Tue, May 18, 2021 @ 10:15 GMT
Home Action Insight Market Overview Sterling Paring Recent Gains, Euro and Swiss Firmer

Sterling Paring Recent Gains, Euro and Swiss Firmer

Positive sentiment sent German DAX to new record high today, while US futures point to a firm open. Investors are becoming more optimistic on the upcoming recovery, as seen in Eurozone Sentix data. IMF also raised growth forecast of the whole world and all advanced economies. The movements in the forecast markets are mixed though. Sterling is suffering some selling as recent rises lose steam. Canadian Dollar is following as the next weakest for today. Yen, Euro and Swiss Franc are surprisingly the strongest ones.

Technically, GBP/JPY’s break of 152.27 minor support suggests temporary topping at 153.39. EUR/GBP’s break of 0.8532 minor resistance also indicates temporary bottoming at 0.8470. One focus is now on 1.3808 minor support in GBP/USD. Break there will argue that near term rebound from 1.3669 has completed, and turn focus back to this low. That might be an indication for more broad based pull back in the Pound.

In Europe, currently, FTSE is up 1.14%. DAX is up 0.95%. CAC is up 0.44%. Germany 10-year yield is u p0.018 at -0.307. Earlier in Asia, Nikkei dropped -1.30%. China Shanghai SSE dropped -0.04%. Singapore Strait Times dropped -0.07%. Japan 10-year JGB yield dropped -0.010 to 0.111.

IMF raises 2021 global growth forecast, a way out of crisis increasingly visible

In the World Economic Outlook update, IMF upgraded growth forecast for advanced economy and the whole world in 2021. In a blog post, Gita Gopinath, Economic Counsellor and Director of the Research Department, said, “even with high uncertainty about the path of the pandemic, a way out of this health and economic crisis is increasingly visible.”

“Economies also continue to adapt to new ways of working despite reduced mobility, leading to a stronger-than-anticipated rebound across regions,” she added. “Additional fiscal support in large economies, particularly the United States, has further improved the outlook.”

Global output growth forecast is raised by 0.5% to 6.0% in 2021, and by 0.2% to 4.4% in 2022. US growth is upgraded by 0.8% to 5.1% in 2021, and by 0.5% to 3.6% in 2022. Eurozone growth was raised slightly by 0.2% to 4.4% in 2021, and by 0.2% to 3.8% in 2022. Japan growth was raised by 0.2% to 3.3% in 2021, and by 0.1% to 2.5% in 2022. UK growth was raised by 0.8% to 5.3% in 2021, and by 0.1% to 5.1% in 2022. Canada growth was raised by 1.4% to 5.0% in 2021, and 0.6 to 4.7% in 2022. China growth was raised by 0.3% to 8.4% in 2021, left unchanged at 5.6% in 2022.

Eurozone Sentix investor confidence rose to 13.1, expectations building on accelerated vaccination

Eurozone Sentix Investor Confidence rose to 13.1 in April, up from 5, well above expectation of 6.7. That’s also the highest level since August 2018. Current situation index rose from -19.3 to -6.5, highest since February 2020. Expectations index rose from 32.5 to 34.8, an all-time high.

Sentix said: “Investors are building their expectations on accelerated vaccination success across the EU. The economic recovery process is supported by a massive expansion of fiscal policy. Investors even expect the fiscal impulse to expand. Since at the same time there are no signs of a significant departure from the expansive monetary policy of the central banks, the applied inflationary pressure remains high. Significant inflationary risks are in place for the coming months.”

Germany overall investor confidence index rose from 11.9 to 20.0, highest since August 2018. Current situation index rose from -9.5 to 4.5, highest since January 2020. Expectations index rose from 35.8 to 36.8.

USA overall index rose from 25.5 to 38.6, new record and 12th increase in a row. Current situation index rose from 9.0 to 30.0, highest since February 2020. Expectations index rose from 43.3 to 47.5, a record high.

Global overall index rose to 20.5 to 26.8, highest since February 2018. Current situation index rose from 5.5 to 16.3, highest since May 2019. Expectations index rose from 36.5 to 37.7, record high.

Eurozone unemployment rate unchanged at 8.3% in Feb, EU at 7.5%

Eurozone unemployment rate was unchanged at 8.3% in February, worse than expectation of 8.1%. But January’s figure was revised up from 8.1% to 8.3%. EU unemployment rate was also unchanged at 7.5% in February.

In the EU, estimated 15.693 million men and women were unemployment, up 34k from January. 13.571m people were unemployed in Eurozone, up 48.k from prior month.

RBA stands pat, recovery well under way but price pressures subdued

RBA kept monetary policy settings unchanged as widely expected, including cash rate and 3-year yield target at 0.10%. Also, parameters of the Term Funding Facility and asset purchases are maintained.

The central bank reiterated that recovery in Australia is “well under way and is stronger than had been expected”. Recovery is “expected to continue, with above-trend growth this year and next”. But wage and price pressures are “subdued” and are expected to “remain so for some time”. Underlying inflation is expected to “remain below 2 per cent over the next few years”.

It also kept the pledge to “maintaining highly supportive monetary conditions until its goals are achieved”. Conditions for a rate hike is not expected to be met “until 2024 at the earliest”.

Suggested reading on RBA: RBA Hints to Expand QE In Order to Boost Job and Inflation

China Caixin PMI services rose to 54.3, economy continued to recover

China Caixin PMI Services rose to 54.3 in March, up from 51.5, above expectation of 51.7. Markit noted that business activity and sales both rose at quicker rates. Employment returned to growth. Business confidence also hit highest for over a decade amid hopes of post pandemic recovery. PMI composite also picked up to 53.1, from February’s 51.7.

Wang Zhe, Senior Economist at Caixin Insight Group said: “To sum up, the economy continued to recover from the epidemic…. The recovery in manufacturing slowed for the fourth straight month, whereas for services, it expanded at a much faster pace… More attention still needs to be paid to inflation going forward. Input costs and output prices in the services and manufacturing sectors have been rising for several months, reflecting growing inflationary pressure. This has restricted the room for future policy changes and is not conducive to a sustained economic recovery in the post-epidemic period

From Japan, labor cash earnings dropped -0.2% yoy in February, versus expectation of -1.5% yoy. Household spending dropped -6.6% yoy, versus expectation of -5.0% yoy.

GBP/USD Mid-Day Outlook

Daily Pivots: (S1) 1.3841; (P) 1.3877; (R1) 1.3942; More

Intraday bias in GBP/USD is turned neutral a it retreats notably after hitting 1.3917. At this point, we’re still favoring the case the corrective fall from 1.4240 has completed at 1.3669. Break of 1.3917 will target 1.4000 resistance first. Decisive break there should confirm this bullish case and bring retest of 1.4240 high. However, break of 1.3808 will dampen this view, and turn bias back to the downside for 38.2% retracement of 1.2675 to 1.4240 at 1.3642.

In the bigger picture, rise from 1.1409 medium term bottom is in progress. Further rally would be seen to 1.4376 resistance and above. Decisive break there will carry larger bullish implications and target 38.2% retracement of 2.1161 (2007 high) to 1.1409 (2020 low) at 1.5134. On the downside, break of 1.3482 resistance turned support is needed to be first indication of completion of the rise. Otherwise, outlook will stay cautiously bullish even in case of deep pullback.

Economic Indicators Update

GMT Ccy Events Actual Forecast Previous Revised
23:30 JPY Labor Cash Earnings Y/Y Feb -0.20% -1.50% -0.80%
23:30 JPY Overall Household Spending Y/Y Feb -6.60% -5.00% -6.10%
1:45 CNY Caixin Services PMI Mar 54.3 51.7 51.5
4:30 AUD RBA Interest Rate Decision 0.10% 0.10% 0.10%
8:00 EUR Italy Unemployment Jan 10.30% 8.80% 9.00%
8:30 EUR Eurozone Sentix Investor Confidence Apr 13.1 6.7 5
9:00 EUR Eurozone Unemployment Rate Feb 8.30% 8.10% 8.10% 8.30%

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