Euro’s selloff accelerates further as German 10 year bund yield breaks 0.4 handle, reaching as low as 0.389 so far.
Chart snapshot from MarketWatch
EUR/JPY reaches as low as 127.14 and moves further away from medium term channel support. Based on current momentum, there now a realistic threat of breaking 38.2% retracement of 109.03 to 137.49 at 126.61. That would carry rather bearish medium term implication. We’ll see how it goes.
Entering into US session, CAD, EUR and GBP are trading as the strongest ones, while USD, AUD and JPY are the strongest. Some note that USD is the strongest one. Yes, admitted it is. But considering the USD/JPY is lacking follow through buying through 109.50, and AUD/USD is also held in tight range, it should be more about the weaknest of CAD, EUR and GBP, rather than strength of USD.
CAD is clearly weighed down by falling oil price as WTI drops below 70 handle on talk that OPEC and Russia are going to raise production. USD/CAD would soon be retesting 1.2996 resstance.
Meanwihle, we believe that the free falls in German and UK yields are the reasons dragging EUR and GBP down. Data from both countries together are not bad and won’t add to more dovish ECB or BoE expectation.
Instead, we’ve noticed that Italian 10 year yield has another day of strong rally today to 2.481, up 0.081 at the time of writing. German 10 year bund yield is down -0.048 at 0.426. The Italy-German yield spread surpassed 200 pts level for the first time since last June. The decline in German bund yield is particularly serious if we consider that it it as high as 0.583 earlier this week. Concerns over the new Italian government is the driving force in the markets.
UK 10 year gilt yields also dropped -0.50 to 1.351 so far.
WTI crude oil drops below 70 handle on reports that Saudi Arabia and Russia are going to push for lifting production later in the year. The total of boost in production from OPEC and non-OPEC countries could add up to as high as 1 million barrels a day.
Saudi Arabia a Energy Minister Khalid al-Falih is quoted saying in St. Petersburg that the easing of restriction on production would be gradual, so as to avoid shocking the markets. He also added that “all options are on the table” regarding output cuts.
Meanwhile USD 80 a barrel seems to be a psychological level that the oil producing countries want to avoid.
The decision could be made as soon as during the next OPEC meeting on June 22 in Vienna.
UK Q1 GDP was left unrevised at 0.1% qoq meeting market consensus, but probably not BoE Governor Mark Carney’s expectation. Index of services rose 0.3% mom in March. BBA mortgage approvals rose to 38.0k in April.
EUR/GBP jumps slightly after as German Ifo came in slightly higher than expected. But it’s limited well inside near term falling channel. There is no clear sign of a breakout yet. And price actions could remain choppy and relatively directionless.
German Ifo business climate rose to 102.2 in May, up from 102.1 and beat expectation of 102.0.
Expectations gauge dropped to 98.5, down fro 98.7, met consensus.
Current assessment gauge rose to 106.0, up from 105.7, beat expectation of 105.5.
Ifo President Clemens Fuest noted in the release that “the declining trend in the ifo Business Climate has stopped. The index held steady at 102.2 points (The April value was seasonally corrected.), after having fallen five months in succession. The very good current business situation improved slightly, but the optimistic expectations weakened slightly. The German economy is performing well in a difficult international situation. The current business survey and other indicators point to economic growth of 0.4 percent in the second quarter.”
Euro recovers mildly after the release.
Philadelphia Fed President Patrick Harker said if inflation start to “accelerate” then he’s “open to a fourth increase” in interest rate this year. But he emphasized that “I’d have to see evidence of that first”. And he noted that it’s not so much as a number around 2% but it’s acceleration or deceleration. He added that “if we’re creeping up to 2 percent and we creep up to, say, 2.25 percent, that’s a different story than [if] we’re accelerating past 2 percent. ”
Harker sees neutral rate as between 2.75% and 3.0%. And asked if Fed would end the current tightening cycle in 2019, he said “could be, yeah, it’s possible”.
Dallas Fed President Robert Kaplan said he’s “not prepared” for interest rates to “go above neutral”. And, he estimated that netural rate is between 2.50% and 2.75%. And that is, after four 25bps hike from the current 1.50-1.75%, fed fund rate will hit the neutral level.
For inflation he said “I want to run around 2, and if we got a little bit above it and I thought it would be short term and not long term, I could tolerate it.” On the other hand, “if I thought it would persist I think it would affect my policy views.”
German Chancellor Angela Merkel was welcomed by Chinese President Xi Jinping in Beijing yesterday. Xi hailed her effort in the bilateral ties since the two countries launched an all dimensional strategic partnership in 2014. Xi urged that China and Germany should set an example of “win-win cooperation”. And, “this should be the direction that bilateral ties will move to in the next stage.”
In addition, Xi said the Chinese “welcome Germany to grasp opportunities arising from China’s new round of reform and opening up.” And, there should be expanded industrial and market cooperation. Xi added that “we would like to promote global governance and multilateralism together with Germany within the multilateral frameworks.”
North Korean Vice Foreign Minister Kim Kye Gwan responded to Trump’s cancellation of the June 12 summit in Singapore in a statement carried by state media.
“We have inwardly highly appreciated President Trump for having made the bold decision, which any other U.S. presidents dared not, and made efforts for such a crucial event as the summit.”
“We even inwardly hoped that what is called ‘Trump formula’ would help clear both sides of their worries and comply with the requirements of our side and would be a wise way of substantial effect for settling the issue.”
“His sudden and unilateral announcement to cancel the summit is something unexpected to us and we can not but feel great regret for it.” And, North Korea remained open to dialogue with the US “regardless of ways at any time”.
“The first meeting would not solve all, but solving even one at a time in a phased way would make the relations get better rather than making them get worse. The U.S. should ponder over it.”
Yen is trading as the strongest one for today as boosted by risk aversion and falling treasury yields. Trump’s pull out from the meeting with Kim triggered some selloff in stocks. But loss is relatively limited. On the other hand, it’s the steep decline in 10 year yield, which hit as low as 2.955 so far, that looks more serious.
Swiss Franc follow as the second strongest one for today. However, even so, it’s held below yesterday’s high against all major currencies. Momentum is rather unconvincing. Having a look at EURCHF action bias table, while D action bias stays consistently downside red, 6H Action Bias is showing some hesitation.
A further look at the 6H Action Bias chart, it seems that EUR/CHF started to lose downside momentum after hitting 1.1580. Though, there is no convincing evidence that the cross is reversing yet.
Following up on our short strategy here. In the current situation, there are two choices, get out, or stay short. Considering that EUR/CHF is in deep over sold region as seen in daily RSI, we’d prefer to close short right now, with around 80 pt profit first. For those we’d like to hold on for 1.1445 target, we’d suggest to lower the stop to break even at 1.1705.
Gold jumps sharply and is back above 1300 handle on news that Trump cancels his summit with North Korean Leader Kim Jong Un.
1282.27 is now seen as a short term bottom. More importantly, the the long term trend line, established since De 2016 at 1122.81, was defended.
Focus will now be back on 55 day EMA (now at 1316.59) and 1325.91 resistance zone. As long as these zone holds, further fall is still mildly in favor. And sustained break of the trend line support will be a strong indication of bearish reversal.
Nonetheless, firm break of 1325.91 will set the stage for a test on 1366.05. And, probably the real key resistance at 1380.56.
Stocks tumble sharply, while treasury yields dive as Trump announced to cancel the meeting with North Korean Leader Kim Jong Un in Singapore on June 12. At the time of writing, DOW is down -0.5%, at around 24770. Deeper fall could be seen but the key is whether near term support at around 24600 would hold. There is some distance to this level yet.
But 10 year yield is looking much worse. TNX opened the day at 3% and hit as long as 2.963 so far. There is some clear downside acceleration after Trump’s announcement through the White House. And the sharp fall in TNX drags USD/JPY to 109.10so far.
Below is the tweet from the White House regarding the cancellation.
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US initial jobless claims rose 11k to 234k in the week ended May 19, above expectation of 220k.
Four-week moving average of initial claims rose 6.25k to 219.75k.
Continuing claims rose 29k to 1.741m in the week ended May 12.
Four-week moving average of continuing claims dropped 23.25k to 1.752m, hitting the lowest since 1973.
ECB’s monetary meeting accounts offer nothing new to the markets, just a bit more cautiousness. Thus, Euro’s reaction is rather muted.
Some quote from the monetary stance and policy considerations sections of the ECB monetary policy meeting accounts:
European Commission Vice President Jyrki Katainen respond to the Trump’s intention to impose new tariffs on automobile imports. Katainen criticized that would be “against the WTO” and “it’s very difficult to imagine it to create any sort of threat to national security. He reiterated that “it’s very difficult to understand”.
But he also noted that “we have now just heard what has been said and there is a long journey to the practice … We don’t expect this to further complicate the issue. We just have to find a solution that is fair.”
ECB Chief Economist Peter Praet said in in an event in Brussels today that economic conditions in Eurozone remain good. Recent data softness was partly due to temporary factors and “supply constraints” only. But he noted “there are some clouds and we should be watchful because that can go into confidence in a more fundamental way.” Those clouds include the loose fiscal policy of Italy’s new eurosceptic government, as well as international trade tensions.
ECB Governing Council member Vitas Vasiliauskas also noted that geopolitical factors would be analyzed before the central bank make a decision on its asset purchase program. In particular, Vasiliauskas noted the markets have already reacted to the Italian government change. And he said ECB has to take that into account.
Finally, there’s some good news from the UK. Headline retail sales jumped 1.6% mom in April, much higher than expectation of 0.7%. Excluding auto and fuel, retail sales also jumped solidly by 1.3% mom, versus expectation of 0.4% mom.
The ONS noted that “the effects of the adverse weather on sales introduces further volatility to the monthly growth rate in April 2018.” And, “combining March and April to compare the two months with the same two months a year earlier provides a more stable picture of the year-on-year growth”.
Combining both March and April, sales grew 1.3% in 2018, much lower than 2.9% back in 2017. Full release here.
Nonetheless, Sterling is lifted immediately by the release. GBP/USD’s focus will be back on 1.3441 minor resistance.
German Chancellor Angela Merkel is having a fruitful visit to China. Chinese Premier Li Keqiang said, in joint appearance with Merkel, that “China’s door is open” and welcome German vehicle makes to invest there. Li also pledged that “if they come across any problems during their investment, especially when it comes to legal protections, I can clearly tell you that China is striding forward to being a country with rule of law.”Li also said China has always supported a unified and prosperous Europe and that China and Germany uphold free trade.
Besides, Li also noted “the euro is an important choice in our foreign currency reserves, and so we are continuing to buy European debt.” And, “even when certain European countries had sovereign debt crises, China kept the broader picture in mind.”
In addition, Merkel also secured the support from China on the current Iran nuclear deal, despite US withdrawal.
Right now, whether the scheduled meeting between North Korean leader Kim Jong-un and Trump on June 12 in Singapore remains uncertain. North Korean Vice Foreign Minister Choe Son-Hui issued a strong statement today in response to US Vice President Mike Pence’s recent comments. Choe slammed Pence’s unbridled and impudent remarks” that threatens if “if Kim Jong-un doesn’t make a deal”, North Korea could end up like Libya.
Choe added that “we will neither beg the US for dialogue nor take the trouble to persuade them if they do not want to sit together with us.” And she warned, “whether the US will meet us at a meeting room or encounter us at nuclear-to-nuclear showdown is entirely dependent upon the decision … of the US.”
She went further and said “we can also make the US taste an appalling tragedy it has neither experienced nor even imagined up to now.” And, “as a person involved in the US affairs, I cannot suppress my surprise at such ignorant and stupid remarks gushing out from the mouth of the US vice-president,”
Earlier on Wednesday, Trump said “it could very well happen. Whatever it is, we’ll know next week about Singapore. And if we go, I think it will be a great thing for North Korea.”
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Trump in very productive talks with North Korea to reinstate the summit with Kim
After a week of exchange in words, the summit between Trump and Kim Jong Un is back on the table. Trump tweeted
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Trump suddenly pulled out of the summit on Thursday, after strong words from North Korean Vice Foreign Minister Choe Son-Hui issued a strong statement criticizing US Vice President Mike Pence. Trump sent an open letter to Kim Jong Un through the White HOuse announcing the cancellation.
But North Korea responded by hailing that “we have inwardly highly appreciated President Trump for having made the bold decision, which any other U.S. presidents dared not, and made efforts for such a crucial event as the summit.” Though, “His sudden and unilateral announcement to cancel the summit is something unexpected to us and we can not but feel great regret for it.”
It remains to be seen whether the summit will happen on not.