EUR / USD
The Euro was unable to make any headway in early Europe on Friday with underlying selling pressure continuing amid negative sentiment. The Euro dipped to lows at 1.0350 against the dollar and very close to pivotal support at 1.0340 which represented the low from early 2017.
The University of Michigan consumer confidence index dipped to 59.1 for May from 65.2 previously which was below expectations of 64.0 and the weakest reading since late 2011. The current conditions index declined to 63.6 from 69.4 while the expectations component dipped to 56.3 from 62.5 with both readings below expectations.
The 1-year inflation expectations index was unchanged at 5.4% with the 5-year index at 3.0% which may provide a slight element of relief for the Federal Reserve.
Risk appetite was generally firmer after the Wall Street open which provided an element of relief for the Euro while commodity currencies recovered ground against the US dollar. As risk appetite remained firmer, the Euro managed to crawl above the 1.0400 level at the New York close.
CFTC data registered a return to a net long Euro position which suggested funds had attempted to look for a bottom in the single currency which may lead to fresh selling given further losses. Risk appetite was more vulnerable again on Monday with the Euro close to the 1.0400 level.
Comments from ECB and Federal Reserve officials will continue to be monitored closely during the day for further hints on potential policy action on interest rates.
The increase in Chinese new loans slowed sharply to CNY645bn for April from CNY3130bn the previous month and well below consensus forecasts of CNY1500bn. The total increase in social financing also slowed dramatically to CNY910bn from CNY4650bn previously, maintaining unease over demand conditions.
US bond yields edged higher on Friday and a rebound on Wall Street also undermined potential yen demand as risk appetite attempted to stabilise with the dollar strengthening to around 129.45 against the yen before correcting slightly.
CFTC data recorded a net increase in short yen positions to over 110,000 in the latest week from 101,000 and the second-highest short position in four years, maintaining the potential for short covering if risk appetite deteriorates further. There was an element of optimism over limited re-opening measures in Shanghai, but the latest Chinese data release triggered further unease. Industrial production declined 2.9% in the year to April compared with expectations of a 0.4% increase. Retail sales declined 11.1% over the year after a 3.5% decline the previous month and much weaker than expectations of a 6.0% decline. The data maintained concerns over the domestic and global outlook which unsettled risk appetite again. US yields edged lower and the dollar dipped to lows near 128.70 before a recovery to 129.00.
Sterling remained under pressure in early Europe on Friday with a persistent lack of confidence in the economy and currency. Although risk appetite steadied, the UK currency dipped to a marginal fresh 2-year low just below 1.2160 against the dollar. There were further important reservations surrounding the economy while Brexit concerns were also an element with further speculation that the UK government would introduce legislation to remove parts of the Northern Ireland protocol.
There was a stronger recovery in risk conditions after the US open which pulled Sterling back to the 1.22 area against the US dollar. There was further evidence of short covering late in the day with a recovery to a1.2260 against the dollar while the Euro dipped below 0.8500.
CFTC data recorded a further increase in short, non-commercial Sterling positions to near 80,000 contracts in the latest week from near 74.000 previously and the largest short positions since September 2019, maintaining the potential for short covering if there is a trigger for a reversal in sentiment.
Brexit tensions persisted with Prime Minster Johnson warning that he will act if there is no change from the EU on the Northern Ireland protocol. Sterling was resilient on Monday, but held slightly under 1.2250 against the dollar with the Euro just below 0.8500. Comments from Bank of England officials will be watched closely on Monday.
There was choppy Swiss franc trading on Friday, but with little in the way of underlying direction. Stronger risk appetite limited potential franc support, but there was also pressure for a correction against the dollar after sharp losses over the week.
The Euro settled around 1.0430 against the franc in choppy trading with the dollar managed to hold just above the parity level at the European close.
The dollar edged higher to 1.0030 on Monday and the data on sight deposits will be watched closely for evidence on National Bank intervention actions.