Dollar and yen are both mildly lower against other major currencies today as risk appetite is given a mild lift by positive China data. CPI rose to 5.5% yoy in May, inline with expectation. While further tightening is still widely expected, today's data wasn't anything drastic that would trigger even more aggressive measures from China. There were whispers in the markets that the number could be as bad as 6% yoy. PPI was unchanged at 6.8% yoy in May. Growth data were solid with retail sales up 16.9% yoy in May while industrial production slowed slightly to 13.3% yoy.
BoJ left rates unchanged at 0-0.1% as widely expected today. The JPY 30T lending program and JPY 10T asset purchase program were also left unchanged. Also, the bank unveiled a new lending program to aid companies. JPY 500b in loans would be available to companies that don't have ordinary collateral, including real estates. Interest rate for the loans is at 0.1%. In the accompanying statement the bank noted that "weakness has been observed in the financial positions of some firms, mainly small ones, since the earthquake." Though, the view on economy was unchanged as the bank expects moderate recovery in second half of the fiscal year through March. Economic assessment was also raised slightly as the bank noted some signs of a pick-up.
European majors are firm today so far. Euro shrugged off S&P's downgrade of Greece's sovereign rating from B to CCC, the lowest debt grade in the world. S&P noted in the statement that there is a significantly higher likelihood of one or more defaults." And "risks for the implementation of Greece's E.U./IMF borrowing program are rising, given Greece's increased financing needs and ongoing internal political disagreements surrounding the policy conditions required."
Sterling, on the other hand, is also strong as markets are awaiting inflation data from UK. Headline CPI is expected to be unchanged at 4.5% yoy in May with core CPI moderated slightly to 3.5% yoy. RPI is expected to be unchanged at 5.2% yoy. BoE Weale said that "although the data which have appeared over the last month or so point to a softer outlook for economic growth and probably a slightly more favorable prospect for inflation in the medium term, they do not change my overall conclusion." That is, "the case for an immediate quarter-point increase, and the extra flexibility that it gives, remains." Meanwhile, Weale also argued that "if inflationary pressures subsequently prove more severe than the" bank's central forecast suggests, "then it will be a help to have started to raise interest rates earlier."
US data will also be closely watched today. PPI is expected to slow slightly to 6.6% yoy in May with core PPI unchanged at 2.1% yoy. Retail sales are expected to drop -0.4% in May with ex-auto sales up 0.3%. Business inventories are expected to rise 1.0% in April.
GBP/USD Daily Outlook
Daily Pivots: (S1) 1.6263; (P) 1.6327; (R1) 1.6438;
The strong break of 1.6315 minor resistance suggests that pull back from 1.6546 has completed at 1.6212 already. The three wave structure also suggests that it's merely a correction. Focus now turns to 1.6471 minor resistance. Break there will indicate that rebound from 1.6058 is likely resuming for 1.6546 and above to 1.6746 resistance next. On the downside, though, below 1.6212 will turn focus back to 1.6058 again.
In the bigger picture, price actions from 1.3503 (2009 low) are treated as consolidation to long term down trend from 2007 high of 2.1161. Rise from 1.4230 is treated as the third leg of such consolidation and with 1.5935 support intact, such rise could still continue for 1.7043 resistance. But after all, strong resistance should be seen between 1.7043 and 50% retracement of 2.1161 to 1.3503 at 1.7332 to limit upside. On the downside, below 1.5935 support will indicate that rise from 1.4230 is completed and further break of 1.5343 will confirm this case and target 1.3503/4230 support zone.
Economic Indicators Update
| GMT | Ccy | Events | Actual | Consensus | Previous | Revised |
|---|---|---|---|---|---|---|
| 23:01 | GBP | RICS House Price Balance May | -28.00% | -20.00% | -21.00% | |
| 1:30 | AUD | NAB Business Confidence May | 6 | 7 | ||
| 2:00 | CNY | CPI Y/Y May | 5.50% | 5.50% | 5.30% | |
| 2:00 | CNY | PPI Y/Y May | 6.80% | 6.50% | 6.80% | |
| 2:00 | CNY | Retail Sales Y/Y May | 16.90% | 17.00% | 17.10% | |
| 2:00 | CNY | Industrial Production Y/Y May | 13.30% | 13.10% | 13.40% | |
| 3:40 | JPY | BoJ Rate Decision | 0.10% | 0.10% | 0.10% | |
| 4:30 | JPY | Industrial Production M/M Apr F | 1.60% | 1.00% | ||
| 5:45 | CHF | SECO June 2011 Economic Forecasts | ||||
| 8:30 | GBP | DCLG House Prices Y/Y Apr | -0.20% | 0.90% | ||
| 8:30 | GBP | CPI M/M May | 0.20% | 1.00% | ||
| 8:30 | GBP | CPI Y/Y May | 4.50% | 4.50% | ||
| 8:30 | GBP | Core CPI Y/Y May | 3.50% | 3.70% | ||
| 8:30 | GBP | RPI M/M May | 0.30% | 0.80% | ||
| 8:30 | GBP | RPI Y/Y May | 5.20% | 5.20% | ||
| 12:30 | CAD | Capacity Utilization Rate Q1 | 77.20% | 76.40% | ||
| 12:30 | USD | PPI M/M May | 0.00% | 0.80% | ||
| 12:30 | USD | PPI Y/Y May | 6.60% | 6.80% | ||
| 12:30 | USD | PPI Core M/M May | 0.20% | 0.30% | ||
| 12:30 | USD | PPI Core Y/Y May | 2.10% | 2.10% | ||
| 12:30 | USD | Advance Retail Sales May | -0.40% | 0.50% | ||
| 12:30 | USD | Retail Sales Less Autos May | 0.30% | 0.60% | ||
| 14:00 | USD | Business Inventories Apr | 1.00% | 1.10% |
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