. While it has taken time for the construction supply chain to adapt and rebuild capacity after widespread business closures, there is now clear evidence that a return to growth has been achieved…

“…Looking ahead, construction firms are more confident than at any time since the start of the COVID-19 pandemic. However, the ongoing reductions in staffing numbers seen in June provide a stark reminder that underlying conditions across the sector are a long way off returning to those seen before the public health emergency.”

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.1230; (P) 1.1241; (R1) 1.1262; More….

EUR/USD is still staying below 1.1348 resistance despite today’s strong rebound. Intraday bias remains neutral first. On the upside, break of 1.1348 will argue that consolidation from 1.1422 has possible completed. Intraday bias will be turned back to the upside, to resume the rally from 1.0635 through 1.1422 to 1.1496 key resistance. On the downside, break of 1.1168 will extend the correction from 1.1422 and target 38.2% retracement of 1.0635 to 1.1422 at 1.1121.

In the bigger picture, as long as 1.1496 resistance holds, whole down trend from 1.2555 (2018 high) should still be in progress. Next target is 1.0339 (2017 low). However, sustained break of 1.1496 will argue that such down trend has completed. Rise from 1.0635 could then be seen as the third leg of the pattern from 1.0339. In this case, outlook will be turned bullish for retesting 1.2555.

Economic Indicators Update