G10 currencies lose ground amid Fed rate hike expectations

Market Brief

The US dollar strengthen substantially in overnight trading amid rising expectation about an upcoming rate hike by the Federal Reserve. The greenback gained ground against almost all G10 currencies with the exception of the pound sterling that was able to stabilise slightly below the 1.45 threshold. The probabilities of a rate hike at the June meeting - extracted from the overnight index swap - rose to 27% on Tuesday from almost zero a month ago.

US treasury yields stabilised along the curve with renewed upside pressure on the short end. The monetary policy sensitive 2-year yield rose another 3bps in overnight trading, reaching 0.9050%; while the 10-year continued to ease as it slid to 1.8350%, suggesting that the market is still cautious regarding inflation and growth expectations in the US. However, we remain cautious regarding further US dollar appreciation as we have the feeling the market is paying too much attention to the latest Fed members’ speech, which were mostly bullish. We expect the Fed to adopt a very cautious approach, especially given the lack of significant improvement on the growth and inflation sides. Therefore, over the next few weeks, we expect the dollar to erase earlier gains as the market realises a June rate hike is off the table.

In Asia, the strong dollar continued to weigh on equities with most regional equity indices trading in negative territory. In japan, the Nikkei was off -0.77%, while the broader Topix index eased -0.78%. In mainland China the Shnaghai and Shenzhen Composites were down 0.77% and 0.85% respectively. Offshore, Hong Kong’s Hang Seng fell 0.35%, while in Singapore the STI was down 0.40%. In Europe, equity futures are pointing towards a lower open.

In Australia, the Aussie fell another 0.55% against the US dollar as Governor Stevens defended the current target band inflation target, adding that inflation was difficult to control in the short term. AUD/USD reached 0.7193 in Sydney before stabilising at around 0.7195. We maintain our negative bias on AUD/USD as the Australian economy should suffer from a slowing Chinese economy in spite of the hype of the first quarter.

In China, the People’s Bank of China set the USD/CNY fixing higher to 6.6448 from 6.5455 in the previous day. Since the beginning of May the renminbi has continuously depreciated against the greenback, which could potential put the capital outflow story back under the spotlight.

Today traders will be watching trade balance from Switzerland; GDP and ZEW from Germany; manufacturing confidence from France; unemployment rate form Sweden; BoE’s Carney speech; Turkey’s interest rate decision (cut in the lending rate expected); current account balance and foreign direct investment from Brazil; new home sales and Richmond manufacturing index from the US.

Global Indexes	Current Level	% Change
Nikkei 225 Index	16527.18	-0.77
Hang Seng Index	19739.88	-0.35
Shanghai Index	2821.794	-0.77
FTSE futures	6113.5	-0.31
DAX futures	9797.01	-0.6
SMI Futures	8007	-0.25
S&P future	2041.5	-0.19

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Global Indexes	Current Level	% Change
Gold	1245.83	-0.26
Silver	16.31	-0.42
VIX	15.82	4.08
Crude wti	47.89	-0.4
USD Index	95.29	0.06

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Today's Calendar	Estimates	Previous	Country/GMT
SZ Apr Trade Balance	-	2.16b	CHF/06:00
SZ Apr Exports Real MoM	-	-1,10%	CHF/06:00
SZ Apr Imports Real MoM	-	9,30%	CHF/06:00
GE 1Q Private Consumption QoQ	0,60%	0,30%	EUR/06:00
GE 1Q Government Spending QoQ	0,80%	1,00%	EUR/06:00
GE 1Q Capital Investment QoQ	1,40%	1,50%	EUR/06:00
GE 1Q Construction Investment QoQ	1,50%	2,20%	EUR/06:00
GE 1Q Domestic Demand QoQ	0,90%	0,80%	EUR/06:00
GE 1Q Exports QoQ	0,50%	-0,60%	EUR/06:00
GE 1Q Imports QoQ	1,00%	0,50%	EUR/06:00
GE 1Q F GDP SA QoQ	0,70%	0,70%	EUR/06:00
GE 1Q F GDP WDA YoY	1,60%	1,60%	EUR/06:00
GE 1Q F GDP NSA YoY	1,30%	1,30%	EUR/06:00
FR May Business Confidence	101	101	EUR/06:45
FR May Manufacturing Confidence	104	104	EUR/06:45
FR May Production Outlook Indicator	-	-1	EUR/06:45
FR May Own-Company Production Outlook	-	9	EUR/06:45
SA Mar Leading Indicator	-	91,6	ZAR/07:00
EC ECB's Praet Speaks at NABE/OECD Symposium in Paris	-	-	EUR/07:00
SW Apr Unemployment Rate	7,60%	7,70%	SEK/07:30
SW Apr Unemployment Rate Trend	-	7,10%	SEK/07:30
SW Apr Unemployment Rate SA	7,10%	7,20%	SEK/07:30
AS ECB's Nowotny Testifies in Austrian Parliament Investigation	-	-	EUR/08:00
UK Apr Public Finances (PSNCR)	-	16.6b	GBP/08:30
UK Apr Central Government NCR	-	18.8b	GBP/08:30
UK Apr Public Sector Net Borrowing	5.8b	4.2b	GBP/08:30
UK Apr PSNB ex Banking Groups	6.4b	4.8b	GBP/08:30
GE May ZEW Survey Current Situation	49	47,7	EUR/09:00
GE May ZEW Survey Expectations	12	11,2	EUR/09:00
EC May ZEW Survey Expectations	-	21,5	EUR/09:00
UK BOE's Carney, Broadbent, Weale and Vlieghe in Parliament	-	-	GBP/09:00
UK BOE's Ben Broadbent Publishes MPC Annual Report	-	-	GBP/09:00
FI Bank of Finland Governor Liikanen Gives Speech in Parliament	-	-	EUR/09:10
UK May CBI Retailing Reported Sales	8	-13	GBP/10:00
UK May CBI Total Dist. Reported Sales	13	13	GBP/10:00
NO Norges Bank Issues Financial Infrastructure Report	-	-	NOK/10:00
TU May 24 Benchmark Repurchase Rate	7,50%	7,50%	TRY/11:00
TU May 24 Overnight Lending Rate	9,50%	10,00%	TRY/11:00
TU May 24 Overnight Borrowing Rate	7,25%	7,25%	TRY/11:00
BZ May FGV Consumer Confidence	-	64,4	BRL/11:00
CH Conference Board China April Leading Economic Index	-	-	CNY/13:00
BZ Apr Current Account Balance	-$900m	-$855m	BRL/13:30
BZ Apr Foreign Direct Investment	$6150m	$5557m	BRL/13:30
CA May 20 Bloomberg Nanos Confidence	-	57,3	CAD/14:00
US May Richmond Fed Manufact. Index	8	14	USD/14:00
US Apr New Home Sales	523k	511k	USD/14:00
US Apr New Home Sales MoM	2,30%	-1,50%	USD/14:00
BZ Apr Formal Job Creation Total	-55000	-118776	BRL/22:00
AU SURVEY: Private Capital Expenditure 2016-17 A$86.7B	-	-	AUD/22:00

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Currency Tech

EURUSD
R 2: 1.1479
R 1: 1.1349
CURRENT: 1.1214
S 1: 1.1144
S 2: 1.1058

GBPUSD
R 2: 1.4770
R 1: 1.4663
CURRENT: 1.4483
S 1: 1.4404
S 2: 1.4300

USDJPY
R 2: 111.91
R 1: 110.59
CURRENT: 109.24
S 1: 108.23
S 2: 106.25

USDCHF
R 2: 1.0257
R 1: 1.0093
CURRENT: 0.9907
S 1: 0.9652
S 2: 0.9444

• S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot