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Dollar Selloff Intensifies, European Majors Winning

Dollar’s selloff intensifies today as risk-on sentiment is slowly coming back to the markets. Yen is following as the next weakest. European majors are currently the main winners. Commodity currencies are somewhat lagging behind. In other markets, European indexes are trading slightly higher while US futures also point to higher open. Gold and oil prices are also firm on Dollar weakness.

Technically, EUR/USD’s break of 1.2181 temporary top, and USD/CHF’s break of 0.8984 temporary low, affirm general weakness in the greenback. Eyes will be on whether AUD/USD would follow and break through 0.7890 resistance, and whether NZD/USD will break through equivalent level at 0.7304.

In Europe, at the time of writing, FTSE is up 0.30%. DAX is up 0.05%. CAC is up 0.03%. Germany 10-year yield is down -0.0102 at -0.122. Earlier in Asia, Nikkei rose 2.09%. Hong Kong HSI rose 1.42%. China Shanghai SSE rose 0.32%. Singapore Strait Times rose 2.04%. Japan 10-year JGB yield rose 0.0005 to 0.080.

US building permits permits rose to 1.76m, housing starts dropped to 1.57m

US building permits rose 0.3% mom to 1760k in April, slightly below expectation of 1770k. Housing starts dropped -9.5% mom to 1569k, well below expectation of 1710k.

Eurozone GDP dropped -0.6% qoq in Q1, EU down -0.4% qoq

According to the flash estimate by Eurostats, Eurozone GDP contracted -0.6% qoq in Q1, matched expectations. Compared with the same quarter of the previous year, GDP dropped 1.8% yoy. Employment dropped -0.3% qoq, -2.1% yoy.

EU GDP dropped -0.4% qoq, -1.7% yoy. Employment dropped -0.3% qoq, -1.8% yoy.

ECB Villeroy: No risk of durable return of inflation in Eurozone

ECB Governing Council member Francois Villeroy de Galhau said in a webcast, “as of today, there is no risk of a durable return of inflation in the euro zone and therefore, it goes without saying, there is no doubt that the monetary policy of the ECB will remain very accommodative.”

The Bank of France head also expected French economy to grow at least 5.5% this year.

RBA willing to undertake further bond purchases

Minutes of RBA’s May 4 meeting reiterated that rate hike was unlikely “until 2024 at the earliest”. Members would “consider whether to retain the April 2024 bond as the target bond for the 3-year yield target or to shift to the next maturity” in July.

Concerning QE, the members suggested they were “willing to undertake further bond purchases if doing so would assist with progress towards the Bank’s goals of full employment and inflation”. All actions are dependent on incoming economic data.

However, given that unemployment rate (5.6%) has stayed markedly above RBA’s long-term target of 4-4.5%, the central bank would likely extend QE with another AUD 100B at the July meeting.

More in RBA:

Japan GDP contracted -1.3% qoq in Q1

Japan GDP contracted -1.3% qoq in Q1, slightly worse than expectation of -1.2% qoq. In annualized term, GDP contacted -5.1%, versus expectation of -4.6%. Looking at some details, capital expenditure dropped -1.4% qoq versus expectation of 1.1% qoq. External demand dropped -0.2% qoq, matched expectations. Private consumption dropped -1.4% qoq, better than expectation of -2.0% qoq. Price index dropped -0.2% yoy, below expectation of -0.1% yoy.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.2129; (P) 1.2149; (R1) 1.2172; More….

Intraday bias in EUR/USD remains on the upside for retesting 1.2348 high. Firm break there will resume the up trend from 1.0635, for 1.2555 key long term resistance zone next. On the downside, break of 1.2050 support is needed to indicate short term topping. Otherwise, outlook will stay bullish in case of retreat.

In the bigger picture, rise from 1.0635 is seen as the third leg of the pattern from 1.0339 (2017 low). Further rally could be seen to cluster resistance at 1.2555 next, (38.2% retracement of 1.6039 to 1.0339 at 1.2516). This will remain the favored case as long as 1.1602 support holds. Reaction from 1.2555 should reveal underlying long term momentum in the pair.

Economic Indicators Update

23:50JPYGDP Q/Q Q1 P-1.30%-1.20%2.80%
23:50JPYGDP Deflator Y/Y Q1 P-0.20%-0.10%0.30%
01:30AUDRBA Minutes
04:30JPYTertiary Industry Index M/M Mar1.10%-0.10%0.30%
06:00GBPClaimant Count Rate Apr7.20%7.30%7.20%
06:00GBPClaimant Count Change Apr-15.1K10.1K
06:00GBPILO Unemployment Rate (3M) Mar4.80%4.90%4.90%
06:00GBPAverage Earnings Including Bonus 3M/Y Mar4.00%4.60%4.50%
06:00GBPAverage Earnings Excluding Bonus 3M/Y Mar4.60%4.60%4.40%
08:00EURItaly Trade Balance (EUR) Mar5.19B4.75B
09:00EUREurozone Trade Balance (EUR) Mar13B20.3B18.4B23.1B
09:00EUREurozone GDP Q/Q Q1 P-0.60%-0.60%-0.60%
09:00EUREurozone Employment Change Q/Q Q1 P-0.30%0.10%0.30%0.40%
12:30USDHousing Starts Apr1.57M1.71M1.74M
12:30USDBuilding Permits Apr1.76M1.77M1.76M