Europe Roundup: Sterling gains on marginal "Remain" lead, gold off 6-week high, markets await Fed meeting - Wednesday, June 15th, 2016

Market Roundup

• UK May Claimant Count -0.4k vs +6.4k revised previous, 0.0k exp
   
• UK  ILO Jobless Rate 5.0%, 5.1% exp, lowest since 2005
   
• UK Apr Earnings 3m y/y +2.0% vs 2.0% previous, 2.1% exp
   
• EZ Apr Trade Surplus E 27.5 bln vs 28.6 bln previous
   
• JPMorgan research UK campaign to leave in the lead
   
• MSCI declines to add China A-shares, South Korea to global benchmark
   
• BMG hoax poll data. Pollster says poll not released yet
   
• Brexit would force Japan Inc to adopt twin-track strategy in Europe – BTS
   
• Japan ChiefCabSec Suga – Desirable for UK to stay in EU
   
• PBOC – To fend off potential risks managing FX reserves, currently  appropriate
   
• Australia Jun Westpac/MI consumer confidence index -1.0% to 102.2, +7.2% y/y
   

Economic Data Ahead

• (0830 ET/1230 GMT) The U.S. producer prices are expected to have increased to 0.3 percent last month after gaining 0.2 percent in April, due to higher cost of energy products and other goods.
   
• (0830 ET/1230 GMT) The statistics Canada releases factory sales data for the month of April. Manufacturing sales are expected to gain 0.6 percent in April, more than offsetting the decline seen in the previous month.
   
• (0915 ET/1315 GMT) The Federal Reserve is likely to report that industrial production declined 0.2 percent in the month of May after rising 0.7 percent in April. Manufacturing output is expected to remain unchanged in May after increasing 0.3 percent in April.
   
• (1030 ET/1430 GMT) The Energy Information Administration reports its Crude Oil Stocks for the week ending June 10.
   
• (1400 ET/1800 GMT) The U.S. Federal Reserve's Federal Open Market Committee announces decision on interest rate, followed by a statement.
   

Key Events Ahead

• N/A Bank of Japan holds its two-day monetary policy meeting.
   
• (1430 ET/1830 GMT) Federal Reserve Chair Yellen press conference.
   
• (1940 ET/2340 GMT) Bank of Canada Governor Stephen Poloz will give a speech titled "The Canadian Economy: A Progress Report" and he will hold a press conference.
   
• N/A Brazil's interim President Michel Temer will submit a constitutional amendment to limit the growth of primary spending to the rate of inflation of the prior year.
   

FX Beat

USD: The dollar index, against a basket of currencies stood at 94.77, pulling away from an early high of 95.04 as markets remain cautious ahead of Federal Reserve policy decision.

EUR/USD: The euro gained 0.2 percent to 1.1228 after declining to an 11-day low of 1.1189 on Tuesday. The major regained 1.1200 level and rose as high as 1.1235. However, gains were capped as investors were cautious ahead of Federal Reserve’s policy decision. On the higher side resistance is at 1.1250 (4H Tenken-Sen).  Any break above  targets 1.1280/1.13050 level. The support is at 1.1150 and break below targets 1.1100.

USD/JPY: The Japanese yen declined as the greenback extended recovery above the 106 level. The dollar rose 0.2 percent to 106.30 yen, having dropped as far as 105.62 yen on Tuesday. Traders remain cautious ahead of Federal Reserve's policy decision due later in the day and BoJ's policy decision scheduled tomorrow. The short term trend is weak as long as resistance 108 holds. The minor resistance is around 106.60 (90 H EMA) and any break above confirms minor trend reversal, a jump till 109/109.55. On the lower side, minor support is around 105.80 (200 WMA) and any close below 105.80 will drag the pair till 105/103.90.

GBP/USD: Sterling rose for the first time in more than a week after the latest poll gave the Remain camp a marginal lead ahead of a referendum on EU membership next week. Latest poll gave the Remain camp a 1 point lead going into the final week of campaigning, while betting odds showed a 62 percent chance of a vote to stay in the European Union, up from this week's lows of 55 percent. Sterling gained by 0.6 percent to 1.4201, after having touched  a 2-month low of 1.4090 on Tuesday. Against the euro, the pound rose 0.3 percent to 79.06 pence. The short term trend is weak as long as resistance 1.4350 holds. On the higher side minor resistance is around 1.4240 and any break above 1.4240 will take the pair till 1.4280/1.4325/1.4350. On the lower side any break below 1.4100 will drag it till 1.4045/1.4000.

USD/CHF: The Swiss franc lost ground against dollar, as risk appetite recovered; however, most investors were on the sidelines ahead of Federal Reserve policy decision. The greenback rose 0.1 to 0.9643, having touched a high of 0.9663 earlier in the session. The short term trend is bullish as long as support 0.9580 holds. On the lower side any break below 0.9580 will drag the pair further down till 0.9550 (78.6% retracement of 0.9443 and 0.9948)/0.9498. The resistance is around 0.9680 (7 day EMA) and any break above targets 0.9760/0.9810 (21 day MA). The major should close above 0.9780 (90 day EMA) for trend reversal.

AUD/USD: The Australian dollar rose, reversing its previous session losses as risk appetite returned to the markets. The Aussie gained 0.5 percent to 0.7392, pulling further away from a low of 0.7330 and towards a peak of 0.7504 struck last week.  On the higher side, pair is facing resistance at 0.7410 and any break above major resistance will take it till 0.7450/0.7515. The major support is around 0.7320 and break below will drag it till 0.7260/0.7205.

NZD/USD: The New Zealand dollar gained, extending recovery above the 0.7000 level after declining to low of 0.6963 earlier in the session. The kiwi trades 0.5 percent higher at 0.7034, hovering towards session high of 0.7046. Immediate resistance is located at 0.7059 (Previous Session High), break above targets 0.7122/ 0.7147. On the lower side, support is seen at 0.6963 (Session Low), break below will drag the pair to 0.6944.

Equities Recap

European shares rose as expectations of dovish stance from the Federal Reserve calmed investors on edge over whether Britain will vote to leave the European Union.

Europe's FTSEurofirst 300 gained 1.3 pct, halting a five-day Brexit-induced losing streak. Germany's DAX rose 1.1 pct, France's CAC added 1.4 pct and Britain's FTSE edged up 0.8 pct.

Tokyo's Nikkei rose 0.38 pct to 15,919.58, Australia's S&P/ASX 200 index declined 0.93 pct at 5,154.90 points, Seoul shares lost 0.12 pct and MSCI's broadest index of Asia-Pacific shares outside Japan edged down.

Shanghai composite index soared 1.6 pct at 2,887.21 points, while CSI300 index gained 1.3 pct at 3,116.37 points. Hong Kong's Hang Seng index added 0.4 pct at 20,467.52 points.

Commodities Recap

Oil prices declined for a fifth consecutive session, their longest losing streak since February, weighed down by an unexpected rise in U.S. inventories and growing concerns about Britain's possible exit from the European Union. Brent crude futures were trading at $49.17 a barrel by 1018 GMT, while U.S. crude prices fell 52 cents to $47.97.

Gold declined from the previous session's 6-week high as investors remained cautious over Federal Reserve policy decision and an upcoming vote on Britain's membership in the European Union. Spot gold was down 0.2 percent at $1,281.98 an ounce at 1022 GMT, while U.S. gold futures for August delivery were down $3.30 an ounce at $1,284.80.

Treasuries Recap

The U.S. Treasury complex traded modest lower as markets now sit in anticipation of the June FOMC statement on Wednesday. The yield on the benchmark 10-year Treasury note rose 1-1/2 basis points to 1.628 percent and the yield on short-term 2-year Treasury note also jumped 1-1/2 basis point to 0.738 percent by 11:20 GMT.

UK gilts slumped as the British’s employment figures surprised to the upside. Also, firmer equities market pushed gilt prices down. The yield on the benchmark 10-year gilts rose more than 4 basis points to 1.189 percent, yield on super-long 30-year bonds jumped 3-1/2 basis point to 2.022 percent and the yield on short-term 2-year note also climbed 3-1/2 basis points to 0.390 percent by 09:20 GMT.

German 10-year bund yield hovered around zero as investors awaited Fed policy decision and Fed Chair Yellen’s post-statement press conference. The yield on the benchmark 10-year bonds yield dipped below zero levels to -0.03 percent in the early Asian session and the short-term 2-year bund yield remained steady at -0.572 percent by 08:00 GMT.

Japanese government bonds gained as risk-averse investors continued to seek the perceived safety of sovereign debt after recent polls suggested Britain is on course to leave the European Union. The yield on the benchmark 10-year bonds fell to all time low of -0.181 percent, yield on super-long 30-year bonds nearly dipped nearly 2 basis points to 0.217 percent, yield on 15-year bonds tumbled more than 1 basis point to a record low of -0.018 percent (dip below zero for the first time on Tuesday) and the 20-year JGB yield fell to a record low of 0.145 percent by 05:45 GMT.

Australian government bonds traded nearly flat as investors awaited the Fed policy decision. The yield on the benchmark 10-year Treasury note remained unchanged at 2.073 percent and the yield on short-term 2-year bond stood flat at 1.631 percent by 04:45 GMT.