Morning brief for June 30

Morning brief for June 30

The US dollar extended its losses across the trading desk on Friday as major central banks worldwide shifted toward a more hawkish tone.

USD/JPY is down a few points on the session (to 111.93from yesterday’s high at 112.90). Japan’s data released earlier this morning was a mixed bag with weaker household consumption, a bit falling industrial production (but the outlook for it rose this month), while unemployment rate picked up). Japanese inflation a heavy disappointment for the BoJ’s policymakers. It stood flat at 0% (same as in May). When I see the Japan’s inflation releases I always remember one old saying: if can’t see the bright side, polish up the dark one and look at it. Consumers at Japan must be happy to get a “no chance” in inflation print.  The main focus will be on the core PCE price index (the Fed’s favorite :-) ) which is out at 4:30 pm GMT +3. Additionally, we will get the Chicago PMI for June at 5:54 pm and the late month estimate from the UoM Consumer Sentiment survey at 6:00 pm.

The euro was more or less flat after spiking to 1.1445 on Thursday (the highest level since the Brexit vote). German CPIs for June released overnight printed at 0.2%/1.5% against projected 0.0%/1.3%)while Spain’s CPI was 1.6% (a little bit higher than consensus forecast – 1.5%). The ECB President joined the chorus of central banks’ hawks that we had a chance to hear at the beginning of this week. Euro traders started pricing in a 90% chance of a 10bps hike from the ECB in the middle of next year. The current price action in EUR/USD shows the characteristics of a trending phase. From the present levels, a break above 1.1475 will allow us to target higher levels. In today’s spotlight will be German retail sales and Eurozone CPI which are due at 10:00 am and at 1:00 pm accordingly.  Given the uptick in the latest German inflation figures, we may expect a bit higher rates, I believe.

Sterling was a little bit higher on Friday as the most unpredictable central bank’s head Mark Carney surprised markets by conceding a rate hike was probably to be needed as the British economy gains momentum. The GBP/USD outlook is bullish for the present moment; the pair spiked above 1.3015 and we expect it extends its gains towards 1.3045/50. A break of these levels will open the way towards 1.3160. If the US dollar manages to regain its strength (due to the US PCE deflators for May, e.g), we will see quotes sliding towards 1.3000. 1.2925 levels. Also, there will be Britain's final GDP and current account data (due at 12:30 GMT+3).

Aussie jumped above 0.7710 in Tokyo morning as China’s factory report showed that the world’s second largest economy maintained its momentum in the second quarter. There will be an RBA policy meeting next Tuesday, while we don’t expect a hike, we kinda hope for an increased hawkishness in the policymakers’ tone.

USD/CAD extended its losses towards 1.2985. The Canadian dollar got really strong after the BOC’s officials signaled the imminent monetary policy tightening. Oil prices are still heading upwards after the official data showed a decline in the weekly US oil output.

 

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