Currencies tumbled yesterday but reversed before stocks as traders lost confidence in the risk-on rally. With no major economic reports to trigger today’s reversal, it was a typical exhaustion move. Investors were very optimistic ahead of Friday’s non-farm payrolls report, it disappointed in a major way, and instead of selling, they continued to buy on the hope that weak job numbers meant no tapering. Yesterday, reality set in and they realized that without taper or talk of it, inflation could rise quickly. In fact that was exactly what we saw with the New York Fed’s survey of inflation expectations rising to its highest level since September 2013. This survey measures how much Americans expect to spend on homes, rent, gas, and higher education. The increase tells us they expect prices to rise sharply in the coming months. This rise in inflation expectations drove the U.S. dollar higher against the euro, the Japanese Yen, Swiss Franc, Australian, and New Zealand dollars. While non-farm payrolls were disappointing, this week’s consumer price index and retail sales reports could beat expectations. Spending, in particular, is expected to rise only 0.2% which is a very low forecast in our opinion considering the reopening of business activity, the sharp increase in wages, and higher gas prices. Expectations for a stronger report could help the dollar avert further losses this week. There was still more demand for sterling and the Canadian dollar because the Bank of England and the Bank of Canada are expected to reduce monetary stimulus earlier than the Federal Reserve. Adjustments in monetary policy expectations had a big impact on currency movements on Friday and while the U.S. dollar recovered some ground, we don’t expect that fundamental driver to be forgotten. Keep an eye on the euro because pandemic restrictions are beginning to ease. Italy began lifting restrictions two weeks ago but restaurants in Spain reopened this weekend as the curfew and travel ban ended. France plans to ease restrictions on restaurants next week and it may not be long before Germany follows suit. We said often that when euro area restrictions are relaxed, demand for euros will return as the recovery gains traction. Germany’s ZEW survey is due for release tomorrow and we are looking for the confidence to improve as stocks hit record highs and vaccination rates increase in Europe.
Euro
The single currency fell yesterday despite investor morale in the eurozone rose in May to its highest level since March 2018 on all-time high expectations and an upbeat evaluation of the current situation, a survey showed, suggesting the bloc is overcoming the COVID-19 crisis. Sentix’s index for the eurozone climbed to 21.0 from 13.1 in April. Overall, the EUR/USD traded with a low of 1.2126 and a high of 1.2176 before closing the day around 1.2128 in the New York session.
Yen
The Japanese Yen gained as the dollar languished near a more than two-month low as investors continued to assess the implications for monetary policy of a disappointing U.S employment report, ahead of inflation data this week. The U.S created only a little more than a quarter of the jobs that economists had forecast last month. Overall, the USD/JPY traded with a low of 108.44 and a high of 109.03 before closing the day around 108.77 in the U.S session.
British Pound
The British Pound rose to its strongest in more than two months, fueled by a mix of dollar weakness, improved economic forecasts, lockdown easing measures, and market relief about the outcome of the Scottish election. Pro-independence parties won a majority in Scotland’s parliament. Scottish leader Nicola Sturgeon said gave her the mandate to pursue plans. Overall, the GBP/USD traded with a low of 1.3996 and a high of 1.4156 before closing the day at 1.3116 in the New York session.
Canadian Dollar
The Canadian Dollar rose to its highest since mid-September 2017 yesterday, but was last little changed on the day, drawing some support overall from firmer commodity prices and generally higher yields compared with its U.S counterpart. Canada's economy lost 207,100 jobs in April, more than analysts' estimates of 175,000 job losses. Overall, USD/CAD traded with a low of 1.2075 and a high of 1.2135 before closing the day at 1.2098 in the New York session.
Australian Dollar
The Australian Dollar climbed yesterday to be near 10-week highs against its U.S counterpart as a disappointing jobs report pressured the greenback and as strong commodity prices aided risk appetite. The Aussie jumped 1.7% last week, marking its best weekly performance since November. AUD/USD can remain elevated this week because commodity prices show little sign of peaking. Overall, AUD/USD traded with a low of 0.7825 and a high of 0.7889 before closing the day at 0.7828 in the New York session.
Euro-Yen
EUR/JPY is trading above 14, 50, and 100 days moving average. Fast stochastic is giving a bullish tone and MACD is issuing a bearish stance. The Relative Strength Index is above 66 and lies above the neutral zone. In general, the pair has lost 0.09%.
Sterling-Yen
Currently, GBP/JPY is trading above 14, 50, and 100 days moving average. Fast stochastic is issuing a bearish tone and MACD is also indicating a bearish stance. The Relative Strength Index is above 67 reading and lies above the neutral zone. On the whole, the pair has gained 1.08%.
Aussie-Yen
Currently, the cross is trading above 14, 50, and 100 days moving average. Fast stochastic is giving a bullish tone and MACD is also indicating a bullish stance. The Relative Strength Index is above 65 reading and lies above the neutral region. In general, the pair has gained 0.02%.
Euro-Sterling
This cross is currently trading below 14, 50, and 100 days moving average. Fast stochastic is indicating a bullish tone and MACD is also issuing a bullish signal. The Relative Strength Index is above 44 and lies below the neutral region. Overall, the pair has lost 1.17%.
Sterling-Swiss
This cross is trading below 14, 50, and 100 days moving average. Fast stochastic is issuing a bullish stance and MACD is also indicating a bullish tone. The Relative Strength Index is above 54 and lies above the neutral region. In general, the pair has gained 0.93%.
Disclaimer
This information has been prepared for information only and does not constitute an offer or commitment. This information does not constitute investment advice as defined by the rules of the FCA.
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