US dollar outperforms G10, Greece

Market Brief

Trading volumes were thinner yesterday as half of the world’s financial exchanges were closed. The economic calendar was light. The USD is gaining momentum after US CPI surprised markets on the upside with April’s Core CPI printing at 0.3%m/m versus 0.2% consensus (CPI matching expectation at 0.1%m/m) and hawkish comments from Janet Yellen. Federal Reserve Chairwoman declared that if economy continues to improve, it will be appropriate to raise rate at some point this year. The following day, Fed’s Vice Chairman Stanley Fischer repeated that rate hike was driven by data and not date. Dollar bulls took the opportunity and drove EUR/USD below 1.10, erasing almost 2 weeks of gains. The single currency lost 4.60% against the greenback since May 15.

In Asia, Chinese equities extend gains with the Shanghai Composite up 1.98% and are about to close for the sixth straight session in positive territory. In Hong Kong, Hang Seng follows the lead and added 1.11% to 28,304. Japan’s Nikkei is up 0.12% while USD/JPY is testing the strong resistance at 122.03 (high of March 10). The dollar gained 2.6% against the yen since May 15. The next resistance stands at 124.14 (high from June 2007). On the downside, the pair should find support at the bottom of its 3-month rage, around 118.40.

As expected, the Aussie extended losses against the greenback and is currently sitting on the 0.78 support level. AUD/USD broke the support implied by the bottom of its uptrend channel as traders were overwhelmed by dollar bulls. On the equity front, S&P/ASX is up 0.91% to 5,773.4.

In Europe, mounting uncertainty about Greece’s next payment to the IMF on June 5 adds pressure on the single currency as Alexis Tsipras, Greece’s PM, declared that his government would accept a sustainable deal “but not a humiliating” agreement, threatening to default on €1.6bn loan repayment due to the IMF in June. As a result, the fall of the euro against the dollar accelerates while EUR/CHF broke the 1.0390 support and is heading toward 1.03. EUR/GBP is sliding lower and is getting closer to the strong support standing at 0.7014.

European equity futures are mixed this morning after IBEX lost 2.16% during the previous session amid Spain’s ruling party suffered major setback against anti-austerity parties. Spanish local election gave victory to Podemos in Barcelona as activist Ada Colau takes control of the city council while People’s Party is paying the price for several years of austerity. Spanish people gave a strong signal to Brussels by showing their dissatisfaction with austerity measures imposed by the European Union. It will definitely not ease tensions regarding the Greek situation and will therefore add pressure on the single currency. Footsie is up 0.13%, DAX down -0.19, SMI down -0.09%.

Today Traders will be watching Sweden’s PPI; South Africa’s GDP for Q1; Durable Goods Orders, Markit Composite and Services PMI, New Home Sales, Richmond Fed Manufacturing Index, Dallas Fed Manufacturing Activity from the US. Stanley Fischer, Fed’s Vice Chairman, will speak in Israel during which he will deliver a prepared text and takes audience questions.