Sterling generally stays weak when another week starts. The pound was weighed down by comments from BoE chief economist Andy Haldane, who said the negative rate was “something we need to look at – look at – with some greater momentum.” The dollar is also a little softer with mild risk upswing in Asian markets. On the other hand, Australian and New Zealand dollars are the strongest. But we will have to see if the risk rally can sustain through the week.
Technically, Gold’s steady break at 1747.75 high last week confirmed a trend up. The focus is now on key medium term resistance at 61.8% projection from 1160.17 to 1703.28 from 1451.16 at 1786.80. It is an important obstacle to overcome and break is likely to result in faster acceleration. However, rejecting it could trigger a rather deep pull back. Either way, Dollar may finally have some reactions.
In Asia, Nikkei is currently up 0.51%. Hong Kong HSI has risen 0.40%. China Shanghai SSE has risen 0.61%. Singapore Strait Times has risen 0.73%. Japan’s 10-year JGB yield is down -0.0056 at -0.009.
Bold Powell: Negative rates are probably inappropriate, not useful to the United States
In CBS 60 minutes, Fed chairman Jerome Powell reiterated that the central bank is not considering negative interest rates. He said, “I keep thinking, and my colleagues in the Federal Open Market Committee continue to believe that negative interest rates are probably not an appropriate or useful policy for us here in the United States.”
“There is no clear finding that it actually supports online economic activity and it introduces distortions in the financial system, which I think was offset,” Powell said. “There are plenty of people who think negative interest rates are a good policy. But we don’t really believe in the Federal Reserve. “There is much more we can do. We have done what we can as we go. But I will say that we are not far away from ammunition with a long shot. “
As for the economy, Powell said, “assuming there is no other wave of coronavirus, I think you’ll see the economy come back smoothly through the second half of this year”. But “for the economy to fully recover people will have to be fully confident and it may be necessary to await the arrival of a vaccine,” he added.
UK Gove: There is a big philosophical difference with the EU on negotiations
Britain and the EU continued to complain after last week’s Brexit negotiations in silence ”. British Gov. Michael Gove said there is a “major philosophical difference” between the two sides. And the EU wants the UK to “follow their rules even after we leave the club”. Although he remained “confident” that a “there is an agreement to do” it just requires some degree of flexibility on the EU side, which I am sure they will appreciate that they have to show.”
On the other hand, Irish Foreign Minister Simon Coveney on Sunday criticized the UK for “essentially outlining” the commitments contained in the political statement on the Brexit deal. “Until the UK changes its approach in the context of giving the EU reassurance that they will not deregulate their economy effectively while expecting free access to the EU internal market, I think we will continue to have real difficulties these speak, ”he added.
Japan’s GDP rose -0.9% in Q1, Nishimura expects a significant decline
Japan’s GDP rose -0.9% qoq in Q1, better than expected at -1.2% qoq. After a -1.8% qoq decline in Q4, the country was already in a technical recession for the first time in more than 4 years. At an annual rate, GDP rose -3.4% in the first quarter, better than expected at -4.6%.
Economy Yasutoshi Nishimura warned “both domestic and external demand shows that Japan’s economy is in a serious condition.” The economy is expected to decline significantly.
The week ahead: Global PMIs to indicate the depth of 2. quarter contraction
The RBA and Fed are publishing meeting minutes this week. Since communication has been pretty clear since the onset of the coronavirus pandemic, we don’t expect anything surprising there. Fed chairman Jerome Powell will also testify. He is already aware that the Fed is not considering negative interests. Many Fed officials also objected to negative rates. Therefore, we do not expect Powell to suddenly depart from this position.
May PMI readings from Eurozone UK, US, Japan and Australia are likely to be more market moving. This data will provide more insight into how deep the global contraction in Q2 is. The UK also releases employment CPI and retail sales. German ZEW, Canada CPI and retail sales, US unemployed claims, New Zealand retail sales, Japan GDP and CPI, are other data to be monitored.
Here are some highlights for the week:
- Monday: Japan GDP, tertiary index; US NAHB Housing Market Index.
- Tuesday: New Zealand PPI; -RBA minutes; UK employment; Germany ZEW; U.S. housing starts and building permits, Fed President Powell testified.
- Wednesday: Japan machine orders; UK CPI, RPI, PPI; Eurozone current account, CPI end, consumer confidence; Canada CPI, wholesale; FOMC minutes.
- Thursday: PMIs in Australia; Japan’s trade balance, PMI manufacturing; UK PMIs, CBI industrial order expectations; Canada ADP employment, new house price index; United States unemployment claims, Philly Fed survey, PMIs, leading indicators, existing home sales.
- Friday: New Zealand retail sales; Japan’s national CPI core; UK retail sales, public borrowing; Eurozone PMIs; Canada’s retail sales.
GBP / USD daily view
Daily pivots: (S1) 1,2058; (P) 1.2148; (R1) 1.2194; More….
Intraday bias in GBP / USD remains downside at this time. Correct increase from 1.1409 should be completed. A deeper fall must be seen to try again this low next. Upstairs, above 1.2238, less resistance will first become intraday bias neutral. But the risk will remain on the downside for another fall.
In the bigger picture, rebound from 1.1409 is strong, but there is no indication of trend reversal yet. The down trend from 2.1161 (2007 high) still had to resume sooner or later. The next medium-term target will be 61.8% forecast from 1.7190 to 1.1946 from 1.3514 at 1.0273. In any case, the outlook will remain bearish as long as 1.3514 resistance holds, in case of strong rebound.
Updating economic indicators
|23:50||JPY||GDP Q / Q Q1 P||-0.90%||-1.20%||-1.80%|
|23:50||JPY||GDP Deflator Y / Y Q1 P||0.90%||1.00%||1.20%|
|four thirty||JPY||Tertiary Industry Index M / M Mar||-0.40%||-0.50%|
|14:00||USD||NAHB housing market index May||35||30|