USDJPY Surges as 10 Year Yield Breaks 3.1, Sterling Pares Gains after May Dismissed Customs Union Stay

Market overviews

Dollar is extending its rally against Yen today, hitting as high as 110.79 so far. Persistent strength in treasury yield is giving the greenback some lift. 10 year yield reached as high as 3.12 earlier today and is staying firm at around 3.1. Nonetheless, while Dollar is firm against Euro, it’s staying range bound against Sterling, Swiss Franc, Aussie and Canadian. The focus will now be on whether the strength in Dollar would spread to other pairs.

Meanwhile, Sterling is still the strongest one so far. It was lifted by rumors that UK will stay in the customs union after Brexit. But Prime Minister Theresa May quickly denied the news reports. The Pound just pared back earlier gains after the dismissal. And there was no avalanche selling. Still, focus is back on 1.3448.50 in GBP/USD.

US initial jobless claims rose 11k, continuing claims dropped 45-year low

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US initial jobless claims rose 11k to 222k in the week ended May 12, slightly above expectation of 215k. Four week moving average dropped 2.75k to 213.25k, lowest since December 13, 1969. Continuing claims dropped -87k to 1.71m in the week ended May 7, lowest since December 1, 1973. Philadelphia Fed Business outlook rose to 34.4 in May, up from 23.2, better than expectation of 21.1.

From Canada, international securities transactions rose to CAD 6.15b in March.

PM Theresa May cleared the air: “The United Kingdom will be leaving the customs union”

The rumors that UK would stay in the customs union after Brexit triggered a strong rebound in the Pound earlier today. But UK Prime Minister Theresa May was quick to clear up the air.

She said, “No, we are not [climbing down]. The United Kingdom will be leaving the customs union, we are leaving the European Union. Of course we will be negotiating future customs arrangements with the European Union and I have set three objectives; the government has three objectives in those.”

“We need to be able to have our own independent trade policy, we want as frictionless a border [as possible] between the UK and the EU so that trade can continue and we want to ensure there is no hard border between Northern Ireland and Ireland.”

German Merkel to Trump: Tariff exemptions first, before reciprocal trade talks

Regarding US steel tariffs, German Chancellor Angela Merkel said “we have a common position. We want a permanent exemption and then we are ready to talk how we can reciprocally reduce the barriers to trade.” That’s seen as having a firm stance as US has to concede the steel tariffs before trade talks. And the talks have to be “reciprocally.

Separately, French President Emmanuel Macron expressed his backing on the proposals by the European Commission to protect European companies affected by US sanctions for Iran. Macron said arriving a summit of EU in Sofia, Bulgaria that EU must stand by smaller companies which were willing to carry on Iran businesses.

He added “international companies with interests in many countries make their own choices according to their own interests. They should continue to have this freedom.” “But what is important is that companies and especially medium-sized companies which are perhaps less exposed to other markets, American or others, can make this choice freely.”

Australia jobs added 22.6k, participation rate made another record high

Australia employment market grew 22.6k in April (seasonally adjusted), slightly above expectation of 20.0k. Full time employment grew 32.7k while part time jobs dropped -10k. Unemployment rate rose 0.1% to 5.6%, above expectation of being unchanged at 5.5%. Participation rate rose to a further record high of 65.6%. ABS Chief Economist Bruce Hockman said “the labour force participation rate was the highest it has been since the series began in 1978, indicating increasing attachment to the labour force.” Also from Australia consumer inflation expectation rose to 3.7% in May.

New Zealand PPI input slowed to 0.6% qoq in Q1 but beat expectation of 0.3% qoq. PPI output slowed to 0.2% qoq, in line with consensus.

USD/JPY Mid-Day Outlook

Daily Pivots: (S1) 110.16; (P) 110.28; (R1) 110.54; More…

USD/JPY’s rally continues today and reaches as high as 110.79 so far. Intraday bias remains on the upside for target 61.8% retracement of 114.73 to 104.62 at 110.86 next. Firm break there will target medium term trend line resistance at 112.43. On the downside, below 110.06 minor support will turn intraday bias neutral first. But outlook will stay bullish as long as 109.13 support holds.

In the bigger picture, corrective decline from 118.65 (2016 high) has completed with three waves down to 104.62. Rise from 104.62 is possibly resuming the up trend from 98.97 (2016 low). This will be the preferred case as long as 55 day EMA (now at 108.30) holds. Decisive break of 114.73 resistance will confirm our view and target 118.65 and above.

Economic Indicators Update

GMT Ccy Events Actual Forecast Previous Revised
22:45 NZD PPI Input Q/Q Q1 0.60% 0.30% 0.90%
22:45 NZD PPI Output Q/Q Q1 0.20% 0.20% 1.00%
23:50 JPY Machine Orders M/M Mar -3.90% -2.80% 2.10%
01:00 AUD Consumer Inflation Expectation May 3.70% 3.60%
01:30 AUD Employment Change Apr 22.5k 20.0k 4.9k -0.7k
01:30 AUD Unemployment Rate Apr 5.60% 5.50% 5.50%
12:30 CAD International Securities Transactions (CAD) Mar 6.15B 3.00B 3.96B 4.32B
12:30 USD Initial Jobless Claims (MAY 12) 222K 215K 211K
12:30 USD Philadelphia Fed Business Outlook May 34.4 21.1 23.2
14:00 USD Leading Index Apr 0.40% 0.30%
14:30 USD Natural Gas Storage 89B