Dollar weakens mildly further after worse than expected ADP job data. But selloff is limited as traders are probably cautious ahead of tomorrow’s non-farm payrolls. But overall, Yen remains the worst performing one for the week. Sterling and Euro are the next weakest even though both are trying to recover some ground. Australian Dollar is staying in pole position, leading other commodity currencies higher.

Technically, while Gold’s retreat from 1869.46 was slightly deeper than expected, near term bullishness is restored by the quick rebound. Focus would be at 1869.46 resistance for the rest of the week. Firm break there will resume the rebound from 1786.65 towards channel resistance (now at 1912.89). If happens, that could be an early signal to return to selloff in Dollar.

In Europe, UK is on holiday. At the time of writing, DAX is up 0.79%. CAC is up 1.21%. Germany 10-year yield is up 0.010 at 1.198. Earlier in Asia, Nikkei dropped -0.16%. Hong Kong HSI dropped -1.00%. China Shanghai SSE rose 0.42%. Singapore Strait Times dropped -0.53%. Japan 10-year JGB yield rose 0.0093 to 0.245.

US ADP jobs rose 128k, growth rate tempered

US ADP private employment rose 128k only in May, well below expectation of 280k. By company size, small businesses jobs dropped -91k, medium businesses rose 97k, large businesses rose 122k. By sector, goods-producing jobs rose 24k, service-providing rose 104k.

“Under a backdrop of a tight labor market and elevated inflation, monthly job gains are closer to pre-pandemic levels,” said Nela Richardson, chief economist, ADP. “The job growth rate of hiring has tempered across all industries, while small businesses remain a source of concern as they struggle to keep up with larger firms that have been booming as of late.”

US initial claims dropped to 200k, continuing claims dropped to 1.309m

US initial jobless claims dropped -11k to 200k in the week ending May 28, slightly below expectation of 205k. Four-week moving average of initial claims dropped -500 to 206.5k.

Continuing claims dropped -34k to 1309k in the week ending May 21. That’s the lowest level since December 27, 1969, when it was 1304k. Four-week moving average of continuing claims dropped -19.5k to 1327k, lowest since January 10, 1970, when it was 1310k.

ECB Villeroy: Policy normalization should be gradual but resolute

ECB Governing Council member Francois Villeroy de Galhau said in Pairs, “inflation is not only too high, but also too broad. This requires a normalization of monetary policy — I say normalization and not tightening.” He added that the normalization process should be “gradual but resolute”

“Fiscal policy will itself be further constrained by the high level of post-Covid public debt, and by the increase in interest rates,” Villeroy added. “Furthermore, in the two next years, the context will be one of slower growth, or even, according to some fears, of economic stagnation.”

Eurozone PPI up 1.2% mom, 37.2% yoy in Apr, EU up 1.3% mom, 37.0% yoy

Eurozone PPI rose 1.2% mom, 37.2% yoy in April, below expectation of 2.3% mom, 38.6% yoy. For the month, Industrial producer prices increased by 3.8% for intermediate goods, by 2.7% for non-durable consumer goods and by 1.0% for capital goods and durable consumer goods, while they decreased by -1.2% in the energy sector. Prices in total industry excluding energy increased by 2.6%.

EU PPI rose 1.3% mom, 37.0% yoy. The highest monthly decreases in industrial producer prices were recorded in Ireland (-16.4%), Romania (-3.2%), Portugal (-2.2%) and Italy (-0.3%). The highest increases were observed in Slovakia (+9.3%), Luxembourg (+6.0%) and Bulgaria (+4.1%).

Swiss CPI accelerated to 2.9% yoy in May, import pries up 7.4% yoy

Swiss CPI rose 0.7% mom in May, above expectation of 0.3% mom. The monthly rise was due to factors including housing rentals, heating oil and food. Core CPI rose 0.5% mom. Domestic prices rose 0.5% mom while imported prices rose 1.1% mom.

For the 12-month period, CPI accelerated from 2.5% yoy to 2.9% yoy, above expectation of 2.6% yoy. Core inflation CPI came in at 1.7% yoy. Domestic prices rose 1.5% yoy while imported prices rose 7.4% yoy.

BoJ Adachi: We should not forget strong yen led to two lost decades

BoJ board member Seiji Adachi said, “with the impact of the pandemic continuing, shifting to tighter monetary policy now would inflict huge damage to business and household activity… It’s premature to move toward tighter policy.”

“If the bank uses monetary policy to respond to short-term fluctuations (in exchange rates) before achieving its goal for underlying inflation, it would bring negative effects on the Japanese economy,” he said.

“We should not forget that a strong yen was among factors that led to Japan’s prolonged deflation and two ‘lost’ decades” of economic stagnation, he added.

GBP/USD Mid-Day Outlook

Daily Pivots: (S1) 1.2424; (P) 1.2520; (R1) 1.2582; More…

Intraday bias in GBP/USD remains neutral and outlook is unchanged. On the upside, above 1.2666 will resume the rebound from 1.2154. Sustained of 55 day EMA (now at 1.2729) will target 1.2999 support turned resistance. On the downside, though, break of 1.2457 minor support will turn bias back to the downside for retesting 1.2154 low instead.

In the bigger picture, fall from 1.4248 (2018 high) could be a leg inside the pattern from 1.1409 (2020 low), or resuming the longer term down trend. Deeper decline is expected as long as 1.2999 support turned resistance holds. On resumption, next target is 1.1409 low.

Economic Indicators Update