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German unemployment declined 4,000 for May after a 13,000 fall the previous month with markets still uneasy over underlying conditions within the Euro-zone. Developments in the energy sector will continue to be watched closely following the deal to severely curtail oil imports from Russia. In particular, there will be a focus on the Russian response and any further restriction of gas supplies to EU countries which would undermine confidence.

The headline Euro-zone CPI inflation rate increased to 8.1% for May from 7.5% for April which was above consensus forecasts of 7.8% and the highest reading on record. The underlying rate also increased to 3.8% from 3.5% and above expectations of 3.6%, maintaining pressure for ECB policy tightening.

ECB council member de Cos stated that the central bank can gradually remove stimulus. He added that second-round effects are not yet materialising. He did, however, add that it is essential that inflation expectations can be anchored at the 2% target and that if inflation persists it is more likely to feed through into wage negotiations and trigger second-round effects. The Euro was unable to gain support from the inflation data with markets fretting over the growth outlook while a July rate hike has been priced in. US equities also moved lower in choppy trading which underpinned the dollar on defensive grounds.

The Euro dipped to lows around 1.0680 with evidence of month-end dollar buying, but there was a rebound to 1.0730 at the European close.

The latest US ISM manufacturing data will be examined closely on Wednesday, especially with notably mixed regional surveys for the month. The dollar posted net gains in early Europe as US yields edged higher with the Euro trading around 1.0710 amid unease surrounding global economic trends.




US consumer confidence declined to 106.4 for May from a revised 108.6 previously, although this was above market expectations. There was a decline in the current conditions and expectations components for the month with slightly less confidence in the labour market. The May Chicago PMI manufacturing index strengthened to 60.3 from 56.4 previously and above consensus forecasts of 55.0. The Dallas Fed manufacturing index, however, declined to -7.3 from 1.1 previously.

After sliding during the Asian session, Treasures were generally on the defensive during Tuesday with the 10-year yield increasing to around 2.83%. There was choppy trading in Wall Street equities with net losses as caution prevailed. 

Higher bond yields underpinned the dollar with a move back above 128.50 against the yen as the yen struggled to gain support.

China’s Caixin PMI manufacturing index improved to 48.1 for May from 46.0 previously, but this was still in contraction territory and below expectations while business confidence dipped to a 5-month low amid on-going coronavirus concerns. There were still hopes that an easing of lockdowns would underpin the Chinese outlook

The dollar posted net gains on yield grounds during Wednesday with an advance to 129.25 against the yen and the Euro near 138.50.




UK mortgage approvals declined to 66,000 for April from a revised 69,500 the previous month and below consensus forecasts, but here was a slightly stronger than expected increase in consumer credit. Overall net lending increased £5.5bn after an £8.8bn increase the previous month.

The data had little impact and Sterling was unable to make significant headway during the day with an underlying lack of confidence in the outlook. Net risk conditions were important with the currency losing ground as US futures moved lower before regaining territory as Wall Street attempted to rally.

After choppy trading surrounding the fix, Sterling settled just above 1.2600 against the dollar and secured a net monthly gain with the Euro settling marginally weaker around 0.8510. There is liable to be further position adjustment on Wednesday ahead of UK market holidays on Thursday and Friday.

The latest CBI survey on the economy was downbeat and Sterling retreated to near 1.2580 against the dollar in early Europe.




Swiss National Bank member Zurbruegg stated that the high nominal value of the franc has dampened inflation and added that Swiss inflation is low relative to other countries, but not irrelevant. He added that there had not yet been evidence of higher wages, but the central bank would need to monitor the situation closely. The rhetoric overall maintained speculation that the National Bank would adopt a more hawkish stance which underpinned the franc.

Risk appetite was also relatively cautious and the Euro retreated to around 1.0280 while the dollar settled below 0.9600 before a net advance to 0.9615 on Wednesday.

Technical Levels 




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