• For me, the important evidence will be on the impact on unemployment when furlough is removed
• Scale of corporate insolvencies as we emerge from the pandemic an important indicator
• My view is that risks are two-sided

• MPC does not currently think negative rates will be needed
• In medium term, MPC judges that the pace of expansion in UK GDP slows as supply growth returns to its subdued longer-term trend
• Transitory CPI developments should have few direct implications for inflation over the medium term
• Current guidance on QE unwind is too prescriptive

Francesco Pesole, the FX Strategist at ING, notes that the latest CFTC data revealed that speculators paused their dollar selling in the week after the U.S. released its April inflation numbers.

"CFTC data for the week ending 18 May 2021 showed the aggregate dollar positioning was unchanged (at -6% of open interest) after four weeks of consecutive increases in net-short positions. That was broadly in line with the moves in the spot market, where the dollar rallied after the upside surprise in April’s US CPI on 12 May but then came under pressure again at the beginning of the following week."

"EUR/USD net-long positioning remained at 14% of open interest, CAD longs rose again but were offset from a positioning correction in GBP and another drop deeper into net-short positioning in the yen and the Swiss franc."

eFXdata reports that MUFG Research sees scope for cross-border flows to provide support for the EUR in the medium term.

"Euro-zone investors purchased EUR 24.5bn worth of long-term debt in March, the smallest foreign bond purchase since September last year. Similar to our USD FX View thesis above on the unsustainability of foreign investor US equity inflow, the reverse of that is evident in the BoP data. Euro-zone investor purchases of foreign equities are currently at a record on a 12mth basis – EUR 316bn in March."

"Overall, we see the cross-border flow picture for the euro-zone turning more favourable in the coming months that will add to building EUR support."

• Says U.S. is in the middle of unprecedented rebound in the economy
• Expects some higher inflation readings in near term because of basic facts
• Prices are rebounding from pandemic lows and some price increases are linked to a surge in demand
• Relief payments and other assistance are affecting spending
• Some bottlenecks and supply chains are contributing to inflation
• Expects price pressures from bottlenecks and reopening to subside over time

U.S. stock-index futures rose on Monday, as energy equities were underpinned by higher oil prices, and tech stocks shook off a bout of weekend selling in bitcoin as the cryptocurrency bounced early Monday. 

Global Stocks:

(company / ticker / price / change ($/%) / volume)

Tesla (TSLA) initiated with an Equal Weight at Wells Fargo; target $590

HP (HPQ) upgraded to Buy from Neutral at Citigroup; target raised to $40

The Chicago Federal Reserve announced on Monday the Chicago Fed national activity index (CFNAI), a weighted average of 85 different economic indicators, came in at 0.24 in April, down from an unrevised 1.71 in March, pointing to a slower expansion in economic activity than in the previous month.

At the same time, the index’s three-month moving average dropped to +0.07 in April from +0.35 in March.

According to the report, three of the four broad categories of indicators used to construct the index made positive contributions in April, but three categories deteriorated from March. Production-related indicators made a positive contribution of +0.18 to the CFNAI in April, down from +0.92 in March. Employment-related indicators contributed +0.05 to the CFNAI in April, down from +0.38 in the previous month. The contribution of the sales, orders, and inventories category to the CFNAI improved to +0.07 in April from -0.09 in March. Meanwhile, the contribution of the personal consumption and housing category to the CFNAI worsened to -0.06 in April from +0.50 in March. 

FX Strategists at UOB Group reiterates their view that AUD/USD is likely to trade within a broad 0.7680/0.7830 range in the next few weeks.

24-hour view: "Our expectation for AUD to “test 0.7800” last Friday was incorrect as it dropped sharply from 0.7783 (low has been 0.7719). Downward momentum is beginning to improve and AUD could weaken further. However, a sustained decline below last week’s low near 0.7710 is unlikely (next support is at 0.7680)."

Next 1-3 weeks: "Our latest narrative from last Thursday (20 May, spot at 0.7735) still stands. As indicated, AUD is still in a consolidation and is likely to trade within a broad 0.7680/0.7830 range for now."

EUR rose against its major rivals in the European session on Monday, supported by improving vaccine outlook and growing signs of the Eurozone's recovery from the coronavirus. It should be noted, however, that the trading was generally subdued due to holiday closures in several markets in the region.

Last week's PMI data indicated that business activity in Eurozone extended at the fastest pace for over three years early this month, as new order inflows surged to an extent not seen for almost 15 years. The data underpinned bullish views on the region’s growth prospects.

Some market participants believe that a brighter outlook for the euro area's economy will likely force the European Central Bank (ECB) to slow its emergency bond-buying. However, the Bank's president Christine Lagarde stated on Friday that it was still too early for the ECB to discuss winding down its EUR 1.85 trillion emergency bond purchase scheme.

• Unevenness of recession, ongoing recovery could reinforce increase in savings, inequality, and debt
• The initial phase of policymakers' crisis response was to provide liquidity support but this will likely change to fixing solvency and corporate viability problems
• Policymakers face additional challenges of addressing economic inequality and increasing worldwide concerns over climate change
• The nature of policy responses will also shift from temporary first aid measures to medium- to long-term structural policies
• Advances in digitalization are expected to enhance productivity and benefit wide range of individuals and firms
• If growth is concentrated in a small fraction of society and inequality increases, difficult to achieve inclusive economic growth

UOB Group’s FX Strategists suggest that GBP/USD has to close above 1.4235 before a move to 1.4290 can be expected

24-hour view: "We highlighted last Friday that GBP could test 1.4220. We added, “a sustained rise above this level is unlikely (there is another strong resistance at 1.4235)”. GBP subsequently rose to 1.4233 before pulling back sharply (low has been 1.4141). While downward momentum has not improved by all that much, the pullback could extend lower. However, a break of the strong support at 1.4100 is unlikely (there is a minor support at 1.4130)."

Next 1-3 weeks: "As highlighted, it is too early to expect GBP to move into a new positive phase. GBP has to close above 1.4235 before a move to 1.4290 can be expected. GBP subsequently rose to 1.4233 before pulling back sharply. The prospect for GBP to move clearly above 1.4235 has diminished but only a break of the ‘strong support’ at 1.4100 (same level as last Friday) would indicate that the upside risk has dissipated."

EUR/USD is likely to trade between 1.2095 and 1.2245 - UOB

FX Strategists at UOB Group believe that EUR/USD is likely to trade between 1.2095 and 1.2245 in the next few weeks.

24-hour view: "We highlighted last Friday that “there is room for EUR to move above the major resistance at 1.2245 but a sustained advance above this level is unlikely”. However, EUR rose to 1.2239 before pulling back sharply (low has been 1.2159). Despite the relatively rapid drop, downward momentum has not improved by much. That said, the pullback in EUR could test the strong support 1.2145. Resistance is at 1.2205 followed by 1.2225."

Next 1-3 weeks: "EUR subsequently rose to 1.2239 before pulling back sharply to 1.2159. While the strong support at 1.2145 is still intact, the build-up in momentum has more or less dissipated. In other words, EUR is unlikely to move higher in a sustained manner. From here, EUR is more likely to trade between 1.2095 and 1.2245."

Iris Pang, ING's Chief Economist, Greater China, provided her opinion on Friday's proposition of the Chinese central bank's official Lu Jinzhong that China should let the yuan appreciate to offset the rising costs of commodity imports.

"Regarding the PBoC comment to let the yuan rise to offset higher commodity import prices, my opinion is that it is possible for the PBoC to let the yuan move by itself in reaction to those PBoC comments. The market could push the yuan higher against the dollar, in effect, the market will be fulfilling the PBoC’s desire for a stronger yuan."

"But I wonder how much yuan strength, in terms of percentage gains against the dollar, can offset the high percentage increase in commodity import prices. The impact should be minimal. The Chinese government needs multiple tools to limit the increase in production costs brought about by higher commodity prices, which is partly due to expected US infrastructure projects."

"My view is that it will be very hard for USD/CNY to reach 6.10. Our existing forecast is 6.30 by year-end. The main risk of such a strong yuan is that it hurts exports, and as such, it hurts exporters and therefore producers in the same way as high commodity prices. Exports are still very important to China as the western world recovers from Covid.”

FXStreet reports that Karen Jones, Team Head FICC Technical Analysis Research at Commerzbank, discusses GBP/USD prospects.

“GBP/USD on Friday tested and has held below 1.4238/45, the recent high and the March 2018 high, and we would allow for some near-term consolidation. We note the divergence of the daily RSI. Nearby support is 1.4100 ahead of 1.4000/18 and the uptrends at 1.3821 and 1.3883.”

“We note the strong buy signal on the daily DMI and eventually look for gains through 1.4245 to 1.4377 the 2018 high.”

Bloomberg reports that China’s central bank has sought to clarify that it won’t let the yuan strengthen too much, too quickly, as mixed signals from officials underline the challenges presented by a currency trading near a three-year high.

The exchange rate will remain “basically stable,” the deputy governor of the People’s Bank of China said. Earlier, another central bank official wrote that the yuan should appreciate to offset the higher costs of commodity imports. That essay, published in a state-backed magazine on Friday, has since been deleted. Separately, another official said China has to give up its control over the exchange rate eventually to achieve greater global use of the yuan.

With factory-gate prices surging, a stronger yuan helps reduce the cost of imports, such as commodities -- a key component of inflation. Yet any sign that Beijing is encouraging gains in the currency may spur traders to bet on further appreciation, triggering capital inflows that could inflate asset bubbles.

Reuters reports that EU leaders meet on Tuesday to debate how to split the efforts and costs of the bloc's shift to a low-carbon future, at a summit that will set the tone for an upcoming revamp of EU climate change policies.

The EU's executive Commission is due to publish a huge set of climate policy proposals in July, including carbon market reforms and tougher carbon dioxide standards for cars. All will need approval from its 27 member states.

Leaders will discuss on Tuesday how to meet the new EU target agreed last month to reduce net greenhouse gas emissions by at least 55% by 2030, against 1990 levels. The previous target was 40%.

The talks will shed light on what policy changes EU governments are likely to accept, to deliver this goal.

A draft of the summit conclusions shows EU leaders will ask the Commission to maintain the EU's system of setting national emissions-cutting targets based largely on a country's gross domestic product (GDP) per capita.

FXStreet reports that Satish Ranchhod, Senior Economist at Westpac, offered his afterthoughts on New Zealand’s Retail Sales data.

“Retail spending rose by 2.7% in the March quarter. That followed a similar-sized fall in December. Today's result was stronger than our forecast for a 0.7% increase, and well above the median analyst forecast for a 1.8% decline in spending. This indicates upside risk for March quarter GDP growth.”

“Retail spending has been resilient since the economy exited lockdown. We expect spending will continue to firm over the coming months. However, compared to pre-Covid trends, spending growth is likely to be constrained by the continued lack of international tourists and the slowdown in population growth.”

CNBC reports that an economist said that swelling debt levels may cause emerging markets to fall further behind developed markets in the economic recovery from the Covid-19 pandemic.

“With the pandemic, debt rose across all types ... the big increase of course was in government debt — and no surprise because of such a need to provide fiscal stimulus at the same time the tax revenues were down much across the board around the world,” Steve Cochrane, chief Asia-Pacific economist at Moody’s Analytics, told.

“The real impact, however, I think is sort of an increasing divide between developed economies and emerging markets. The debt loads rose most in emerging markets and they may have the most difficulty in terms of taking care of this debt going forward,” he added.  

Total global debt across government, corporate, household and financial sectors rose by a record $24 trillion in 2020, an analysis by Moody’s Analytics showed. The increase took global debt to a new-high of 366% of gross domestic product, the consultancy said in a report.

Overall debt in emerging markets more than doubled over the past decade and now accounts for one-third of outstanding debt globally, according to the report.

FXStreet reports that Karen Jones, Team Head FICC Technical Analysis Research at Commerzbank maintained a bullish bias on the EUR/USD pair.

“EUR/USD again tested and held below 1.2243, the February high, twice last week. The daily RSI has diverged and attention has reverted to the near term uptrend at 1.2128. Above 1.2243 targets 1.2349, 2021 high.”

“Our longer-term target is 1.2556/1.2619, the 2018 high, the 200-month moving average and the 55-quarter ma.”

Reuters reports that Goldman Sachs said it expects oil prices to climb to $80 per barrel in the fourth quarter of this year, arguing that the market has underestimated a rebound in demand even with a possible resumption in Iranian supply.

"The case for higher oil prices therefore remains intact given the large vaccine-driven increase in demand in the face of inelastic supply," the bank said.

Even "aggressively assuming" a restart of Iranian exports in July, Brent prices would still reach the $80 mark by the fourth quarter, it said.

Goldman Sachs said a demand recovery in developed markets would offset a recent coronavirus-led hit to consumption and likely slower recovery in South Asia and Latin America.

Global demand could increase by 4.6 million barrels per day through year-end, with most of the gains likely in the next 3 months, it said.

The bank also expects the Organization of the Oil Producing Countries (OPEC) and allies including Russia, a grouping known as OPEC+, to offset any ramp-up in Iran production by halting for two months an increase in its output in the second half of 2021.

This would help offset the perceived bearish impact in the physical market of the release of Iranian floating storage, it said.

FXStreet reports that Analysts at Australia and New Zealand (ANZ) Banking Group offer their expectations on the Australian Private Capital Expenditure data.

“We expect Australian private new capital expenditure to have risen 3% q/q in Q1 2021, matching the increase in Q4 2020.”

“We think firms will upgrade their planned capex to $126bn in 2020-21 (from $121bn) and to $114bn in 2021-22 (from $105bn). Both would represent larger than usual upgrades for this time of year, driven by the rapid improvement in the consumer and business sectors on top of fiscal incentives.”

“There is upside risk to these expectations if firms upgrade their capex plans more quickly, given the strong demand outlook and the rise in profits through 2020.”

During today's Asian trading, the US dollar fell against the euro and the yen, almost unchanged against the pound.

The chairman of the Federal Reserve Bank of San Francisco, Mary Daly, said that the factors that contribute to the growth of inflation in the United States are likely to come to naught in early 2022.

Daly predicts that inflation in the country will remain at a high level until the end of 2021. A number of factors, including supply chain disruptions, semiconductor shortages, and the low-base effect, are putting upward pressure on prices, she said.

The minutes of the Fed's April meeting, released last week, showed that some Fed members were ready to discuss reducing the asset purchase program at upcoming meetings.

The head of the San Francisco Fed noted the correctness of the current monetary policy. She stressed that the authorities need to maintain tolerance, since more than 8 million Americans are still unemployed as a result of the pandemic.

The ICE index, which tracks the dollar's performance against six currencies (euro, swiss franc, yen, canadian dollar, pound sterling and swedish krona), fell 0.1%. The indicator value is near a three-month low. Last week, it fell by 0.34% on the back of rising risk sentiment.

Bloomberg reports that according to a survey from the National Association of Business Economist, business economists are increasingly optimistic about the U.S. economy’s growth prospects in 2021 and most see core inflation pressures moderating by the end of the year.

A median estimate of economists calls for a 6.7% real growth rate in 2021, up from the 4.8% forecast in the March survey.

Respondents see the personal consumption expenditures price index, minus food and energy, cooling to 2.1% in the fourth quarter from a projected 2.6% in the April-June period.

The consumer price index will rise to 2.8% in the final three months of the year, on a year-over-year basis, then drop to 2.4% in the fourth quarter of 2022, the survey showed.

Some two-thirds of survey respondents anticipate U.S. employment to return to pre-pandemic levels by the end of this year or in 2022, which is sooner than what they estimated in prior surveys. The unemployment rate will likely average 5.6% this year and 4.3% next year, according to a median forecast of those surveyed.

Reuters reports that british employers called on Prime Minister Boris Johnson on Monday to overhaul regulation and tax rules to help them meet the challenges of Brexit, the post-pandemic recovery and preparing for a net-zero carbon economy.

The Confederation of British Industry (CBI) said 2021 should be a turning point for economic policy to break the pattern of weak productivity that has weighed on growth for more than a decade.

The CBI urged regulators to prioritise investment, the creation of economic clusters around the country to foster innovation and better skills training.

It also said a long-term plan was needed for taxation that would allow Britain to fix the damage to its public finances wrought by the biggest ever budget deficit in peacetime without hurting business investment.

Britain’s economy slumped by almost 10% last year and is due to grow by 7.25% in 2021, according to the Bank of England. But the central bank has forecast that growth after 2022 will return to its slow, pre-pandemic pace.

eFXdata reports that Credit Suisse discusses NZD outlook.

"Markets expect the RBNZ to hike faster and more aggressively than the RBA: while we don’t disagree with the view in the medium-term, we see a risk that the RBNZ rate decision on 25 May might trigger a near-term downgrade in RBNZ tightening expectations, and a spike in AUDNZD. As we’ve favoured selling spikes in AUDNZD, we recommend a 3m expiry AUDNZD put struck at 1.0650 with a knock-in barrier at 1.0820 as a way to leverage near-term disappointment risks in order to gain exposure to AUDNZD downside from a more attractive level," Credit Suisse adds. 

RTTNews reports that Statistics New Zealand said that the total volume of retail sales in New Zealand was up a seasonally adjusted 2.5 percent q/q in the first quarter of 2021, following the upwardly revised 2.6 percent contraction in the three months prior (originally -2.7 percent).

By industry, the main movements were: electrical and electronic goods, up 8.4 percent; recreational goods, up 16 percent; hardware, building, and garden supplies, up 4.5 percent; and department stores, up 5.6 percent.

The total value of retail sales also was up 2.5 percent on quarter ($648 million).

On a yearly basis, sales rose 6.8 percent - accelerating from 4.8 percent in the three months prior.

EUR/USD

Resistance levels (open interest**, contracts)

$1.2276 (1812)

$1.2245 (3584)

$1.2221 (2029)

Price at time of writing this review: $1.2186

Support levels (open interest**, contracts):

$1.2142 (416)

$1.2116 (554)

$1.2081 (1010)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date June, 4 is 63526 contracts (according to data from May, 21) with the maximum number of contracts with strike price $1,2100 (3615);

GBP/USD

$1.4253 (1364)

$1.4226 (981)

$1.4206 (1862)

Price at time of writing this review: $1.4153

Support levels (open interest**, contracts):

$1.4050 (425)

$1.4016 (297)

$1.3978 (287)

Comments:

- Overall open interest on the CALL options with the expiration date June, 4 is 21429 contracts, with the maximum number of contracts with strike price $1,4350 (2979);

- Overall open interest on the PUT options with the expiration date June, 4 is 32279 contracts, with the maximum number of contracts with strike price $1,3100 (3957);

- The ratio of PUT/CALL was 1.51 versus 1.49 from the previous trading day according to data from May, 21

* - The Chicago Mercantile Exchange bulletin (CME) is used for the calculation.

** - Open interest takes into account the total number of option contracts that are open at the moment.