Sterling Tumbles on Poor Retail Sales and Rise in Coronavirus Cases

Market overviews

Sterling is among the worst performing currency for today, together with commodity currencies. Poor retail sales data from the UK is weighing on the Pound. Additionally, the resurgence in coronavirus infections, now due to the delta variant, in the UK is concerning. Daily new cases jumped above 11k, after average around 2k just a month ago. Though, good news is that daily new deaths is kept below 20.

In Europe, at the time of writing, FTSE is down -1.40%. DAX is down -1.32%. CAC is down -1.03%. Germany 10-year yield is up 0.0503 at -0.191. Earlier in Asia, Nikkei dropped -0.19%. Hong Kong HSI rose 0.85%. China Shanghai SSE dropped -0.01%. Singapore Strait Times rose 0.19%. Japan 10-year JGB yield dropped -0.0057 to 0.060.

CHF/JPY in bearish reversal with this week’s selloff?

In addition to the strong rally in Dollar and Yen this week, the selloff in Swiss Franc is worth a mention. In particular, the risk of bearish reversal in CHF/JPY is increasing. That’s put into context that 122.74 short term top was already in proximity to a key long term level at 100% projection of 101.66 to 118.59 from 106.71 at 123.64.

Focus is now on 38.2% retracement of 113.73 to 112.74 at 119.29. Rebound from this level will at least maintain some medium term bullishness for another rise through 122.74 at a later stage. However, firm break of 119.29 will add to the case that whole pattern from 101.66 has completed. Focus would then be turned to 55 week EMA (now at 116.89) for confirmation.

UK retail sales dropped -1.4% mom in May, missed expectations

UK retail sales dropped -1.4% mom in volume term in May, below expectation of 1.5% mom rise. Sales on volume was still 9.1% higher than in February 2020 before the pandemic. Excluding automotive fuel, sales was down -2.1% mom, below expectation of 4.2% mom rise. Sales excluding automotive fuel was 10.6% above pre-pandemic level.

From Germany, PPI came in at 1.5% mom, 7.2% yoy in May. Eurozone current account surplus widened to EUR 22.8B in April, above expectation of EUR 20.3B.

BoJ stands pat, extends pandemic relief program

BoJ announced no change in monetary policy as widely expected. Under the yield curve control framework, short term interest rate target is held at -0.10%. BoJ will continue to buy JGBs, without upper limit, to keep 10-year JGB yields at around 0%. The decision was made by 7-1 majority vote with 1 abstention. Goushi Kataoka dissented as usual, pushing for strengthening easing. Takako Masai abstained.

The board also voted with 8-0 majority vote, with 1 abstention, to extend the duration of the Special Program to Support Financing in Response to the Novel Coronavirus by 6 months until the end of March 2022.

BOJ also pledges to “closely monitor” in the impact of COVID-19, and “will not hesitate to take additional easing measures if necessary”. Also, it “expects short- and long-term policy interest rates to remain at their present or lower levels”.

GBP/USD Mid-Day Outlook

Daily Pivots: (S1) 1.3878; (P) 1.3944; (R1) 1.3991; More….

GBP/USD falls to as low as 1.3849 so far today and intraday bias remains on the downside. Current fall from 1.4248 is seen as the third leg of the consolidation pattern from 1.4240. Deeper decline would be seen to 1.3668 support. On the upside, above 1.3944 minor resistance will turn intraday bias neutral and bring recovery first, before staging another decline.

In the bigger picture, as long as 1.3482 resistance turned support holds, up trend from 1.1409 should still continue. Decisive break of 1.4376 resistance will carry larger bullish implications and target 38.2% retracement of 2.1161 (2007 high) to 1.1409 (2020 low) at 1.5134. However, firm break of 1.3482 support will argue that the rise from 1.1409 has completed and bring deeper fall to 1.2675 support and below.

Economic Indicators Update

GMT Ccy Events Actual Forecast Previous Revised
23:30 JPY National CPI Core Y/Y May 0.10% 0.00% -0.10%
3:00 JPY BoJ Interest Rate Decision -0.10% -0.10% -0.10%
6:00 GBP Retail Sales M/M May -1.40% 9.20%
6:00 GBP Retail Sales Y/Y May 24.60% 36.80% 42.40%
6:00 GBP Retail Sales ex-Fuel M/M May -2.10% 4.20% 9.00% 9.10%
6:00 GBP Retail Sales ex-Fuel Y/Y May 21.70% 31.70% 37.70%
6:00 EUR Germany PPI M/M May 1.50% 0.70% 0.80%
6:00 EUR Germany PPI Y/Y May 7.20% 5.20%
8:00 EUR Eurozone Current Account (EUR) Apr 22.8B 20.3B 17.8B