Swiss Franc Extending Rally, Yen Softens as Yields Recover

Swiss Franc is staying as the strongest one for today while markets are rather quiet elsewhere. Yen turns slightly weaker and US and European yields recover. But Dollar is also weak on overall steady sentiment. As for the week, however, Aussie and Kiwi are the worst performers, followed by Yen and Dollar. Swiss Franc and Sterling are the strongest ones.

Technically, CHF/JPY may be ready to resume recent up trend too. Focus is now on 141.86 temporary top. Break will confirm bullishness and target 100% projection of 127.48 to 137.77 from 134.00 at 144.29 next. Meanwhile, USD/CHF’s pressing 0.9543 support. Strong support is expected there to complete the three wave consolidation from 1.0063, and bring rebound. But firm break of 0.9543 will bring deeper fall to 0.9459 resistance turned support.

In Europe, at the time of writing, FTSE is up 1.68%. DAX is up 0.81%. CAC is up 2.04%. Germany 10-year yield is up 0.043 at 1.471. Earlier in Asia, Nikkei rose 1.23%. Hong Kong HSI rose 2.09%. China Shanghai SSE rose 0.89%. Singapore Strait Times rose 0.61%. Japan 10-year JGB yield dropped -0.0015 to 0.234.

ECB Centeno: Fragmentation has to be dealt with in their genesis

ECB Governing Council member Mario Centeno said the new instrument will “fight the risks of fragmentation” as monetary policy is gradually normalized. He emphasized that fragmentation has to be dealt with “in their genesis and not afterwards”.

The instrument “will certainly demonstrate the determination of the euro system and the council of governors in containing these risks”.

“There is no single typology of indicators to measure the materialization of fragmentation,” he added. “There is no goal regarding specific yield spread values”.

Germany Ifo business climate ticked down to 92.3

Germany Ifo business climate dropped slightly from 93.0 to 92.3 in June, below expectation of 92.9. Current assessment index dropped from 99.6 to 99.3, above expectation of 99.0. Expectations index dropped 86.9 to 85.8, below expectation of 87.4.

By sector, manufacturing dropped from 2.7 to 0.3. Service rose from 8.2 to 10.8. Trade dropped from -10.7 to -14.8. Construction rose from -13.4 to -9.7.

Ifo said: “Companies were somewhat less satisfied with their current business situation. Their expectations turned markedly more pessimistic. The threat of gas shortages is of great concern to the German economy.”

UK retail sales dropped -0.5% mom, linked to impact of food prices and cost of living

UK retail sales volume dropped -0.5% mom in May, better than expectation of -0.9% mom. Ex-fuel sales dropped -0.7% mom, better than expectation of -1.4% mom.

Over the 12-month period, retail sales dropped -4.7% yoy, versus expectation of -4.5% yoy. Ex-fuel sales dropped -5.7% yoy, versus expectation of -5.1% yoy.

ONS said: “The fall in sales volumes over the month was because of food stores, which fell by 1.6%; reduced spending in food stores seems to be linked to the impact of rising food prices and the cost of living.”

UK Gfk consumer confidence dropped to -41 in Jun, another record low

UK Gfk consumer confidence dropped from -40 to -41 in June, matched expectations, and set a new record low. Personal financial situation over the next 12 months dropped from -25 to -28. General economic situation for the next 12 months dropped from -56 to -57.

Joe Staton, Client Strategy Director, GfK says: “With a headline score of -41 for June, the GfK Consumer Confidence Barometer has set a record low for the second successive month…. The consumer mood is currently darker than in the early stages of the Covid pandemic, the result of the 2016 Brexit referendum, and even the shock of the 2008 global financial crisis, and now there’s talk of a looming recession.”

BoJ Amamiya: Will continue to support the economy with monetary easing

BoJ Deputy Governor Masayoshi Amamiya said, “the BOJ will continue to support the economy with monetary easing to achieve its inflation target in a sustained, stable manner accompanied by wage rises.”

Amamiya also said the economy is picking up as a trend, but it’s facing “extremely high” uncertainty”. “Against this background, we must closely watch the impact financial and currency market moves could have on Japan’s economy and price,” he added.

Japan CPI core unchanged at 2.1% yoy, above target for second month

Japan CPI core (all item ex-fresh food) was unchanged at 2.1% yoy in May, matched expectations. That’s the second month that core consumer inflation tops BoJ’s 2% target. All item CPI was unchanged at 2.5% yoy, below expectation of 2.9% yoy. CPI core-core (all item ex-food, energy) was unchanged at 0.8% yoy, above expectation of 0.4% yoy.

But Deputy Chief Cabinet Secretary Seiji Kihara warned in the press conference, “we think it is necessary to pay close attention to the downside risks of the economy such as pushing down private consumption and corporate activities.”

USD/CHF Mid-Day Outlook

Daily Pivots: (S1) 0.9567; (P) 0.9629; (R1) 0.9676; More…

USD/CHF’s fall from 1.0048 is seen as the third leg of the corrective pattern from 1.0063. Strong support should be seen at around 0.9543 to contain downside to bring rebound. On the upside, above 0.9731 minor resistance will turn bias back to the upside for retesting 1.0063 resistance. However, break of 0.9543 will bring deeper fall back to 0.9459 resistance turned support.

In the bigger picture, down trend from 1.0342 (2016 high) should have completed with three waves down to 0.8756 (2021 low) already. Rise from 0.8756 is likely a medium term up trend of its own. Next target is 1.0237/0342 resistance zone. This will remain the favored case as long as 0.9471 resistance turned support holds. However, sustained break of 0.9471 will extend long term range trading with another falling leg.

Economic Indicators Update