Dollar lower amid poor US data, Yellen, CPI

Market Brief

The month of April was a disappointment. Despite encouraging housing data on Tuesday, all other indicators point toward a delay in economic recovery as the Philadelphia Fed survey (6.7 versus 8 expected) is adding uncertainty about economic activity in May. However, more is needed to awake dollar bears as EUR/USD is not reacting much to negative news from the US and is therefore moving sideways for the last two days. The pair found a strong support at 1.1105 which corresponds to the 38.2% Fibonacci level (on April 13 – May 15 rally) and will certainly wait next week’s US data to make an attempt as we expect today’s CPI data to remain low. However, Fed Chair Yellen is speaking at 5pm GMT and will have another opportunity to guide markets.

On the equity side, the S&P 500 is printing a new record almost every day. The blue-chip index close at record high yesterday in New York at 2,130.8, up 0.23% during the session as a June rate hike is being ruled out. Dow Jones closed flat while the Nadaq added 0.37%.

In Asia, the Shanghai composite will surely close in green – for fourth straight session – up 2.45% to 4,640.5. Hong Kong’s Hang Seng if following the lead and adds 1.56%. The Nikkei is up 0.30% as the Bank of Japan maintained unchanged its monetary stimulus at ¥80tn a year. USD/JPY is grinding lower toward the 120.61 support (Fib 61.8% on March debasement). A little further south, Australian equities are treading water, up 0.04%. AUD/USD is currently testing the 0.7930 resistance implied by the 38.2% Fibonacci retracement level on April 13 – May 14 rally. Yesterday, the Aussie rebounded on the lower support at 0.7858 after failing at breaking it on the downside. On the upside, the next resistance stands at 0.8028 (multi lows).

In UK, April retail sales came in much stronger than expected, jumping 1.2%m/m while economists forecast an increase of 0.2%. The cable welcomed the news and jumped 1 figure and stabilised around 1.5660 in Tokyo. GBP/USD is therefore slightly below the middle of its hourly uptrend channel and should find support at 1.56. On the long-term, the sterling successfully broke its 200dma and the 1.5569 resistance (Fib 38.2% on July 2014 – April 2015 debasement), indicating that the cable is gaining momentum. EUR/GBP broke the strong support lying at 0.7120 (multi lows) and is currently trying to invalidate that break. In case of failure, the road is wide open toward the next support standing at 0.7014.

Elsewhere in Europe, German Q1 GDP preliminary estimate was released an hour ago and matched consensus at 0.3%q/q. European equity futures are mixed in pre-session with Footsie down -0.08%, DAX down -0.03%, Euro Stoxx 50 up 0.08% and SMI down -0.14%. USD/CHF failed at breaking the resistance implied by the highs of early May and is grinding lower. EUR/CHF rebounded from the bottom of its range around 1.04.

Today traders will be watching German IFOs, Italy industrial orders and retail sales, US CPI and Fed Chair Yellen’s speech, CPI from Canada.