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Euro Rallied to 6-Month High as Strong Data Raised Hopes for a More Upbeat ECB Print E-mail
ONG Focus | Insights | Written by Oil N' Gold | Tue May 16 17 23:50 ET

The euro rallied, as more encouraging dataflow raised expectations that ECB would adopt a less dovish stance in its upcoming meeting in June. Currently trading around a new 6-month high of 1.11, the single currency jumped almost +1% against US dollar. Extending the 5th consecutive day of strength, EURGBP has rallied +2.36%. Another highlight of the day was US dollar's weakness. Currently trading around 97.96, the DXY index has sank to the lowest level since November 2016 after 4 days' of selloff. In the commodity sector, crude oil prices retreated after 4 days of the rally. A buildup in US inventory also served the purpose for profit-taking. The industry-sponsored API estimated that crude oil inventory rose +0.88 mmb in the week ended May 12. For refined oil products, gasoline stockpile dropped -1.88 mmb whilst distillate stockpiles rose +1.8 mmb. The DOE/EIA today might report a -2.36 mmb decline in crude inventory. Gasoline and distillate stockpile probably fell -0.8 mmb and -1.05 mmb respectively. The front-month WTI crude oil contract slipped -0.39% while the Brent contract dropped -0.33% for the day. Sentiment remained firm, though, as Kuwait, Iraq, Iran and Venezuela voiced support for the deeper production cuts.

More upbeat data were reported in the Eurozone. The bloc's trade surplus to 23.1B euro in March, beating expectations of, and February's, 18.8B euro. The ZEW economic sentiment index for T the Eurozone jumped +8.8 points to 35.1. For Germany, the biggest economy in the bloc, the reading climbed +1.1 point to 20.6 in May. Yet, the market had anticipated a strong increase to 22. The current situation index soared +3.8 points to 83.9. ECB members remained cautious although recent data have shown signs of economic improvement. Executive Board Member Benoit Coeure affirmed that "the recent measurable increase in long- term yields has not affected our monetary policy stance" and "current financial conditions remain highly supportive of the ongoing recovery". Meanwhile, Governing Council member Jan Smets acknowledged that risks to growth were "certainly close to balance". Yet, more evidence on inflation is needed. Today comes the final reading of Eurorone's CPI which probably stayed at +1.9%, unchanged from the preliminary reading. Recall the that March reading was revised lower to +1.5% from the initial estimate of 2%.

Turning to the UK, the headline CPI rose a slightly stronger-than-expected +0.5% m/m in April. The year-over-year inflation was lifted to +2.7%, the highest level since September 2013, from +2.3% in March. Core CPI accelerated to +2.4% y/y in April from +1.8% in the prior month. The market had anticipated an increase to +2.3%. A series of employment day would be due Wednesday. UK's ILO employment rate probably stayed unchanged at 4.7% in the 3 months through March. Average weekly earnings probably climbed +0.1 percentage point higher to 2.4% during the period. The jobless claims and Claimant count rate for April would also be released.

In the US, housing starts surprisingly fell to 1.17M in April from a downwardly revised 1.2M a month ago. The market had anticipated a rise to 1.26M. Meanwhile, building permits dropped to 1.23M from a downwardly revised 1.26M in March. The reading also missed expectations of 1.27M.


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