Sterling tumbles on poor retail sales, spike in coronavirus cases
The British pound is one of the worst performing currencies today, along with the commodity currencies. Poor UK retail sales data is weighing on the pound sterling. In addition, the resurgence of coronavirus infections, now due to the delta variant, in the UK is cause for concern. Daily new cases have surpassed 11,000, after an average of around 2,000 just a month ago. However, the good news is that the new daily deaths are kept below 20.
In Europe, as of this writing, the FTSE is down -1.40%. The DAX is down -1.32%. The ACC is down -1.03%. The German 10-year rate is up 0.0503 to -0.191. Earlier in Asia, the Nikkei fell -0.19%. Hong Kong’s HSI rose 0.85%. China Shanghai SSE fell -0.01%. The Singapore Strait Times rose 0.19%. The Japanese 10-year JGB yield fell from -0.0057 to 0.060.
CHF / JPY reversing bearish with this week’s massive sell-off?
In addition to the strong rally in the dollar and yen this week, the massive selloff of the Swiss franc is worth mentioning. In particular, the risk of a downturn in CHF / JPY is increasing. This is put in context that the short term high of 122.74 was already near a key long term level with a 100% projection of 101.66 to 118.59 from 106.71 to 123.64.
The focus is now on a 38.2% retracement from 113.73 to 112.74 to 119.29. The rebound from this level will at least maintain some medium term uptrend for another rise to 122.74 at a later stage. However, a firm break of 119.29 will add to the case that the entire pattern of 101.66 is complete. The focus would then be on the 55 week EMA (now at 116.89) for confirmation.
UK retail sales fell -1.4% mo in May, missed expectations
UK retail sales fell -1.4% m / m in volume terms in May, below expectations of a 1.5% m / m increase. Volume sales were still 9.1% higher than in February 2020 before the pandemic. Excluding motor fuel, sales were down -2.1% month-on-month, below expectations of a 4.2% month-on-month increase. Non-motor fuel sales were 10.6% above pre-pandemic levels.
From Germany, the PPI stood at 1.5% mo, 7.2% yoy in May. The eurozone’s current account surplus widened to 22.8 billion euros in April, above expectations of 20.3 billion euros.
BoJ holds firm and extends pandemic relief program
The BoJ did not announce any change in monetary policy as widely expected. As part of the control of the yield curve, the short-term interest rate target is maintained at -0.10%. The BoJ will continue to buy JGBs, with no cap, to keep 10-year JGB yields around 0%. The decision was taken by 7 votes to 1 with 1 abstention. Goushi Kataoka voiced his dissent as usual, pushing for greater flexibility. Takako Masai abstained.
The board of directors also voted with a majority of 8-0, with 1 abstention, to extend the duration of the Special Funding Support Program in response to the new coronavirus by 6 months until the end of March 2022.
The BOJ is also committed to “closely monitoring” the impact of COVID-19, and “will not hesitate to take additional easing measures if necessary”. In addition, he “expects short and long-term key interest rates to remain at their current or lower levels.”
Mid-day GBP / USD outlook
Daily Pivots: (S1) 1.3878; (P) 1.3944; (R1) 1.3991; After….
GBP / USD drops to 1.3849 so far today and the intraday bias remains on the downside. The current fall of 1.4248 is considered the third step in the consolidation pattern from 1.4240. A deeper drop would be seen to the support at 1.3668. On the upside, minor resistance above 1.3944 will make the intraday bias neutral and lead to a rally first, before starting a further decline.
Overall, as long as the resistance at 1.3482 becomes support, the uptrend from 1.1409 should still continue. A decisive breakout of resistance at 1.4376 will have larger bullish implications and target a 38.2% retracement from 2.11161 (2007 high) to 1.1409 (2020 low) at 1.5134. However, a firm break out of 1.3482 support will support the rise from 1.1409 is over and lead to a deeper fall to 1.2675 support and below.
Update of economic indicators
|11:30 p.m.||JPY||National Core CPI Y / Y May||0.10%||0.00%||-0.10%|
|3:00||JPY||BoJ decision on interest rates||-0.10%||-0.10%||-0.10%|
|6:00||GBP||Retail sales M / M May||-1.40%||9.20%|
|6:00||GBP||Retail Sales Y / Y May||24.60%||36.80%||42.40%|
|6:00||GBP||Retail sales excluding fuel M / M May||-2.10%||4.20%||9.00%||9.10%|
|6:00||GBP||Retail sales excluding fuel Y / Y May||21.70%||31.70%||37.70%|
|6:00||EUR||Germany PPI H / M May||1.50%||0.70%||0.80%|
|6:00||EUR||Germany IPP Y / Y May||7.20%||5.20%|
|8:00||EUR||Euro area current account (EUR) Apr.||22.8B||20.3B||17.8B|