US Dollar Holds Its Ground

Daily Analysis - 30/05/2017

Political Uncertainty Sparks Selling in the Euro and Pound


The US dollar is showing early strength on Tuesday, gaining ground against Sterling and the Euro, both of which were pressured by political uncertainty unfolding in the United Kingdom and the Euro Area. Activity is slowly picking up following the closure of key markets in the US and the UK, giving traders few directional clues to follow.

EURUSD Charts Bearish Pattern

According to a latest opinion poll published Tuesday, British Premier Theresa May's lead over the main opposition Labour Party has shrunk to 6.00% ahead of the June 8th elections. Sterling slid -0.20% to $1.2812, reversing back toward a three-week low of $1.2775 reached back on Friday. Euro bulls also went on the defensive after former Italian Prime Minister Matteo Renzi said it makes sense "from a European perspective" to hold the country’s next general election at the same time as Germany's scheduled September vote.

Apart from Italy, there are also growing rumours that Greece will default on its next bailout repayment unless creditors grant the beleaguered nation debt relief. EURUSD is slipping early Tuesday, with the pair last seen around 1.1130 and the completion of a bearish head and shoulders formation potentially spurring additional downward momentum.


Japanese Unemployment Holds at Two Decade Low

In a much-anticipated development, the jobless rate in Japan remained at its lowest point in over two decades for the month of April according to data released earlier. The unemployment rate held steady at 2.80% last month, matching the lowest unemployment reading since June of 1994. Apart from the headline optimism, the jobs-to-applicants ratio increased to 1.48 from 1.45 in March, meaning that 1.48 vacancies were available for every job seeker.

Economists had forecast a ratio around 1.46. The last time demand for labour was this robust was in February 1974, when the ratio stood at 1.53. Separately, retail sales increased 3.20% on a year-on-year basis in April, easily topping the median estimate for a 2.30% rise. USDJPY has been falling in early Tuesday trade, with the pair currently perched around strong support at 110.850.


Sweden Swings to Trade Deficit

After posting a surplus a month earlier, Sweden recorded a trade deficit in April, hurt by stronger growth in imports.  Data reported by Statistics Sweden showed a gap of SEK -2.60 billion last month compared to a surplus of SEK 2.50 billion for the same period a year earlier. The pace of import growth climbed by 6.00% in the twelve months through April, outpacing Exports which edged 1.00% higher from last year.

Trade with European Union countries resulted in a deficit of SEK -13.90 billion, while trade outside the EU showed surplus of SEK 11.30 billion. Adjusting for seasonal variations, the net trade deficit totalled SEK -2.30 billion, compared with a deficit of SEK -1.90 billion in March. With the dollar firming, USDSEK is rallying in early Tuesday trade, with the pair breaking above important resistance at 8.7180 to last trade near 8.7450.


New Zealand Building Permits Decline

Consents for residential building in New Zealand dropped in April, as the Easter holiday period decreased the number of working days that local councils had to process applications. Official figures from Statistics New Zealand, released early Tuesday, showed dwelling permits dipping by a seasonally-adjusted -7.60% in April on a month-over-month basis. Permits had fallen -1.20% in March after rising by a massive 15.40% in February.

New Zealand's housing market has been booming which has consequently pushed up home prices as demand easily outstrips supply. The latest data showed that on an annualized basis, building consents surged 8.30% to 30,371 applications, the highest April reading since 2004. After trading largely range bound overnight, NZDUSD has broken higher, with the pair currently hovering around the 0.7060-mark.


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