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The Euro-zone current account dipped into deficit for March with a shortfall of EUR1.6bn after a revised EUR15.7bn surplus the previous month. The 12-month surplus narrowed to EUR219bn and 1.8% of GDP from EUR294bn and 2.6% of GDP the previous year. 

ECB policy remained an important focus with reports that a majority of policymakers are prepared to back at least two 25 basis-point rate increases this year.

Minutes from the April policy meeting reported that there was widespread concern over high inflation number and some members viewed it as important to act on policy without undue delay. There are now very strong expectations that the ECB will act to raise rates at the July meeting, but still important scepticism whether the bank will be able to secure support for a series of rate hikes, especially given Euro-zone growth risks.

The dollar was unable to take advantage of weaker risk conditions in early Europe and gradually lost ground as the Euro secure support below the 1.0500 level.

Initial US jobless claims increased to 218,000 in the latest week from a revised 197,000 previously and slightly above consensus forecasts of 200,000.

The Philadelphia Fed manufacturing index declined sharply to 2.6 for May from 17.6 previously and below expectations of 16.0. There were, however, strongly monthly readings for new and unfilled orders as well as shipments. Employment indicators were mixed with strong employment growth, but a dip in weekly hours. Cost pressures remained strong, but there was a slight easing of price readings. Companies were less optimistic over the outlook and expect a slight easing of inflation pressures.

There was a tentative recovery in risk appetite after the Wall Street open with a strong rally in commodity currencies and the dollar also posted sharp losses.

In this environment, the Euro rallied strongly to highs just below the 1.0600 level. There was a slight retreat to 1.0585 on Friday with markets wary over higher volatility.




Risk appetite remained fragile ahead of the New York open with the yen continuing to gain net support from risk aversion. There was a significant rally in Treasuries ahead of the US open and this trend continued amid some expectations that underlying inflation trends would peak amid a dip in demand for goods.

The 10-year yield retreated to near 2.80% and the dollar dipped sharply to lows near 127.00 before a recovery to 127.70 as equities rebounded.  

Japan’s core inflation increased to 2.1% for April from 0.8% previously which just above consensus forecasts of 2.0% and the highest reading since 2015.

The data maintained some expectations that the Bank of Japan would adjust monetary policy, although there were no indications of a move with the ultra-dovish stance continuing. The Chinese central bank held the 1-year lending rate at 3.70% while the 5-year rate was cut to 4.45% from 4.60%. The rate cut helped underpin risk appetite during the Asian session with expectations of further support, although there was still an important element of caution over the outlook.

The dollar advanced to highs around 128.20 before a retreat to 127.70 as the yen was resilient on the crosses with the Euro around 135.00.




Sterling found support on dips in early Europe on Thursday with failure to keep the pair below 1.2350 against the dollar triggering a further rebound on short covering.

The CBI industrial orders index strengthened to 26 for May from 14 previously and above consensus forecasts of 11. Manufacturers were more confident over orders and output, but cost pressures remained acute with expected growth in prices close to record highs and overall sentiment remained weaker.

There was some relief that the Metropolitan Police concluded the investigation into Downing Street coronavirus restriction breaches. Sterling benefited from a net recovery in risk appetite and a further round of short covering. The UK currency surged to highs around 1.2525 against the dollar while the Euro edged lower to 0.8465.

The latest UK consumer confidence index dipped to-40 for May from -38 previously and equalled the record low seen in April 2020. Retail sales data, however, was stronger than expected with a 1.4% April increase compared with forecasts of a small decline. The data helped underpin confidence with Sterling around 1.2485.




The Swiss franc continued to post gains on Thursday despite a net improvement in risk appetite. There was a decline in US bond yields and further speculation that the National Bank would tolerate franc appreciation over the medium term.

The Euro dipped to lows below 1.0250 before a recovery to 1.0300 while the dollar hit lows around 0.9710. The franc maintained a firm tone on Friday amid further speculation that the National Bank would look to tighten monetary policy over the medium term with the dollar held just above 0.9700.


Technical Analysis



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