Senior Analyst at Commerzbank Axel Rudolph noted the pair remains on recovery-mode for the time being.

Key Quotes

“USD/CHF remains above the 55 day moving average at .9829 and is still attempting to recover from there. The near term weakness is viewed as a correction lower and the Elliott wave count continues to indicate that this is the end of the correction lower. The cross needs to rise above the current June high at .9911 in order to restore upside pressure”.

“Initial support below last week’s low at .9789 lies at the .9725/38.2% retracement and the .9717 200 day ma”.

“Above .9911 targets .9984, the end of May high and then 1.0057, the recent high. This guards the 1.0093/1.0108 (April 2017 high and 78.6% retracement) and then 1.0343 – the 2016 high”.

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The UK Consumer Prices Index (CPI) 12-month rate came in at 2.4% in May, unchanged from April’s reading and against 2.5% anticipated, the UK Office for National Statistics (ONS) reported this Wednesday. 

Meanwhile, the core inflation gauge (excluding volatile food and energy items) arrived at 2.1% y/y, same as that seen in the previous month while meeting the consensus forecast. 

The monthly figures showed that the UK consumer prices steadied 0.4% in May, matching 0.4% expectations.  

Main Points (via ONS):

“Rising motor fuel prices produced the largest upward contribution to the change in the rate between April and May 2018.

There were also large upward effects from air and sea fares, which rose between April and May this year but fell between the same two months a year ago, influenced by the timing of Easter.

Partially offsetting downward effects came from price changes for games, domestic electricity, food and non-alcoholic beverages, and furniture and furnishings.”

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Analysts at Nomura note that China’s M2 growth was 8.3% y-o-y in May, unchanged from April, while the RMB1150bn reading in new loans in May was only slightly weaker than April’s RMB1180bn.

Key Quotes

“Markets will rightly focus on the much more impactful aggregate financing print, which crashed to RMB761bn in May (versus consensus of RMB1300bn) from RMB1561bn in April. The slump in aggregate financing shows that Beijing’s deleveraging drive has inflicted real pain on China’s shadow banking sector, and the impact will likely linger despite Beijing’s recent softening tone on deleveraging.”

“We think the chances of an RRR cut in the next few months increase as the PBoC aims to stabilise credit growth.”

“Bank credit supply remained largely stable in May. New RMB loans were RMB1150bn in May, slightly weaker than April’s reading (RMB1180bn) and market expectations (Consensus: RMB1200bn; Nomura: RMB1250bn).”

“Aggregate financing slumped to RMB761bn in May (Consensus: RMB1300bn; Nomura: RMB1400bn) from RMB1561bn in April. Growth in outstanding aggregate financing slowed by 0.2pp to 10.3% y-o-y in May.”

“The sharp decline in aggregate financing shows that the government’s deleveraging drive since mid-2017 has been effective.”

“Faced with a worse-than-expected domestic slowdown and potential fallout from a trade war, Beijing opted to soften its stance on deleveraging. On 17 April, the People’s Bank of China (PBoC) announced a 100bp reserve requirement ratio (RRR) cut for most banks. On 23 April, top leaders made a call to “continuously boost domestic demand” while carrying out reforms.”

“We expect the Chinese government, in order to meet its growth target, will have to ease its deleveraging measures by taking a softer approach. Beijing may also step up fiscal stimulus by increasing PSL.”

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