Forex Afternoon Wrap – 19/05

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US Dollar stages a strong comeback as Euro, Pound weaken on QE front loading and deflation

Key Notes:

  • New Zealand PPI input q/q -1.1% vs. -0.6%; PPI output q/q -0.9% vs. 0.1%
  • Australia CB leading index m/m -0.1% vs. 0.5%
  • RBA releases monetary policy meeting minutes
  • New Zealand inflation expectations q/q 1.9% vs. 1.8% previously
  • UK CPI y/y -0.1% vs. 0.0%; Core CPI y/y 0.8% vs. 1.0%
  • UK PPI input m/m 0.4% vs. 0.8%; PPI output m/m 0.1% vs. 0.2%
  • German ZEW Economic sentiment 41.9 vs. 48.8
  • Eurozone final CPI y/y 0.0% vs. 0.0%; Core CPI y/y 0.6% vs. 0.6%
  • Eurozone ZEW Economic sentiment 61.2 vs. 62.4
  • Eurozone trade balance 19.7bn vs. 22.9bn
  • US building permits 1.14Mn vs. 1.06Mn
  • US Housing starts 1.13Mn vs. 1.02Mn

Later:

  • New Zealand GDT prices
  • BoC Governor Poloz speech

The markets were ready for a busy session today starting from Asia with New Zealand’s PPI data on the cards. Both input and output on a quarterly basis saw the producer price index miss estimates indicating a possible softer data into future inflation readings. However, the inflation expectations released a few hours later saw a modest increase in inflation from 1.8% previously to 1.9%. The NZD briefly touched an intraday high to 0.74415 but eased back lower trading near 0.74 at the time of writing. The day’s low was established near 0.73595.

Australian data today included the RBA meeting minutes, which showed that the RBA cut rates due to lower than trend growth and possible bumps in the labour markets going forward. In terms of forward guidance, the RBA declined to provide any further clues but remained vague towards possible future easing of monetary policy. The Australian dollar was mostly muted to the news with the currency actually declining on account of a stronger Greenback than the minutes itself. AUDUSD eased from session highs of 0.8002 to trade near 0.7975 at the time of writing.

The European trading session geared up for a busy day as well with UK CPI data being the first main event of the data. CPI numbers on a yearly basis fell below estimates with the headline CPI printing -0.1%, while on the Core, CPI fell to 0.8% below expectations. The British Pound which was already weaker since yesterday saw a strong selling pressure as the currency lost as much as -1% against the Greenback. GBPUSD was trading near 1.549 ahead of the US economic data release.

From the Eurozone, comments from ECB officials were one of the reasons for the Euro’s sharp decline against the Greenback today. ECB officials said that the Central Bank would step up its bond purchases in May/June due to possible liquidity issues in latter summer months while keeping its €60 billion in purchases steady on the whole. In May and June, the ECB will be buying €70 billion and in July/August, the ECB will be purchasing €40 – €45 billion.

Economic data from the Eurozone included the German and the Eurozone economic sentiment both of which missed estimates. CPI data was also soft while remaining flat on the Core at 0.6%. EURUSD saw a steady decline since this morning as the currency eased from day’s highs of 1.1314 to trade near 1.118.

The US trading session saw the release of the housing starts and building permits both of which beat estimates. On a comparative basis, housing starts rose 20.2% m/m while building permits rose 10.1% as well. The Greenback continued to post gains in what could be seen as a strong single day gain in the US Dollar Index in recent weeks.

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