Euro Rises ahead of Tomorrow’s ECB, Yen Selloff Continues

Market overviews

The main focus remains on Yen’s selloff today, on the back of widening yield spread between Japan JGB and other major benchmark treasuries. Meanwhile, Euro appears to be strengthening in general too. Traders are probably buying up the Euro in anticipation on a hawkish ECB policy decision and press conference tomorrow. The central should without a doubt announce the end of asset purchases after June. The question is whether President Christine Lagarde would hint on a larger rate hike in July, or a conservative one.

Technically, however, Euro still has a lot to proof as it’s range bound against most except Yen and Swiss Franc. Levels to watch include 1.0788 minor resistance in EUR/USD, 0.8617 resistance in EUR/GBP, 1.4965 minor resistance in EUR/AUD, and 1.3538 minor resistance in EUR/CAD. Break of these levels is needed to confirm underlying momentum in Euro.

In Europe, at the time of writing, FTSE is down-0.60%. DAX is down -0.73%. CAC is down -1.00%. Germany 10-year yield is up 0.061 at 1.357. Earlier in Asia, Nikkei rose 1.04%. Hong Kong HSI rose 2.24%. Chinas Shanghai SSE rose 0.68%. Singapore Strait Times dropped -0.18%. Japan 10-year JGB yield dropped -0.0019 to 0.248.

Eurozone GDP finalized at 0.6% qoq in Q1, EU at 0.7% qoq

Eurozone GDP grew 0.6% qoq in Q1, revised up from prior estimate of 0.3% qoq. EU GDP grew 0.7% qoq. Ireland (+10.8%) recorded the highest increase of GDP compared to the previous quarter, followed by Romania (+5.2%) and Latvia (+3.6%). Decreases were observed in Sweden (-0.8%), France (-0.2%) and Denmark (-0.1%).

Eurozone employment grew 0.6% qoq while EU employment grew 0.5% qoq. In the first quarter of 2022, Estonia (+3.5%), Latvia (+2.1%) and Portugal (+1.7%) recorded the highest growth of employment in persons compared with the previous quarter. Employment declined in Poland (-0.6%) and Croatia (-0.1%).

Also released, Germany industrial production rose 0.7% mom in April, below expectation of 1.0% mom. France trade deficit was at EUR -12.2B in April, versus expectation of EUR -11.1B. Italy retail sales was unchanged, below expectation of 0.3% mom. Swiss unemployment rate was unchanged at 2.2% in May.

UK PMI construction dropped to 56.4, optimism deteriorates

UK PMI Construction dropped from 58.2 to 56.4 in May, below expectation of 56.9. S&P Global said total activity expanded at the slowest pace since January. Housing remained worst-performing category. Optimism was lowest since August 2020.

Tim Moore, Economics Director at S&P Global Market Intelligence: “May data signalled a solid overall rise in UK construction output as resilience across the commercial and civil engineering segments helped to offset weakness in house building. Residential construction activity was close to stagnation… New order volumes expanded at the slowest pace since the end of 2021…

“Concerns about the business outlook were signalled by a fall in construction sector growth projections to the lowest for more than one-and-a-half years in May. Around 19% of construction firms predict an outright decline in business activity during the year ahead, up from just 5% at the start of 2022.”

BoJ Kuroda: Various models show weak yen is positive

BoJ Governor Haruhiko Kuroda said today that Yen’s depreciation is “positive to the economy as long as the moves are stable”. He added, “various macroeconomic models show weak yen is positive.. But he also reiterated that it’s important for exchange rate to move “reflecting fundamentals”.

Kuroda also retracted the remain made earlier on inflation which triggered massive social media backlashes. He told reporters at the Prime Minister’s Office, “I did not mean that consumers are voluntarily accepting the price increases. I apologize if my words led to a misunderstanding.”

Japan Q1 GDP finalized at -0.1% qoq, -0.5% annualized

Japan’s GDP was finalized at -0.1% qoq in Q1, better than earlier estimate of -0.3% qoq. In annualized term. GDP contracted -0.5%.

Private consumption, which accounts for more than half of the GDP, was revised up to 0.06% qoq rise, from -0.03% decline. Capital expenditure dropped -0.7%, down graded from -0.5%. Exports grow was unchanged at 1.1% while imports rose 3.3%, downgraded from 3.4%.

GDP deflator was finalized at -0.5% yoy, revised form -0.4% yoy.

EUR/JPY Mid-Day Outlook

Daily Pivots: (S1) 141.31; (P) 141.69; (R1) 142.38; More….

EUR/JPY roses to as high as 144.20 so far today. Sustained break of 144.06 could bring even further medium term upside acceleration. Next near term target is 100% projection of 124.37 to 139.99 from 132.63 at 148.25. On the downside, below 141.36 minor support will turn intraday bias neutral and bring consolidations first.

In the bigger picture, up trend from 114.42 (2020 low) is in progress. Such rise is seen as the third leg of the pattern from 109.30 (2016 low). Next target will be 100% projection of 114.42 to 134.11 from 124.37 at 144.06. Firm break there will indicate upside acceleration and target 149.76 long term resistance (2014 high). In any case, outlook will now remain bullish as long as 132.63 support holds, in case of deep pull back.

Economic Indicators Update

GMT Ccy Events Actual Forecast Previous Revised
23:50 JPY Bank Lending Y/Y May 0.70% 0.80% 0.90%
23:50 JPY GDP Q/Q Q1 F -0.10% -0.30% -0.20%
23:50 JPY GDP Deflator Y/Y Q1 F -0.50% -0.40% -0.40%
05:45 CHF Unemployment Rate May 2.20% 2.20% 2.20%
06:00 EUR Germany Industrial Production M/M Apr 0.70% 1.00% -3.90% -3.70%
06:45 EUR France Trade Balance (EUR) Apr -12.2B -11.1B -12.4B
08:00 EUR Italy Retail Sales M/M Apr 0.00% 0.30% -0.50% -0.60%
08:30 GBP Construction PMI May 56.4 56.9 58.2
09:00 EUR Eurozone GDP Q/Q Q1 0.60% 0.30% 0.30%
09:00 EUR Eurozone Employment Change Q/Q Q1 F 0.60% 0.50% 0.50%
14:00 USD Wholesale Inventories Apr F 2.10% 2.10%
14:30 USD Crude Oil Inventories -2.6M -5.1M