Subdued Forex Trading as ECB Holds Rates Steady

Trading in the forex markets has been relatively subdued today. ECB’s decision to hold interest rates steady was widely expected, and President Christine Lagarde’s press conference did not introduce any significant new information.

ECB’s accompanying statement highlighted that domestic price pressures remain high, services inflation is elevated, and headline inflation is likely to stay above target well into next year. This outlook will keep ECB cautious regarding any further policy easing. There seems to be no rush into another rate cut. The next decision is heavily dependent on new economic projections available by the September meeting.

For the week so far, Swiss Franc remains the strongest performer, followed by Yen and then Euro. New Zealand Dollar is still the worst performer, followed by Australian and Canadian Dollars. Dollar and Sterling are mixed in the middle.

Technically, GBP/USD’s rally lost momentum after hitting near term channel resistance. Some consolidation is now likely below 1.3043 first. But downside of retreat should be contained by 1.2859 resistance turned support to bring another rally. Rise from 1.2298 is still expected to resume at a later stage to 100% projection of 1.2298 to 1.2859 from 1.2612 at 1.3173.

In Europe, at the time of writing, FTSE is up 0.79%. DAX is up 0.36%. CAC is up 1.01%. UK 10-year yield is down -0.028 at 4.052. Germany 10-year yield is up 0.009 at 2.432. Earlier in Asia, Nikkei fell sharply by -2.36%. Hong Kong HSI rose 0.22%. China Shanghai SSE rose 0.48%. Singapore Strait Times fell -0.53%. Japan 10-year JGB yield rose 0.0102 to 1.042.

US initial jobless claims rises to 243k vs exp 225k

US initial jobless claims rose 20k to 243k in the week ending July 13, above expectation of 225k. Four-week moving average of initial claims rose 1k to 235k.

Continuing claims rose 20k to 1867k in the week ending July 6, highest since November 27, 2021. Four-week moving average of continuing claims rose 12k to 1851k, highest since December 4, 2021.

ECB stands pat, headline inflation to stay above target well into next year

ECB left interest rates unchanged as wildly expected. Interest rates on the marginal lending facility and the deposit facility are held at 4.25%, 4.50% and 3.75% respectively.

In the accompanying statement, ECB noted that incoming information broadly support the Governing Council’s medium-term inflation outlook. Most measures of underlying inflation were “either stable or edged down” in June. Impact of high wage growth has been “buffered by profits”.

Nevertheless, domestic price pressures are “still high” while services inflation is “elevated”. Headline inflation is “likely to remain above the target well into next year”.

ECB also pledge to keep policy rates “sufficiently restrictive for as long as necessary”, and will continue to follow a “date-dependent and meeting-by-meeting” approach, while “not pre-committing” to a particular rate path.

UK payrolled employment rises 16k in Jun, unemployment rate steady at 4.4% in May

In June, UK payrolled employment rose 16k or 0.1% mom. Median monthly pay increased 3.6%, sharply lower than prior month’s 6.0% yoy. This sharper than usual slow down in pay growth is partly because of the comparison with June 2023, which figure was inflated by pay settlements made in the health sector. Claimant count rose 32.3k versus expectation of 23.4k.

In the three months to May, unemployment rate was unchanged at 4.4%, matched expectations. Growth of average earnings including bonus slowed from 5.9% yoy to 5.7% yoy. Growth of average earnings excluding bonus slowed from 6.0% yoy to 5.7% yoy. Both earnings growth matched expectations.

Japan’s exports rise 5.4% yoy in June, but volume down -6.2% yoy

In June, Japan’s exports grew by 5.4% yoy to JPY 9209B, falling short of 6.4% yoy expected. This marks the seventh consecutive monthly increase in export value. However, export volume fell by -6.2% yoy, indicating that the rise in export value was driven primarily by higher prices and falling Yen rather than increased demand.

By destination, shipments to the US increased by 11% yoy. Exports to China grew by 7.2% yoy, marking the seventh consecutive month of growth. Overall, exports to Asia rose by 7.7% yoy, but exports to the EU declined by -13.4% yoy.

Imports increased by 3.2% yoy to JPY 8985B, below the expected 9.3% yoy. Import volume also decreased by -8.9% yoy. For June, Japan recorded a trade surplus of JPY 224B.

In seasonally adjusted terms, exports declined by -0.2% mom h to JPY 8961B, while imports rose by 1.6% mom to JPY 9778B, leading to a trade deficit of JPY -817B.

Australia’s employment grows 50.2k, labor market remains relatively tight

Australia’s employment figures for June showed a strong increase, with employment rising by 50.2k, well above the expected 20.0k. This growth included 43.3k full-time jobs and 6.8k part-time jobs.

Unemployment rate edged up from 4.0% to 4.1%, in line with expectations. Participation rate also increased from 66.8% to 66.9%, just 0.1% below the historical high of 67.0% set in November 2023. Additionally, the employment-to-population ratio rose by 0.1% to 64.2%, close to its historical peak of 64.4% from November 2023. Monthly hours worked increased by 0.8% mom.

Bjorn Jarvis, head of labour statistics at ABS, observed that both the employment-to-population ratio and the participation rate are still near their 2023 highs. He added that together the persistently high level of job vacancies indicates the labor market “remains relatively tight”, even though unemployment rate has been above 4.0% since April.

Australia’s NAB business confidence ticks up to -1 in Q2, conditions tumbles to 5

Australia’s NAB Quarterly Business Confidence improved marginally, rising from -2 to -1 in Q2. However, business conditions overall weakened, with the index falling from 10 to 5. Trading conditions dropped from 15 to 9, profitability conditions fell from 8 to 2, and employment conditions decreased from 7 to 5.

Cost pressures persisted, with labor costs growing at 1.2%, unchanged from the previous quarter, and purchase costs growing at 0.9%, down from 1.1%. Price growth measures showed some relief, with final product price growth at 0.6% quarter-on-quarter, down from 0.8%. Retail price growth eased to 0.7% from 0.9%, and recreation and personal services price growth slowed to 0.6% from 0.8%.

NAB Chief Economist Alan Oster noted that the survey shows mixed results on cost pressures and prices. While materials cost growth is improving, labor costs remain high. He highlighted that 30% of firms are facing significant challenges with labor availability, and wage costs continue to be a major concern.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.0907; (P) 1.0928; (R1) 1.0960; More….

Intraday bias in EUR/USD is turned neutral first with current retreat. Some consolidations would be seen below 1.0947 temporary top. But downside should be contained by 1.0871 support to bring another rally. On the upside, break of 1.0947 will resume the rise from 1.0601 and target 100% projection of 1.0601 to 1.0915 from 1.0665 at 1.0979. However, firm break of 1.0871 will turn bias back to the downside for deeper pullback.

In the bigger picture, price actions from 1.1274 are viewed as a corrective pattern, possibly a triangle, that’s still be in progress. Break of 1.1138 resistance will be the first signal that rise from 0.9534 (2022 low) is ready to resume through 1.1274 (2023 high). This will now remain the favored case as long as 1.0601 support holds.

Economic Indicators Update