Yen extends losses, pound holds ground

Global equity markets started the week on a positive note.

Copper (+0.13%), zinc (+0.63%) and steel bar (+2.18%) traded higher in Asia, as the cooler Chinese inflation eased expectations of a further credit tightening in the world’s biggest commodity consuming economy. China’s consumer inflation eased to 1.5% on year to June from 1.6%. The producer prices remained unchanged at 5.5% year-on-year.

The Hang Seng index gained more than 1.0% on Monday, the Shanghai’s Composite remained on the back foot due to the sell-off in the IT stocks.

The FTSE opened upbeat on the back of an improved demand in UK financials and firmer energy prices. The pound appetite and the energy prices will be decisive about the FTSE’s positive potential approaching the 7400p.

Deloitte’s survey revealed that 72% of the UK’s major companies may curb their investment in the UK due to the Brexit uncertainties. The sentiment has apparently dampened following last month’s dramatic snap election outcome. The latest survey’s result has been the worst since Deloitte started questioning the major UK businesses’ chief financial officers. The Deloitte’s survey backed up the Bank of England (BoE) Governor Mark Carney’s view of the ‘Brexit reality’, yet could not brush away concerns about the UK’s inflation reality.

The GBPUSD reinforced support at 1.2860 (38.2% retrace on June 20 – 20 rise & 50-day moving average) following Friday's fall on solid US nonfarm payrolls print. The trend and momentum indicators are marginally positive, yet there is a clear lack of conviction prior to the $1.30 level.

The BoE’s chief economist Andy Haldane is due to speak on Tuesday. Haldane has recently voiced his preference for higher UK rates to cool down the inflationary pressures. His speech could give a boost to the pound-bulls, yet may not suffice to gain over the critical 1.3045 resistance (major 38.2% retracement on post-Brexit sell-off).

Crude under pressure

OPEC’s Secretary General Barkindo said that it is too early to talk about additional production cuts and added that he was not aware of Kuwait’s proposal to limit the Nigerian and Libyan production. Meanwhile the US continues pumping at historical high levels and Iraq is stepping up the production to meet its year-end target of 5 million barrels per day.

The WTI crude (+0.90%) made a solid start to the week, though is given a limited potential for a sustainable recovery above the $45/47 per barrel.

EURUSD rangebound

German trade balance improved to 22.0 billion euro in May from 18.1 billion euro. The current account surplus rose to 17.3 billion euro from 14.9 billion euro from a month earlier. Exports advanced by 1.4% month-on-month despite the stronger euro, imports rose by a steady 1.2%.

The EURUSD remains rangebound. The euro-bulls are eyeballing the 1.15 level. The intraday support is eyed at 1.1385 / 1.1380 (200-hour moving average / 23.6% retracement on June 26 – 30 rise).

US dollar gives back gains

The US dollar is paring gains accumulated amid the solid non-farm payroll data (NFP) released on Friday.

The US economy added 222’000 non-farm jobs in June versus 178’000 expected. The May figure has been revised up from 138’000 to 152’000. On the flip side, the unemployment rate increased to 4.4% from 4.3%, while the average hourly earnings improved less than expected.

The better-than-expected NFP figure sent the US 10-year yields near 2.40% for the first time in two months, yet failed to give a further boost to the US dollar.
The Federal Reserve (Fed) Chair Janet Yellen’s semiannual testimony is the key highlight of this week (Wednesday and Thursday). In her testimony, Yellen is expected to reiterate the possibility of another Fed rate hike before the end of the year and could eventually provide a hint regarding the Fed’s balance sheet normalisation plans. The lack of further details should keep the US dollar loose.

Higher yields weigh on gold

The sentiment in gold deteriorated. The ounce of gold traded at $1’207 on Friday. Higher yields in the US and across the globe drain liquidity in precious metals. As a result, gold is gaining a decent negative traction to confront the $1’200/$1’195 support (2017 low).

The 100-week moving average ($1’219) is expected to provide a strong resistance before Janet Yellen’s testimony.
Silver erased 1.89%.

USDJPY advanced to 114.30

In Japan, the machine orders contracted by 3.6% month-on-month in May. The current account surplus declined from 1’951.9 billion yen to 1’653.9 billion yen over the same month.

The USDJPY extended gains to 114.30 in Tokyo, as the Bank of Japan (BoJ) Governor Kuroda said to be ready to act if there is a need to cap the yields amid the global yield rally.

Rising dovish expectations regarding the BoJ’s policy, combined to the improved US yields are supportive of a further yen depreciation against the US dollar. The 115.00 level is the next natural target for the USDJPY-bulls. Intermediate support is eyed at 114.36 (June double top).

Nikkei (+0.76%) and Topix (+0.52%) were bid on the back of a softer yen.