The EUR/USD Rebound as Momentum Turns Positive

The EUR/USD edged higher slipping through resistance which is now support near the 10-day moving average.  This comes despite declining European sentiment and a drop back in EU producer price inflation. ECB’s Nowotny calls for united European stance on trade, while President Trump indicated the North. Korea summit will take place June 12 in Singapore.

Technicals

The exchange rate is hovering near the 10-day moving average at 1.1671, with support seen near the May lows at 1.1509. Resistance is seen near the 50-day moving average at 1.2089. Momentum has turned positive as the MACD (moving average convergence divergence) index generated a crossover buy signal. The fast stochastic is surging higher reflecting accelerating positive momentum.

EU PPI Fell Back

Eurozone PPI inflation fell back to 2.0% year over year in April, from 2.4% year over year in the previous month. A weaker than expected number, but in a way already superseded by the jump in HICP inflation a month later and thus unlikely to change the core assumption that inflation is slowing moving higher.

Eurozone Sentix Investor index slumped in June

Eurozone Sentix Investor index slumped in June. The overall reading dropped to just 9.3 from 19.2 in May. The current conditions indicator fell back 34.5 from 42.8, the future expectations index plunged to -13.3 from -2.0 in the previous month. This is the third consecutive month with a negative reading, which means the number of those pessimistic about the outlook over the next six months, has been rising sharply and has in fact been outnumbering the optimists since April. Indeed compared to the +16.8 for the future expectations reading at the end of last year, the numbers look pretty dismal now, highlighting also that the window of opportunity for the ECB to phase out QE is getting smaller.

ECB’s Nowotny calls for united European stance on trade

ECB’s Nowotny calls for united European stance on trade. So far, the council member hasn’t said anything on the future of QE, but stressed that “a united stance is probably more important than ever today”, as we are “in a situation in which we actually see a threat of trade wars”.

President Trump indicated the N. Korea summit will take place June 12 in Singapore

President Trump indicated the N. Korea summit will take place June 12 in Singapore, in comments following his two-hour meeting with N.Korea’s Number 2, Kim Yong Chol. The president assured the relationship with Kim is as good as it’s been, but warned that nothing will be signed at the upcoming meeting. It’s a “process,” he stressed, and a “getting to know you meeting.” Trump also said that officially ending the Korean War might be discussed. The on-again meeting and the soothed tensions should help underpin the gains in equities.

UK May construction PMI better than expected

UK May construction PMI better than expected at 52.5 in the headline reading, unchanged from April. The median forecast had been for a dip to 52.0. As with the May manufacturing PMI, which also surpassed headline expectations, there are devils in the details. While an acceleration in commercial activity drove the headline upward, weakening in growth in both residential and civil engineering activity were seen, while new orders contracted for the fourth time out of the past five months due to uncertainty in the sector. Input prices also spike due to higher fuel costs and higher steel prices. Another caveat is that unusually good weather conditions helped some construction firms catch up on recent months’ weather-disrupted projections.

Greek debt talks stall

With just two months to go before the country’s final bailout comes to an end Eurozone creditors and the IMF remain at loggerheads over the question of how to ease the Greece’s debt. A meeting on the sidelines of the G7 summit didn’t bring a breakthrough and officials said talks will continue this week. The ongoing controversy raises the question about the ongoing participation of the IMF in the rescue, which German in particular has insisted on. There also remains a question-mark over the level of future surveillance, with ECB and Bank of Greece favoring a regime that continues to give Greece’s banks access to cheap ECB liquidity, but requires more direct oversight, with is something the Greek government wants to avoid at all cost, as it smacks too much of an extension of the hated bailouts.

SF Fed’s Williams said the gradual rate path should be maintained over the next two years. And he added the FOMC is about 3 moves away from a “neutral” level. He, like others, including Chairman Powell, believes forward guidance has about run its course and less will be needed as “neutral” is approached. The Fed need not pause, either, once the 2% target is attained or exceeded, especially if the economy is still going strong. Williams will be taking over the important post of leading the NY Fed later this month.