Dollar Weak after Mixed Data, Sterling Shines

Market overviews

Dollar remains general weak in early US session after mixed economic data, in particular against European majors. The greenback does try to rebound against Australian Dollar and Canadian Dollar. But momentum is being capped. Yen also tried to rebound earlier today but quickly lost steam. Sterling is emerging as the strongest on today, without any special reason. Traders could be jumping the gun ahead of a string of important UK data, including CPI and employment, including wage growth, to be featured later in the week. These data would be important by BoE policymakers to decide whether to hike again in May.

In other markets, investors are quick to leave the Syria strike behind. Nikkei closed the up 0.26%. Hong Kong HSI closed down -1.60% but that was mainly due to worry on weakness of its currency. European indices are mixed with DAX and CAC flat at the time of writing. FTSE is down -0.45% thanks to strength in the Pound. US futures point to slightly higher open. Gold remains bounded in tight range between 1340/50.

US headline retail sales rose 0.6% mom in March, above expectation of 0.5%. Ex-auto sales rose 0.2% mom, in-line with consensus. Empire State Manufacturing index, however, tumbled sharply to 15.8 in April, down from 22.5 and missed expectation of 18.6. In particular, the index for future business conditions dived -26 pts to 18.3, hitting the lowest level in more than two years. That’s a sharp contrast to the reading back in February, at 44.1, which was a several year high.

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Also released today, Swiss PPI came in at -0.2% mom, 2.0% yoy in March, below expectation of -0.4% mom, 2.6% yoy. German WPI rose 0.0% mom in March. UK Rightmove house price rose 0.4% mom in April.

Minneapolis Fed Kashkari: Fed might be one hike away from achieving neutral

Minneapolis Fed President Neel Kashkari is seen clearly as a dove as he voted against al three of Fed’s rate hikes last year. He said in a WSJ interview published today that fiscal stimulus ofthe federal government, including tax cuts would make Fed meeting its 2%inflation target more likely. The tax cuts and spending increases are”macroeconomically significant, and they are big enough to have aneffect on the trajectory of the economy… that could change things in ameaningful way.” And with that development, Fed can move ahead with theplanned tightening.

But he also argued that “it isn’t going to be obvious to me once weachieve our inflation target that we need to now put the brakes on theeconomy.” He reiterated his stance that ” once we achieve our inflationtarget, we should try to get to neutral in a reasonable period of time.” And he added that “we might be one hike away from achieving neutral.”

BoJ Wakatabe: Maintaining currency policy could heighten inflation expectations

BoJ Deputy Governor Masazumi Wakatabe urged patience in maintainingultra loose monetary policy. He repeated that “inflation has yet toreach our 2 percent target” even though price growth is on an “upwardtrend”. And by “patiently maintaining our current policy”, BoJ could”heighten inflation expectations”.

Waktatabe is not concerned with falling behind the curve as “even iffor some reason inflation accelerates rapidly, we have the tools to dealwith it.” Though, he noted that “the merits and demerits of the BOJ’s monetarypolicy change over time.” And he added that BoJ needs to be “mindful ofthe danger, or risk, a prolonged low-interest rate environment wouldweigh on bank profits and that such impact could accumulate.”

Separately, the Japan Cabinet Office maintained the assessment that the economy is “recovering at a moderate pace”.

GBP/USD Mid-Day Outlook

Daily Pivots: (S1) 1.4205; (P) 1.4250; (R1) 1.4281; More….

GBP/USD rises to as high as 1.4326 so far today. Intraday bias remains on the upside for 1.4345 high. Firm break there will resume medium term rally and target 61.8% projection of 1.3038 to 1.4345 from 1.3711 at 1.4519 next. On the downside, below 1.4236 minor support will turn intraday bias neutral again. But retreat should be contained well above 1.3964 support to bring another rally.

In the bigger picture, as long as 1.3651 resistance turned support holds, medium term outlook in GBP/USD will remain bullish. Rise from 1.1946 is at least correcting the long term down trend from 2007 high at 2.1161. Further rally would be seen back to 38.2% retracement of 2.1161 (2007 high) to 1.1946 (2016 low) at 1.5466. However, GBP/USD fails to sustain above 55 month EMA (now at 1.4267) so far. Break of 1.3651 will be the first sign of medium term reversal and turn focus to 1.3038 support for confirmation.

Economic Indicators Update

GMT Ccy Events Actual Forecast Previous Revised
23:01 GBP Rightmove House Prices M/M Apr 0.40% 1.50%
06:00 EUR German WPI M/M Mar 0.00% 0.40% -0.30%
07:15 CHF Producer & Import Prices M/M Mar -0.20% 0.40% 0.30%
07:15 CHF Producer & Import Prices Y/Y Mar 2.00% 2.60% 2.30%
12:30 USD Empire State Manufacturing Index Apr 15.8 18.6 22.5
12:30 USD Retail Sales Advance M/M Mar 0.60% 0.40% -0.10%
12:30 USD Retail Sales Ex Auto M/M Mar 0.20% 0.20% 0.20%
14:00 USD Business Inventories Feb 0.60% 0.60%
14:00 USD NAHB Housing Market Index Apr 70 70
20:00 USD Net Long-term TIC Flows Feb 62.1B

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