Sterling Jumps as Euro Bulls Lose Patience on EU Recovery Fund

While Euro rises initially today it’s starting to be overwhelmed by Sterling and Swiss Franc entering into US session. Words from officials regarding the talks of EU recovery fund were positive. European Commission President Ursula von der Leyen said the leaders showed “clear will to find a solution” and “things are moving in the right direction”. German Chancellor Angela Merkel also said there’s “hope that an agreement can be reached today.” But traders seem to be getting impatient. For now, Sterling is is the strongest. Yen, Dollar and Australian Dollar are the worst performing.

Technically, focus is back on 0.9043 minor support in EUR/GBP. Break will suggests completion of rebound from 0.8930 and extend the consolidation from 0.9175 with another fall. GBP/USD is also eyeing 1.2669 temporary top and break will resume the rally from 1.2251 towards1.2813 short term top. Gold is also pressing 1817.91 resistance again. Break will resume larger up trend for 61.8% projection of 1451.16 to 1765.25 from 1670.66 at 1864.76.

In Europe, currently, FTSE is down -0.56%. DAX is up 0.41%. CAC is down -0.10%. German 10-year yield is down -0.0060 at -0.451. Earlier in Asia, Nikkei rose 0.09%. Hong Kong HSI dropped -0.12%. China Shanghai SSE rebounded strongly and gained 3.11%. Singapore Strait Times dropped -0.08%. Japan 10-year JGB yield rose 0.0081 to 0.025.

ECB de Guindos: Drop in Q2 GDP better than expected

ECB Vice President Luis de Guindos said “high frequency data, most recent data that the ECB is receiving shows that drop in Q2 likely to be better than expected.” The central bank had expected -13% contraction in Q2’s GDP. But he now sees contraction “slightly better”. He also hoped that “European governments response is proportionate to the challenge.”

Also from ECB, Eurozone current account surplus narrowed to EUR 8B in May, down from April’s EUR 14B. That’s also much smaller than expectation of EUR 15.2B. In the 12-month period to May 2020, current account recorded a surplus of EUR 2.64B, 2.2% of Eurozone GDP. That’s notably lower than surplus of EUR 318B (2.7% of Eurozone GDP) in the 12 months to May 2019.

From Germany, PPI came in at 0.0% mom, -1.8% yoy in June, versus expectation of 0.2% mom, -1.5% yoy.

Japan exports dropped -26.2% yoy in June, exports to US dropped -46.6%

In non-seasonally adjusted terms, Japan’s exports slumped -26.2% yoy to JPY 4.86T in June. Imports dropped -14.4% yoy to JPY 5.13T. Trade deficit came in at JPY -269B. In seasonally adjusted terms, exports rose 1.4% mom in June while exports dropped -1.8% mom. Trade deficit narrowed to JPY -424B from May’s JPY 585B.

Looking at some details, exports to US dropped -46.6% yoy. Exports to EU dropped -28.4% yoy. Exports to China, though, was largely unchanged and dropped only -0.2% yoy.

The set of data suggests that exports would remain weak in Q3, as coronavirus pandemic carries on. Weak external demand could drag the Japanese economy into a more prolonged and deeper recession. BoJ Governor Haruhiko Kuroda said last week that the economic would continue to improve gradually in H2. But as he said, risks are clearly skewed to the downside for the export-led economy.

New Zealand sets aside NZD 15B of pandemic fund for future use

New Zealand Finance Minister Grant Robertson said today that the country’s economy is “doing better than expected and is more open than anywhere else in the world”. Yet, “as we look around the world, it is clear that this global pandemic is continuing to grow.” In the face of ongoing uncertainty, “now is the time to be cautious and keep our powder dry.”

Robertson announced to set aside the remaining NZD 15B of the NZD 50B Covid-19 Response and Recovery Fund, with no plans to spend it ahead of the election. “We are setting aside a significant sum of money to be used as needed in the future,” he added.”This is the fiscally and socially responsible thing to do.”

“We are doing everything we can to keep Covid-19 at our border – nobody wants a second wave. The responsible course of action is to make sure we are prepared for the worst – to give confidence to New Zealanders that we will be able to continue to act swiftly and decisively in our ongoing fight against this virus,” Robertson said.

GBP/USD Mid-Day Outlook

Daily Pivots: (S1) 1.2528; (P) 1.2552; (R1) 1.2591; More….

GBP/USD rebounds strongly today but stays below 1.2669 temporary top. Intraday bias remains neutral for the moment. On the upside, break of 1.2669 will resume the rebound from 1.2251 to 1.2813 high next. On the downside, though, break of 1.2480 minor support will turn bias to the downside for retesting 1.2251 support.

In the bigger picture, while the rebound from 1.1409 is strong, there is not enough evidence for trend reversal yet. Down trend from 2.1161 (2007 high) should still resume sooner or later. However, decisive break of 1.3514 should at least confirm medium term bottoming and turn outlook bullish for 1.4376 resistance first.

Economic Indicators Update