BoE retains policy, recovery seen in US consumer prices

Fundamental outlook US recorded better consumer prices while retail prices also bounced back. China reported better consumer prices and trade surplus. The French election ended with support leaning on Emmanuel Macron as Presidentelect. The Bank of England (BoE) retained its policy.

US weekly inventories on crude storage declined by 5.2 million barrels, above expecations, giving a boost in oil price recovery at US$47 per barrel. Unemployment claims for the week ended May 6 was at 236,000, matching forecast. Producer prices rose 0.5 per cent in April compared with minus 0.1 per cent. It was also at a 10-month high.

US consumer prices rose 0.2 per cent in April. Excluding food and energy, core prices were up 0.1 per cent, better than the previous month. Retail prices rose 0.4 per cent. Core retail prices, excluding automobile sales, expanded 0.3 per cent.

China’s consumer prices rose 1.2 per cent in April from a year ago, the highest in three months. Producer prices expanded 6.4 per cent, below median forecast. Trade surplus soared higher in April at US$38.1 billion, an improvement compared with the previous month.

In France, Macron won the French election over Marine Le Pen. His policy has gained the support of voters to stay in the European Union and implement economic reforms to cut government spending and deficits.

German industrial production including utilities and mines contracted 0.4 per cent in March after a revised 1.8 per cent gains in the previous month. Trade surplus expanded 19.6 billion euros, missing forecast.

German GDP grew 0.6 per cent in the first quarter (1Q), matching forecast. Final consumer prices remained flat in April, matching forecast.

UK Halifax HPI contracted 0.1 per cent in April and stayed sluggish. Manufacturing contracted 0.6 per cent in March, worse than expectations.

The BoE retained key rates at 0.25 per cent and bonds purchase programme at 435 billion pound. Governor Mark Carney said Britain would bear the risk of economic slowdown while facing the headwinds of Brexit. The rising inflation would add pressure to household spending amid a slowdown in GDP growth. Technical forecast US dollar/Japanese yen topped off 114.30 recently with a slight correction. This week, we reckoned the trend would be supported at 111.50 area in case of a drawdown. Sentiment is proned to be slightly bearish while trading from 111.50 to 114.30 range. Piercing above 114.30 might initiate a new uptrend.

Euro/US dollar made a recovery on Friday and closed at 1.0920 level. This week, we predict a possibility of a sideways consolidation with resistance emerging at the 1.1 level. The range should be supported at 1.083 in case of a drawdown amid price swings.

British pound/US dollar failed to conquer 1.3 in its recent rise and began to make a correction. Technically, the range is supported at 1.2750 area and it could narrow down inside this range while searching for a new direction. This week, we expect mixed sentiment to emerge in the market and only to break away from the target range of 1.2750 to 1.3 and this would determine the new direction.

Disclaimer: This article was written for general information only. No liability by the writer or newspapers. Dar Wong is a registered fund manager in Singapore with 28 years of trading experience in global Derivatives & FX markets. He can be reached at dar@pwforex.com.