AUD/USD drops back towards the 0.7000 threshold amid the initial European session on Wednesday.
The Aussie pair’s latest weakness could be linked to the market risk-off mood, as well as sustained trading below a horizontal area comprising multiple levels marked since May 06, around 0.7040-65.
Given the downbeat RSI adding strength to the bearish bias concerning the AUD/USD pair, sellers will be waiting for a clear downside break of the stated channel’s lower line, near 0.7000 by the press time, to retake control.
Following that, a downward trajectory towards the 200-HMA and the monthly low, respectively near 0.6965 and 0.6830, will be in focus.
Alternatively, a clear upside break of the 0.7065 hurdle will quickly trigger the pair’s run-up targeting the 0.7100 resistance confluence, including the upper line of the aforementioned channel and 61.8% Fibonacci retracement of May 04-12 downside.
In a case where AUD/USD prices rise beyond 0.7100, buyers won’t hesitate to challenge the monthly peak close to 0.7265.
Trend: Further weakness expected
The rouble exchange rate recovered notably from its drop in March. However, economists at Commerzbank expect the rouble to trend back lower as we could be witnessing the peak of the current-account balance.
“Preliminary estimates suggest that the current-account surplus widened by five-fold for the month of April. This gap will fluctuate in future, not only because the oil price will fluctuate, but because the EU and other countries may begin to implement a reduction of Russian oil imports; by 2023, natural gas revenues are likely to take a hit too. Meanwhile, the import restrictions are likely to remain in place.”
“We could be witnessing the peak of the current-account balance during the early stages of the conflict.”
“In the longer-term, the absence of capital flows will drive the current-account gap towards closure (in equilibrium, they have to be equal and opposite). Since we are starting from a favourable current-account position now, the tendency for the exchange rate in the longer-term will also be to weaken.”
Although economists at Credit Suisse remain bullish on tourism recovery in Thailand, USD/THB is expected to trade with an upward trajectory in a 34.20-35.50 range as the yuan weakens.
“Thailand’s tourism outlook is poised to improve for the remainder of 2022, albeit from a very low base. In our view, there is plenty of upside for further tourism growth, since March 2022 arrivals from the US and Europe were just 12- 14% of their pre-COVID (March 2019) level.
“Despite our optimism on Thai tourism, we think yuan weakness and higher US yields will lead USD/THB to rise within a range of 34.20-35.50.”
“The 35.00 level is a key barrier that could take some time to break, and the Bank of Thailand (BoT) could intervene to defend this key level in the next few weeks. However, as US yields continue to rise and the dollar strengthens against CNY and JPY, we expect BoT to relent and allow the baht to weaken past 35.00.”
Turkey is every analyst’s favourite subject because everything there is so nice and simple, in the view of economists at Commerzbank. They believe that there is no endpoint for lira depreciation.
“If a central bank gets everything wrong, the currency will collapse. Of course, there are always TRY bulls (even at this stage?!?) who do not want to see that. However, that is the nice thing for TRY-analysts: that one is correct in the end.”
“The only issue is: there are still people who want to know how much further the TRY depreciation is going to go – despite the fact that the answer is simple: there is no limit.”
“As long as monetary policy allows inflation to simply progress inflation will continue to accelerate. And as long as that remains foreseeable the lira will continue to depreciate with increased speed. There are no ‘fair’ levels at which this process might end.”
USD/PHP has been remarkably stable despite recent Asian FX volatility. Economists at Credit Suisse expect a larger Philippine trade deficit and a weaker yuan to push USD/PHP towards 53.50.
“We think the deterioration in the Philippines’ trade balance is an important factor for the Philippine peso. Wider trade deficits have historically coincided with a rising USD/PHP exchange rate.”
“Strong Philippine imports amid ongoing infrastructure buildout point to depreciation, while recent USD/PHP stability despite rising USD/CNY points to overdue ‘catch-up’ peso weakness.”
“We forecast USD/PHP to rise to 53.50 in the next three months.”
European Central Bank (ECB) Governing Council member Klaas Knot told on Tuesday that a 50 basis points rate hike should not be excluded. EUR/USD jumped with the initial reaction to these comments, economists at Commerzbank report.
“Klaas Knot yesterday introduced the possibility of 50bp steps. By making this comment Knot opens up a new line of attack for the ECB hawks. The publication of each set of high inflation data would strengthen this view and at least make such a step seem marginally more likely.”
“The FX market is not so interested in knowing how much a central bank might hike interest rates at the next meeting or the next one. What is instead decisive for the value of a currency is whether a central bank reacts sensitively to inflation.”
“The ECB initially assumed inflation was ‘transitional’ and did nothing. And now it is still waiting due to regulative considerations. In view of rapidly accelerating inflation that constitutes weak reactivity. Knot’s comments clearly differ from that. And that is why the euro was able to benefit from these comments even if nobody saw a reason to raise the ECB’s projections for the immediate future as a result of them.”
Here is what you need to know on Wednesday, May 18:
The greenback seems to have found its footing early Wednesday amid rising US Treasury bond yields. The US Dollar Index, which closed the previous three days in negative territory and lost more than 1% during that period, is moving sideways above 103.00 early. The benchmark 10-year US Treasury bond yield is moving sideways within a touching distance of 3% following a 4% increase on Tuesday. Eurostat will release the inflation (final) data for April. Later in the session, Consumer Price Index from Canada and Housing Starts from the US will be featured in the North American docket.
The risk-positive market environment made it difficult for the dollar to find demand on Tuesday. The S&P 500 Index gained more than 2% as the data from the US revealed that Retail Sales in April rose by 0.9%, compared to the market expectation of 0.7%. Additionally, investors cheered news of the city of Shanghai recording no new coronavirus cases across all districts.
Earlier in the day, citing three sources familiar with the matter, Reuters reported Shanghai city’s authorities issued a new white list containing 864 financial institutions allowed to resume work. Nevertheless, US stock index futures trade flat heading into the European session. Speaking at an event organized by the Wall Street Journal, FOMC Chairman Jerome Powell reiterated that they will not hesitate if they see the need to move the rate beyond neutral and added that there was broad support among policymakers for 50 basis points rate hikes at the next two policy meetings.
EUR/USD gained more than 100 pips on Tuesday before going into a consolidation phase early Wednesday. European Central Bank (ECB) policymaker Klaas Knot said that a 50 basis points rate hike should not be excluded if data in the next few months suggest that inflation is broadening and accumulating, providing a boost to the euro.
GBP/USD stays relatively calm below 1.2500 early Wednesday following this week's decisive rebound. The data published by the UK's Office for National Statistics revealed earlier in the session that inflation in the UK, as measured by the Consumer Price Index (CPI) jumped to 9% on a yearly basis in April. The Core CPI, which excludes volatile food and energy prices, climbed to 6.2% from 5.7% in March as expected.
Gold extended its rebound and rose above $1,830 on Tuesday but reversed its direction with rising US Treasury bond yields not allowing the yellow metal to continue to find demand. XAU/USD trades in negative territory near $1,810 in the European morning.
USD/JPY moves sideways above 129.00 for the third straight day on Wednesday. The pair managed to hold its ground despite the broad dollar weakness as the Japanese yen struggled to attract investors in the risk-positive market environment.
Bitcoin registered modest daily gains on Tuesday but failed to gather bullish momentum. As of writing, BTC/USD was down nearly 2% on the day at $29,900. Ethereum is down 2.5% on the day and trades near $2,000 following Tuesday's recovery attempt.
GBP/JPY portrays a 50-pip downside reaction to the UK inflation data heading into the London open on Wednesday. The cross-currency pair presently hovers around 161.00, after declining to 160.91, as traders digest the Consumer Price Index (CPI) figures for April.
The UK’s headline CPI refreshed its all-time high to 9.0% YoY but failed to match the 9.1% market consensus. Further, the Core CPI matched the 6.2% YoY forecast, compared to 5.7% prior. It should be observed that a downward revision in the Producer Price Index (PPI) and upbeat prints of the Retail Price Index also confuse the bulls. As a result, the GBP/JPY prices consolidate the biggest daily gains in two months.
Read: Breaking: UK annualized inflation jumps 9% in April vs. 9.1% expected
It’s worth noting that the fresh risk-aversion wave and comments from the British diplomats are extra catalysts to weigh on the GBP/JPY prices.
A fresh rise in China’s covid numbers and Shanghai’s refrain from total unlock joins while the European Union (EU) and the US preparations for more hardships for Russia, due to Moscow’s invasion of Ukraine, weigh on the market sentiment.
While portraying the risk-off mood, the US 10-year Treasury yields seesaw around 2.98% whereas the S&P 500 Futures decline 0.20% intraday even as Wall Street posted heavy gains.
On a different page, UK Foreign Minister Liz Truss said “we're facing a very difficult economic situation” whereas British Finance Minister Rishi Sunak tries to placate inflation fears while blaming the energy price cap rise in April.
Elsewhere, the European Union’s (EU) readiness to offer an olive branch to the UK, to stop the British administration from repealing the Northern Ireland Protocol (NIP), seems to have acted as a positive catalyst of late. However, Britain remains determined to alter part of the NIP, and the bloc eyes hard steps on trade deals if the UK does that, which in turn keeps the Brexit risk high.
Earlier in the day, Japan’s preliminary readings of Q1 2022 GDP rose past -0.4% expectations to -0.2% QoQ whereas the Annualized GDP improved to -1.0% versus -1.8% forecasted.
Moving on, risk catalysts are the key for GBP/JPY moves amid a light calendar for Wednesday, as well as likely Brexit headlines and European reaction to the latest downbeat sentiment.
Failures to cross the 21-DMA, around 161.80 by the press time, triggered the GBP/JPY pair’s latest declines targeting the 50-DMA level surrounding 160.90. However, bears remain cautious until the quote stays above the previous resistance line from April, near 159.65 at the latest.
FX option expiries for May 18 NY cut at 10:00 Eastern Time, via DTCC, can be found below.
- EUR/USD: EUR amounts
- GBP/USD: GBP amounts
- USD/JPY: USD amounts
- AUD/USD: AUD amounts
- USD/CAD: USD amounts
- NZD/USD: NZD amounts
- EUR/JPY: EUR amounts
Economists at CreditSuisse continue to look for USD/CNH to trade in a 6.65-7.15 range over the next three months.
“For USD/CNY, we still think the PBoC’s ‘red line’ is at 7.20.”
“US 10y yields have fallen back below 3.00% since peaking at 3.20% on Monday, May 9, providing some relief to USD/CNH. Still, we expect USD/CNH to continue to rise in coming months as Fed expectations push US yields higher.”
“We reiterate our view that USD/CNH will rise within a 6.65-7.15 trading range over the next three months.”
UK Finance Minister Rishi Sunak attributes the 9% jump in the Kingdom’s annualized inflation rate to the energy price cap rise in April.
“Today’s inflation numbers are driven by energy price cap rise in April, in turn driven by higher global energy prices. We cannot protect people completely from global challenges but are providing significant support where we can and stand ready to take further action,” Sunak said.
more to come ....
Extra upside could lift AUD/USD to the area above the 0.7100 mark, commented FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang.
24-hour view: “We highlighted yesterday that ‘the rebound in AUD could extend but a sustained rise above 0.7020 is unlikely’. We added, ‘the major resistance at 0.7050 is not expected to come into the picture’. Our view turned out to be correct as AUD rose to 0.7040 before closing at 0.7029 (+0.82%). While overbought, the advance in AUD could edge above 0.7055 first before easing off. The next resistance at 0.7105 is not expected to come under threat. On the downside, a breach of 0.6975 (minor support is at 0.7005) would indicate that risk for further AUD strength has dissipated.”
Next 1-3 weeks: “Yesterday (17 May, 0.6980), we highlighted that ‘the corrective rebound could extend to 0.7050’. Our view was not wrong as AUD subsequently rose to 0.7040. Upward momentum has improved further and the rebound in AUD could extend to 0.7105. The upside pressure is deemed intact as long as AUD does not move below 0.6950 (‘strong support’ level was at 0.6900 yesterday).”
The NZD/USD pair has witnessed a rebound after hitting a low of 0.6340 in the early European session. The asset has observed a sheer upside from the last week after hitting a low of 0.6217. On a broader note, the asset is oscillating in a wide range of 0.6333-0.6376.
On an hourly scale, the asset is forming a Bullish Flag that signals a continuation of bullish momentum after a rangebound phase. Usually, a consolidation phase denotes intensive buying interest.
The 20- and 50-period Exponential Moving Averages (EMAs) at 0.6350 and 0.6330 respectively are scaling higher, which adds to the upside filters.
Meanwhile, the Relative Strength Index (RSI) (14) is oscillating majorly in a range of 60.00-80.00, which signals that bullish momentum is still intact.
A break above the May 7 high of 0.6376 will trigger the formation of the Bullish Flag chart pattern, which will drive the asset towards the round level resistance at 0.6400, followed by the May 6 high at 0.6458.
On the flip side, kiwi bulls could lose momentum if the asset drops below the 50-EMA at 0.6330. This will drag the asset towards May 10 low at 0.6276. Violation of the May 10 low will further push the asset lower to the March 12 low of 0.6217.
UK Foreign Minister Liz Truss voiced her concerns over the country’s economic situation, in a statement on Wednesday.
Truss said that “we're facing a very difficult economic situation.”
Her comments come after the UK CPI reached 9% YoY in April, the highest since the modern series started in 1989.
GBP/USD fails to cheer record high UK inflation as the figures missed market consensus. That said, the cable pair takes offers around 1.2475 after April’s Consumer Price Index (CPI) came in softer-than-expected during early Wednesday morning in Europe.
That said, the UK CPI rose to 9.0% YoY versus 9.1% expected whereas the Core CPI matched the 6.2% YoY forecast, compared to 5.7% prior.
Read: Breaking: UK annualized inflation jumps 9% in April vs. 9.1% expected
While the UK inflation numbers underpin the GBP/USD pair’s latest moves, challenges to risk appetite, Brexit moves and firmer USD are extra catalysts that challenge the upside momentum.
A fresh rise in China’s covid numbers and Shanghai’s refrain from total unlock joins while the European Union (EU) and the US preparations for more hardships for Russia, due to Moscow’s invasion of Ukraine, to weigh on the market sentiment.
Also souring the mood were comments from Chicago Fed President Charles Evans as he said, “(the Fed) Should raise rates to 2.25%-2.5% neutral range 'expeditiously'.” On Tuesday, Fed Chair Jerome Powell and a generally-hawkish St Louis Fed President James Bullard pushed for a 50 bps rate hike and weighed on the USD.
It should be noted that the European Union’s (EU) readiness to offer an olive branch to the UK, to stop the British administration from repealing the Northern Ireland Protocol (NIP), seems to have acted as a positive catalyst of late. However, Britain remains determined to alter part of the NIP and the bloc eyes hard steps on trade deals if the UK does that, which in turn keeps the Brexit risk high.
On Tuesday, the UK’s jobs report bolstered the odds of the Bank of England’s (BOE) faster/heavier rate hikes, preceded by BOE Governor Andrew Bailey’s comments suggesting more inflation fears ahead.
Against this backdrop, the US 10-year Treasury yields seesaw around 2.98% whereas the S&P 500 Futures decline 0.20% intraday even as Wall Street posted heavy gains.
Having witnessed the initial reaction to the UK inflation data, GBP/USD traders will pay attention to the Brexit headlines and other risk catalysts, as well as the US Housing Starts and Building Permits for April, for fresh impulse.
Although the 20-DMA level near 1.2500 tests the GBP/USD buyers, a clear break of the one-month-old descending trend line, around 1.2250 at the latest, joins the firmer RSI line to underpin bullish bias. Additionally, two-week-old horizontal support around 1.2400 could restrict the short-term pullback.
The UK Consumer Prices Index (CPI) 12-month rate came in at 9% in April when compared to 7.0% registered in March while missing estimates of a 9.1% score, the UK Office for National Statistics (ONS) reported on Wednesday.
The annualized figure hit the highest since the modern series started in 1989.
Meanwhile, the core inflation gauge (excluding volatile food and energy items) rose by 6.2% YoY last month versus 5.7% booked in March, meeting the market forecast of 6.2%.
The monthly figures showed that the UK consumer prices arrived at 2.5% in April vs. 2.6% expectations and 1.1% prior.
“The largest upward contributions to the annual CPIH inflation rate in April 2022 came from housing and household services (2.76 percentage points, principally from electricity, gas and other fuels, and owner occupiers' housing costs) and transport (1.47 percentage points, principally from motor fuels and second-hand cars).”
“The largest upward contributions to the change in the CPIH 12-month inflation rate between March and April 2022 came from housing and household services (1.27 percentage points), restaurants and hotels (0.11 percentage points), and recreation and culture (0.10 percentage points), with the largest partially offsetting downward contribution from clothing and footwear (0.09 percentage points).”
In an initial reaction to the upbeat UK CPI numbers, the GBP/USD pair reversed course and fell sharply to near the 1.2475 region.
The pair was last seen trading at 1.2474, down 0.13% on the day. Sellers continue to lurk at the 1.2500 mark.
NZD/USD is a touch higher. A sustained break of 0.6365 would be a good sign technically, analysts at ANZ Bank report.
“The kiwi’s bounce off lows this week has been textbook in that it bounced neatly off 0.6230 (the 61.8% Fibo of the 2020-21 rally from 0.5470 to 0.7464). But the bounce was slight and we are mindful of higher oil prices, slowing growth in China and a high degree of cross-market correlation, which all speaks to the kiwi may be running into headwinds if global sentiment sours again. We’re watching closely and keeping an open mind.”
“Support 0.6100/0.6230 Resistance 0.6365/0.6465/0.6545.”
Gold Price is extending the previous decline. XAU/USD eyes a retest of multi-month lows below $1,800, FXStreet’s Dhwani Mehta reports.
“The immediate support is now seen at the $1,800 mark, below which the multi-month lows of $1,787 will be probed. The last line of defense for gold buyers is seen at the 2022 lows of $1,780, reached on January 28.”
“Any recovery attempt will eye a sustained break above the falling trendline resistance at $1,821. Gold bulls will then look to challenge the 200-DMA at $1,836 once again. Recapturing the latter on a daily closing basis is critical to initiate any meaningful recovery.”
Palladium (XPD/USD) takes offers to renew intraday low around $2,030, printing the first daily loss in four heading into Wednesday’s European session.
In doing so, the commodity prices fade the previous day’s 10-DMA breakout inside a one-month-old descending trend channel
It’s worth noting, however, that the looming bull cross on the MACD hints challenges the XPD/USD downside past the 10-DMA level surrounding $2,000.
Also acting as the key downside barrier is a falling trend line from February 11, near $1,875, as well as the lower line of the stated channel, near $1,815.
Alternatively, a clear upside break of the monthly channel’s resistance line, close to $2,070 by the press time, won’t be an open invitation to the palladium buyers.
The reason is the 61.8% Fibonacci retracement of the XPD/USD’s December 2021 to March 2022 upside, near $2,265.
Overall, palladium sellers seem to have run out of steam but the bulls haven’t gained conviction and hence prices remain lackluster.
Trend: Further weakness expected
Considering advanced prints from CME Group for natural gas futures markets, open interest extended the uptrend for the fourth consecutive session on Tuesday, now by around 4.3K contracts. On the other hand, volume remained choppy and shrank by nearly 26K contracts.
Natural Gas extended the ongoing rebound and surpassed the $8.00 mark on Tuesday amidst rising open interest. Against that, the commodity could still revisit the 2022 peak around the $9.00 mark (May 6) per MMBtu in the short-term horizon.
USD/RUB renews intraday low at 63.25 as bears keep reins inside a weekly trading range ahead of Wednesday’s European session.
In doing so, the Russian ruble (RUB) refrains to respect the US dollar strength while also ignoring headlines suggesting further hardships for Moscow, due to the Western dislike of its invasion of Ukraine.
That said, Reuters came out with the news earlier in Asia suggesting the European Commission’s 210 billion euro plan for how Europe can end its reliance on Russian fossil fuels by 2027. On the same line were the latest headlines saying, “The US is considering blocking Russia’s ability to pay its US bondholders by allowing a key waiver to expire next week,” per Reuters.
It’s worth noting that the hawkish Fedspeak, recently from Chicago Fed President Charles Evans, joins to market’s risk-off mood to keep the US dollar afloat after a three-day downtrend. Also likely to challenge the USD/RUB bears are the recently heavy oil prices, Russia’s key export item. That said, WTI crude oil drops back below $111.00, down 0.50% intraday near $110.50 at the latest.
Even so, the RUB remains on the front foot amid chatters of the nation’s economic resilience despite the latest sanctions and geopolitical tussles with Kyiv.
Moving on, headlines concerning the Western sanctions on Russia and Moscow’s military action in Kyiv may determine near-term USD/RUB moves. Also important will be the US Housing Starts and Building Permits for April, as well as the Fedspeak.
USD/RUB remains sidelined between 62.80 and 66.50 with repeated failures to cross the 100-HMA, around 66.00 by the press time, adding strength to the bearish bias.
CME Group’s flash data for crude oil futures markets noted traders trimmed their open interest positions by around 33.2K contracts after five consecutive daily advances. Volume, instead, added around 14.7K contracts to the previous daily build.
Tuesday’s inconclusive price action in the WTI was in tandem with shrinking open interest and rising volume, exposing the emergence of some consolidation in the very near term. On the upside, traders remain focused on the $116.60 level per barrel (March 24 high).
EUR/USD is trading on the backfoot below 1.0550, having fresh multi-day highs at 1.0564 earlier in the Asian session.
The latest retreat in the major could be linked to the deteriorating market mood, which has revived the US dollar’s safe-haven appeal. Softer Chinese data and concerns over the aggressive Fed tightening outlook spooked investors.
On Tuesday, EUR/USD’s recovery rally found extra legs after ECB Governing Council member Klaas Knot said that a 50-basis points rate hike should not be excluded if data in the next few months suggest that inflation is broadening and accumulating.
The pair shot through the 1.0500 barrier on these above comments, as it recaptured the 1.0550 level. EUR bulls also cheered the upward revision to the Euro area GDP score, as the greenback accelerated its corrective downside.
Looking ahead, the dollar price action and the persistent market sentiment will impact the currency pair ahead of the Eurozone HICP final revision.
As observed on the daily chart, EUR/USD has stalled its recovery rally just below the bearish 21-Daily Moving Average (DMA) at 1.0575.
The 14-day Relative Strength Index (RSI) has turned flattish after the latest rebound from lower levels, justifying the renewed weakness in the main currency pair.
Should the selling pressure intensify, EUR bears could challenge the wedge resistance now turned support at 1.0488.
Further down, Tuesday’s low of 1.0428 could be retested.
Note that Tuesday’s upsurge prompted EUR/USD to yield an upside breakout from a falling wedge formation, adding credence to the ongoing recovery from five-year lows of 1.0350.
If EUR bulls regain control, then the immediate resistance will be seen at the daily highs of 1.0564, above which the 21-DMA will get tested.
Acceptance above the latter is needed to confirm a bullish reversal in EUR/USD.
In opinion of FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang, GBP/USD could now attempt a move to the 1.2600 zone in the next weeks.
24-hour view: “Yesterday, we expected GBP to ‘extend its gains’ but we were of the view that ‘the major resistance at 1.2400 is not expected come into the picture’. The anticipated GBP strength exceeded our expectations by a wide margin as GBP cracked 1.2400 and rocketed to 1.2498. The deeply overbought rally could extend further but it is unlikely able to maintain a foothold above 1.2550 (next resistance is at 1.2600). On the downside, a breach of 1.2420 (minor support is at 1.2450) would indicate that the current upward pressure has eased.”
Next 1-3 weeks: “We highlighted yesterday (17 May, spot at 1.2325) that the ‘the recent weak phase has come to an end and there is room for the current rebound to extend’. While our view for a rebound turned out to be correct, the anticipated strong resistance at 1.2400 did not materialize as GBP lifted off and rocketed by 1.42% (close of 1.2495), its biggest 1-day gain since Oct 2020. The strong boost in momentum suggests there is room for GBP to advance further to 1.2600. At this stage, it is premature to expect a break of the early May high near 1.2640. On the downside, the ‘strong support’ level at 1.2360 is unlikely to come under threat, at least within these couple of days.”
The USD/CHF pair has witnessed a minor rebound after hitting a low of 0.9923 in the Asian session. A rangebound move observed in the asset from Tuesday post the greenback bulls found cushion around 0.9920 after a vertical fall. Considering the price action, the Swiss franc bulls are not done yet and the asset could tumble further to the psychological support of 0.9900.
The upbeat US Retail Sales, released on Tuesday, failed to provide any support to the asset. The US Census Bureau reported the monthly Retail Sales at 0.9% higher than the estimates of 0.7%.
The odds of more 50 basis points (bps) rate hike announcements by the Federal Reserve (Fed) are increasing each day. Fed chair Jerome Powell in his Q&A at Wall Street Journal (WSJ) has stated that inflationary pressures are impacting drastically on the paychecks of the households and inflation needs to be contained sooner. To bring down inflation significantly, the Fed needs to tighten the monetary policy further. The FX domain could witness more than two 50 bps interest rate hikes by the Fed in its next two monetary policy meetings.
On the Swiss franc front, the market participants are focusing on the release of the quarterly Industrial Production. The Swiss Statistics will reveal the Industrial Production later this week. The agency reported Industrial Production previously at 7.3%.
Open interest in gold futures markets shrank for the fourth consecutive session on Tuesday, this time by around 1.4K contracts according to preliminary figures from CME Group. In the same line, volume dropped for the third straight session, now by around 22.7K contracts.
Prices of the yellow metal briefly tested the 200-day SMA past $1830 on Tuesday, just to retreat afterwards and close the session with modest losses. This move was on the back of shrinking open interest and volume and suggests that extra decline in gold now seems out of favour.
EUR/GBP treads water around 0.8445 as bears take a breather after a four-day downtrend that refreshes a fortnight low the previous day. Even so, the cross-currency pair remains below a short-term key resistance ahead of inflation data from the UK and Eurozone heading into Wednesday’s European session.
That said, a convergence of the 100-SMA, one-month-old previous support and a descending trend line from Thursday appears a tough nut to crack for the EUR/GBP bulls around 0.8475-80.
Also acting as important resistances are multiple levels surrounding 0.8530 and 0.8580, a break of which could accelerate the run-up towards the monthly high of 0.8618.
On the flip side, bearish MACD signals hint at the EUR/GBP pair’s another attempt to conquer the 200-SMA support, around 0.8405 by the press time.
Additionally challenging the pair bears is the early May swing low, near 0.8365, which holds the key to the quote’s further downside targeting late April’s low surrounding 0.8250.
Overall, the EUR/GBP pair’s latest rebound remains elusive ahead of the key UK Consumer Price Index for April and final readings of Eurozone HICP for the stated period.
Trend: Further weakness expected
FX Strategists at UON Group Lee Sue Ann and Quek Ser Leang suggested that further upside in EUR/USD could reach the 1.0600 region in the next weeks.
24-hour view: “While we expected a higher EUR yesterday, we were of the view that it ‘is unlikely to break the strong resistance at 1.0490’. However, EUR easily took out 1.0490 as it surged to a high of 1.0555. The swift build-up in momentum is likely to lead to further EUR strength. That said, a clear break of 1.0600 appears unlikely (next resistance is at 1.0640). On the downside, a breach of 1.0490 (minor support is at 1.0520) would indicate that the build-up in momentum has eased.”
Next 1-3 weeks: “We highlighted yesterday (17 May, spot at 1.0440) that downward momentum is beginning to ease but only a breach of 1.0490 would indicate that EUR is unlikely to break 1.0340. We did not expect the strong lift-off that resulted in an outsized gain as EUR closed higher by 1.11% (close of 1.0547), its largest 1-day advance in two months. The price actions appear to be part of a corrective rebound. The rebound could extend to 1.0600, possibly testing the major resistance at 1.0645. The current upward pressure is intact as long as EUR does not move below the ‘strong support’ level, currently at 1.0440.”
The USD/TRY pair is hovering around 15.90 in the Asian session after a perpendicular rally. The asset has displayed a nine-day winning streak and has extended further after overstepping Tuesday’s high at 15.92.
An upside break of the Darvas Box chart pattern underpinned the greenback bulls. Usually, a break of the Darvas Box indicates volatility expansion, which results in heavy volume and wider ticks. The above-mentioned chart formation placed in a range of 14.39-15.06 on the daily scale.
The 20- and 50-period Exponential Moving Averages (EMAs) at 15.20 and 14.80 respectively are scaling higher, which adds to the upside filters. Meanwhile, the Relative Strength Index (RSI) (14) is oscillating in a bullish range of 60.00-80, which signals a continuation of bullish momentum. It is worth noting that the momentum oscillator, RSI (14), is displaying overbought signals as the oscillator is nearing 90.00, so a pullback move cannot be ruled out.
A pullback move towards the round level support at 15.50 will trigger a responsive buying action that will drive the asset towards Tuesday’s high and 20 December 2021 opening price at 15.92 and 16.60 respectively.
Alternatively, the Turkish lira could gain control if the asset drops below the 9 May low at 14.92. The occurrence of the same will drag the asset towards April 12 low at 14.55, followed by the psychological support at 14.00.
USD/CAD prints the first daily gains in four as it grinds near intraday top surrounding 1.2835-40 during early European morning on Wednesday. In doing so, the Loonie pair takes clues from the US dollar rebound, as well as softer oil prices, ahead of the key Consumer Price Index (CPI) data from Canada.
That said, the US Dollar Index (DXY) rises 0.11% intraday to 103.40 while bouncing off a two-week low as market sentiment sours. Also underpinning the US dollar’s recovery are the recently hawkish comments from Chicago Fed President Charles Evans.
A fresh increase in China’s covid cases and Shanghai’s refrain from total unlock joins a reduction in the foreign investment into the Chinese yuan bond seems to have triggered the latest risk-aversion. Also likely to have weighed on the market’s mood could be the headlines conveying the European Commission’s (EC) plan to move away from Russian energy imports.
Additionally, Fed’s Evans said, “(the Fed) Should raise rates to 2.25%-2.5% neutral range 'expeditiously'.” On Tuesday, Fed Chair Jerome Powell and a generally-hawkish St Louis Fed President James Bullard pushed for a 50 bps rate hike and weighed on the USD.
It should be noted that strong prints of the US Retail Sales also seem to help the US dollar regain its charm. That said, the US Retail Sales rose at a pace of 0.9% MoM in April, slightly better than the expected pace of 0.7% but softer than the upwardly revised 1.4% growth (from 0.5%).
Amid these plays, the US 10-year Treasury yields dropped 0.5 basis points (bps) to 2.966% whereas the S&P 500 Futures decline 0.40% intraday even as Wall Street posted heavy gains. Further, WTI crude oil drops back below $111.00, down 0.50% intraday near $110.50 at the latest.
Looking forward, Canada’s headline CPI is likely to ease to 0.5% MoM from 1.4% and may help the USD/CAD to remain firmer. However, major attention will be given to Bank of Canada CPI Core readings, expected 5.4% YoY versus 5.5% prior. Should the inflation data remain softer, the BOC will have less urgency towards tighter monetary policy than the Fed, which in turn could favor the USD/CAD bulls. Additionally, US Housing Starts and Building Permits for April will join Fedspeak to offer additional directives.
USD/CAD remains below the upward sloping resistance line from late April, around 1.2945 by the press time, which in turn keeps the pair sellers hopeful amid bearish MACD signals and downbeat RSI (14).
Shanghai city’s authorities issued a new white list containing 864 financial institutions allowed to resume work, Reuters reports, citing three sources with direct knowledge of the matter said on Wednesday.
The report is not yet confirmed by the Shanghai government, although the move could be a part of the financial center’s plan to reopen broadly after a nearly two-month-long lockdown.
Meanwhile, the city reported a minor rise in cases to 855 on Tuesday from 823 on Monday, no infections were found outside of government quarantine for the fourth day.
On the other hand, Beijing reported 69 new cases for Tuesday, up from 52 on Monday. “Tianjin, close to the capital and where an outbreak in January disrupted global automakers Toyota Motor Corp. and Volkswagen AG, saw cases rise to 55 on Tuesday from 28 on Monday,” Bloomberg reported.
Nationwide, the case count rose for the first time in five days.
AUD/USD is under heavy selling pressure amid souring risk sentiment, currently battling 0.7000, down 0.41% on the day.
The S&P 500 futures snapped its uptrend to now drop 0.27% on the day.
The AUD/USD pair has experienced a correction in the early Asian session as the risk-on impulse loses strength. The major is expecting a rebound from its crucial support at 0.6990 amid a light calendar week for the greenback bulls.
The US dollar index (DXY) has witnessed a minor rebound in early Tokyo after a bearish Tuesday. The DXY has eased around 1.5% after hitting a fresh 19-year high of 105.00 last week. Vigorously advancing odds of a 50 basis point (bps) interest rate hike by the Federal Reserve (Fed) are failing to support the greenback bulls.
The Fed is focusing on bringing price stability to its economy sooner as soaring inflation is hurting the paychecks of the households. It won’t be a surprise if the Fed feature two more jumbo rate hikes in this calendar year.
On the Aussie front, investors are still in a fix of unexpected hawkish Reserve Bank of Australia (RBA). The release of the RBA minutes on Tuesday dictated that the option of elevating interest rates by 40 bps was also into consideration. This indicates that the RBA has started advancing its interest rate curve from its rock-bottom levels. This week the major event for the aussie bulls is the release of the Employment data. The Australian Bureau of Statistics is expected to report job additions in the total labor force at 30k, higher than the prior print of 17.5k. Also, the Unemployment Rate may improve to 3.9% against the former number of 4%.
The cost of living in the UK as represented by the Consumer Price Index (CPI) for April month is due early on Wednesday at 06:00 GMT. Given the recently strong employment data, coupled with the increased odds of the Bank of England’s (BOE) faster/heavier rate hike trajectory, today’s data will be watched closely by the GBP/USD traders.
The headline CPI inflation is expected to refresh a 30-year high with a 9.1% YoY figure versus 7.0% prior while the Core CPI, which excludes volatile food and energy items, is likely to rise to 6.2% YoY during the stated month, from 5.7% previous readouts. Talking about the monthly figures, the CPI could increase to 2.6% versus 1.1% prior.
It’s worth noting that the recent pressure on wage prices and upbeat jobs report also highlight the Producer Price Index (PPI) as an important catalyst for the immediate GBP/USD direction. That being said, the PPI Core Output YoY may rise from 12.0% to 12.7% on a non-seasonally adjusted basis whereas the monthly prints may ease to 1.6% versus 2.0% prior. Furthermore, the Retail Price Index (RPI) is also on the table for release, expected to rise to 11.1% YoY from 9.0% prior while the MoM prints could inflate to 3.4% from 1.0% in previous readings.
In this regard, FXStreet’s Yohay Elam said,
All in all, a 9.1% annual increase in inflation is nothing to be cheerful about, and it supports further rate hikes by the Bank of England. However, policymakers have limited scope to act due to the nature of these price pressures. The old lady’s hands are tied.
Readers can find FXStreet's proprietary deviation impact map of the event below. As observed the reaction is likely to remain confined around 20-pips in deviations up to + or -2, although in some cases, if notable enough, a deviation can fuel movements over 60-70 pips.
GBP/USD remains pressured around the intraday low near 1.2470, snapping a three-day rebound from a two-year high, ahead of the key UK inflation data. The cable pair’s latest weakness could be linked to the US dollar’s rebound amid a risk-off mood and the hawkish Fedspeak. However, increasing odds of the Bank of England’s (BOE) faster/heavier rate hikes challenge the quote’s downside momentum.
That said, upbeat inflation data, which is more likely, can help the GBP/USD extend the latest advances for the time being. However, Treasury bond yields and GILTS are also likely to play an important role in determining short-term cable moves, which in turn suggests a pullback towards the recently flashed multi-month low.
Technically, the 20-DMA level near 1.2500 tests the GBP/USD buyers but a clear break of the one-month-old descending trend line, around 1.2250 at the latest, join the firmer RSI line to underpin bullish bias. Additionally, two-week-old horizontal support around 1.2400 could restrict the short-term pullback.
UK CPI Preview: Inflation “apocalypse” priced in, GBP/USD has room to fall
GBP/USD Price Analysis: 20-DMA probes bulls near 1.2500 ahead of UK inflation
The Consumer Price Index released by the Office for National Statistics is a measure of price movements by the comparison between the retail prices of a representative shopping basket of goods and services. The purchasing power of GBP is dragged down by inflation. The CPI is a key indicator to measure inflation and changes in purchasing trends. Generally, a high reading is seen as positive (or bullish) for the GBP, while a low reading is seen as negative (or Bearish).
Gold (XAU/USD) drops for the second consecutive day, taking offers around $1,808 to refresh the intraday low heading into Wednesday’s European session, as sour sentiment joins the firmer US dollar.
The market’s early-week optimism fades as China reports higher covid cases while the European Union (EU) and the US prepare for more hardships for Russia, due to Moscow’s invasion of Ukraine.
That said, Reuters reported an increase in Mainland China’s daily covid cases, to 1,305 from 1,100 prior while the virus-led death count also rose to three from one. Elsewhere, a third straight monthly fall in the foreign investment into the Chinese Yuan bonds also highlights the risk-off mood. Furthermore, chatters over the European Commission’s (EC) plan to move away from Russian energy imports also weigh on the sentiment.
It’s worth noting that comments from Chicago Fed President Charles Evans also seem to have weighed on the market’s mood by renewing fears of a faster rate hike as the policymaker said, “(the Fed) Should raise rates to 2.25%-2.5% neutral range 'expeditiously'.” On Tuesday, Fed Chair Jerome Powell and a generally-hawkish St Louis Fed President James Bullard pushed for a 50 bps rate hike and weighed on the USD.
Amid these plays, the US 10-year Treasury yields dropped 0.5 basis points (bps) to 2.966% whereas the S&P 500 Futures decline 0.40% intraday even as Wall Street posted heavy gains.
Looking forward, fresh catalysts defining the risk profile will be important for gold traders whereas US Housing Starts and Building Permits for April will join Fedspeak to offer extra directives.
A failure to cross the May 11 swing low presently drags gold prices towards three-day-old horizontal support around $1,800.
However, RSI (14) is near the oversold territory and hence any further downside past $1,800 becomes less expected, which if happens will highlight the monthly low near $1,787 as another opportunity for buyers to sneak in.
Should the gold prices remain bearish below $1,787, the 61.8% Fibonacci Expansion (FE) of May 05-17 moves, near $1,760 will be in focus.
Alternatively, the weekly falling trend line and the latest peak restrict the XAU/USD’s short-term recovery near $1,835.
Following that, the 200-HMA level surrounding $1,842 will act as the last defense for the gold sellers.
Trend: Limited downside expected
USD/JPY remains on the back foot by refreshing intraday low to near 129.00, snapping three-day uptrend, while justifying the failure to cross the 10-DMA amid a softer RSI (14). That said, the yen pair prints the biggest daily loss in a week by the press time of Wednesday’s Asian session, down 0.25% around 129.10 by the press time.
While the 129.00 threshold acts as immediate support, the quote’s further downside will aim for an upward sloping trend line since late April, surrounding 127.65.
It’s worth noting that the monthly low around 127.50 and April 27 swing low near 126.95 could challenge USD/JPY bears past-127.65.
Meanwhile, a clear upside break of the 10-DMA, near 129.70 at the latest, could quickly attack the 130.00 threshold.
Though, a convergence of the previous support line from March and tops marked in April constitute strong resistance for the USD/JPY bulls to crack around 131.30-35.
Should the quote rises past 131.35, an upside rally to refresh the 20-year high near the 132.00 round figure becomes imminent.
Trend: Further weakness expected
The USD/INR pair is expected to gauge a strong rebound after a bearish Tuesday. A risk-on impulse in Tuesday’s session strengthened the Indian rupee and the asset dragged lower to near 77.30. The greenback bulls have not surrendered their dominance yet and are likely to make a powerful comeback.
The formation of a Positive Divergence on an hourly scale is indicating a continuation of an uptrend after a healthy correction. It is worth noting on the hourly chart that the asset made a higher low and is trying to rebound while the momentum oscillator, Relative Strength Index (RSI) (14) made a lower low and tumbled below 40.00. The exhaustion in the downside risk of the asset is expected to spurt a rally in the asset prices.
A slippage below the 50-period Exponential Moving Average (EMA) at 77.53 is displaying a short-term struggle for the asset. While the 200-EMA at 77.32 has yet not been challenged, which signals that the upside is intact. The primary trendline placed from April 5 low at 75.27, adjoining May 4 low at 76.00 will continue to act as major support for the counter.
Should the asset oversteps Wednesday’s high at 77.63, an upside move towards Tuesday’s high at 78.02 will be observed. A breach of the latter will drive the asset towards an all-time high at 78.30.
Alternatively, the Indian rupee bulls could extend their control if the asset drops below the 200-EMA at 77.32 decisively. An occurrence of the same will drag the asset towards the psychological support at 77.00, followed by April 28 high at 76.79.
The EUR/USD pair is struggling to overstep the crucial resistance of 1.0550 in the Asian session. The asset is experiencing a volatility contraction after a juggernaut upside move from a low of 1.0354 recorded last week. A rebound in the positive market sentiment on Tuesday improved the demand for the risk-perceived currencies upon which the shared currency bulls enjoyed the liquidity.
The asset is oscillating in a minor range of 1.0557-1.0533 as investors are awaiting the release of the Eurozone Harmonised Index of Consumer Prices (HICP) numbers, which are due in the European session. The annual figure is seen stable at 7.5% while the monthly figure could tumble to 0.6% against the prior print of 2.4%. The asset remained firmer on Tuesday after the Eurostat reported a tad better performance on the Gross Domestic Product (GDP) numbers front than the expectations. The yearly GDP landed at 5.1% vs. 5% while the quarterly figure printed at 0.3% vs. 0.2% as expected.
Meanwhile, the US dollar index (DXY) is holding itself above the round-level support of 103.00. The diminishing interest of investors in the safe-haven assets has brought an intense sell-off in the DXY. A fall of more than 1.5% has been recorded from its 19-year high of 105.00. The odds of more than two 50 basis points (bps) interest rate hikes in 2022 are advancing sharply. Federal Reserve (Fed) Jerome Powell has emphasized bringing the price stability sooner rather than later.
The US is considering blocking Russia’s ability to pay its US bondholders by allowing a key waiver to expire next week, Reuters reported, citing a Biden administration official late Tuesday.
"It's under consideration but I don't have a decision to preview at this time.”
"We are looking at all options to increase pressure on (Russian President Vladimir) Putin."
These comments come as Russia has a looming May 25 deadline when a US license allowing it to make payments is due to expire.
Risk sentiment is turning sour in Asia this Wednesday, in the face of hawkish Fed expectations, surging Beijing’s covid cases and Japanese GDP contraction.
The US dollar index is back on the bids, having stalled its correction, as the S&P 500 futures drop 0.15% on the day.
|Raw materials||Closed||Change, %|
USD/CNH takes the bids to renew intraday high around 6.7600 as the US dollar pares recent gains during the sluggish Asian session. Also supporting the offshore Chinese yuan (CNH) pair are the recently flashed downbeat housing numbers at home, as well as hawkish comments from the US Federal Reserve (Fed) policymaker.
China House Price Index for April eased to 0.7% versus 1.5%. “China's new home prices in April fell for the first time month-on-month since December, official data showed on Wednesday, depressed by strict COVID-19 lockdowns in many cities, despite more easing steps aimed at supporting demand,” said Reuters after the data release.
Furthermore, news from Reuters that foreign investors cut holdings of Chinese Yuan bonds for third straight month in April also seems to weigh on the CNH prices.
Elsewhere, an increase in Mainland China’s daily covid cases, to 1,305 from 1,100 reported the previous day. It’s worth noting that the virus-led death count also rose to three from one, per the latest readings from Reuters.
On the other hand, comments from Chicago Fed President Charles Evans seem to have weighed on the market’s mood by renewing fears of a faster rate hike as the policymaker said, “(the Fed) Should raise rates to 2.25%-2.5% neutral range 'expeditiously'.” On Tuesday, Fed Chair Jerome Powell and a generally-hawkish St Louis Fed President James Bullard pushed for a 50 bps rate hike and weighed on the USD.
Previously, downbeat comments from the Fed policymakers and hopes of easing covid conditions in China seemed to have favored the USD/CNH bears.
Looking ahead, US Housing Starts and Building Permits for April will join Fedspeak to direct short-term USD/CNH moves. Additionally, covid headlines and news concerning Russia will also be important to watch.
Although 10-day EMA triggered the USD/CNH pair’s recovery moves, around 6.7440 by the press time, the previous support line from April 19 challenges the immediate upside near 6.7920.
AUD/USD sellers attack 0.7000 psychological magnet as traders consolidate recent gains after downbeat Australian data during Wednesday’s Asian session.
That said, Australia’s quarterly Wage Price Index reprinted 0.7% QoQ growth, versus the 0.8% forecast, while the yearly numbers eased below 2.5% anticipated to 2.4%.
Read: Aussie wage price index miss weighs on AUD/USD
That said, the Aussie pair’s weakness to cross the short-term key moving average joins the recently easing bullish bias of the MACD and softer RSI (14) line to keep sellers hopeful.
However, the 50-SMA and the one-week-old support line, respectively around 0.6965 and 0.6930, will challenge the AUD/USD bears before activating the next round of southward trajectory.
On the contrary, a sustained break of the 100-SMA, around 0.7045 by the press time, will direct AUD/USD prices towards the one-month-old resistance line near 0.7090.
Following that, the 0.7100 threshold may act as an extra filter to test the buyers before directing them towards the monthly high surrounding 0.7265-70.
Trend: Further weakness expected
At 90.61, AUD/JPY is down on the day so far by some 0.3% following a drop from 91.16, suffering from a weaker than expected wages report from Australia and ongoing angst over global growth.
There was a delayed reaction to the data with the Aussie only dropping some 15 minutes after the release as the market digested the prospects of a less hawkish central bank. The data was accompanied by poor housing data from China which could also be weighing on the Aussie. China's April house prices arrived at -0.2% MoM and +0.7% YoY, down from March.
Overall, the yen has benefitted from risk-off markets over the month and the Aussie from a softer US dollar this week as some risk appetite returned to markets.
Despite a mile recovery in stocks, there were nervy signs elsewhere as economic growth fears in the world's two largest economies have re-emerged following weak Retail Sales and factory production figures in China and disappointing US manufacturing data which can continue to benefit the yen for its safe-haven qualities.
According to the latest Reuters poll, the Bank of England (BOE) is predicted to embark upon an aggressive tightening cycle than previously expected, despite the UK economy battling the worst cost-of-living crisis in three decades.
“Asked when the cost-of-living crisis would peak, seven of 13 respondents to an additional question in the May 12-17 poll said the fourth quarter. Three said next quarter and three said by the end of next month.”
“Participants in the poll saw little let up with inflation averaging 8.3% next quarter from 8.7 in the current one, an increase from the 7.9% and 8.4% in April’s survey.”
“Medians in the poll showed it rising again to 1.25% in June and to 1.50% next quarter before a pause ahead of an increase to 1.75% in the second quarter of 2023.”
“Fifteen saw it below 1.50%, 22 saw it at that level while 19 expected it to be higher - with the top forecasts at 2.25%.”
“The economy will grow 3.7% on average during 2022 and then expand 1.3% next year, median forecasts of nearly 70 economists showed, down from the 3.8% and 1.7% given last month.”
Chicago Fed President Charles Evans is back on the wires, via Reuters, continuing with his comments on the central bank’s monetary policy.
Time to adjust balance sheet back to more normal setting.
Wouldn't say that involves full round trip in its size.
Likely Fed will raise rates above neutral.
Sees slowing pace of hikes to 25bps steps before December.
Gold (XAU/USD) prices retreat from intraday high, staying range-bound near $1,813-18, as global markets struggle for clear directions to extend the previous optimism. In doing so, the precious metal keeps the previous day’s pullback from the 200-DMA during a lackluster Asian session on Wednesday.
Market sentiment dwindles as the recent Fedspeak seems more hawkish than the earlier ones while headlines concerning the EU’s oil embargo on Russian imports, as well as China’s covid conditions, test optimists. Even so, firmer growth numbers from Japan and Eurozone, upbeat Retail Sales from the US and UK’s strong jobs report keeping traders hopeful.
Fed’s Evans seems to have weighed on the market’s mood by renewing fears of a faster rate hike as the policymaker said, “(the Fed) Should raise rates to 2.25%-2.5% neutral range 'expeditiously'.” On Tuesday, Fed Chair Jerome Powell and a generally-hawkish St Louis Fed President James Bullard pushed for a 50 bps rate hike and weighed on the USD.
Talking about the data, the preliminary Eurozone GDP for Q1 2022 rose past 5.0% YoY to 5.1% while also rising above 0.2% QoQ expectations to 0.3%. On the other hand, the US Retail Sales rose at a pace of 0.9% MoM in April, slightly better than the expected pace of 0.7% but softer than the upwardly revised 1.4% growth (from 0.5%). Recently, Japan’s preliminary readings of Q1 2022 GDP rose past -0.4% expectations to -0.2% QoQ whereas the Annualized GDP improved to -1.0% versus -1.8% forecasted.
On a different page, the Financial Times (FT) news that China diverts anti-poverty funds to covid testing as the crisis deepens joins the chatters over the European Commission’s (EC) plan to move away from Russian energy imports weighing on the market’s mood.
Against this backdrop, the US 10-year Treasury yields rose 0.5 basis points (bps) to 2.988% whereas the S&P 500 Futures struggle for clear directions even as Wall Street posted heavy gains.
That said, gold traders may witness further declines should the US Dollar Index benefits from the latest cautious optimism, currently unchanged near 103.35. In doing so, the greenback gauge may take clues from the second-tier housing numbers and qualitative factors concerning coronavirus and geopolitics.
Gold prices keep the previous day’s pullback from 200-DMA despite staying inside a $5.00 trading range of late.
Given the bearish MACD signals and the metal’s failures to cross the key moving average, around $1,838 by the press time, XAU/USD may revisit a yearly horizontal support area near $1,790-85.
However, a clear downside break of the $1,800 threshold becomes necessary for the bears before aiming at the yearly support.
Alternatively, a successful run-up beyond the 200-DMA level of $1,838, won’t be an open invitation to gold buyers as a downward sloping trend line from late April and multiple resistances from January 25, respectively around $1,845 and $1,855, will probe bulls afterward.
Trend: Pullback expected
AUD/USD is heavy following the miss in Australia's main wages measure that has been a focus for markets today with respect to the Reserve Bank of Australia's monetary policy.
Analysts at Westpac explained that wages are now back to a pre-Covid pace where wages were underperforming economic activity. ''If there was ever a time for wages to regain some of the relationships with broader labour market indicators, 2022 must be the year.''
''Even more important than the fall in unemployment to 4% has been the more than halving of underemployment, from a peak of 13.6% in Apr 2020 to 6.3% in Mar 2022. ''
The data has arrived as follows:
AUD/USD is a few pips lower.
The Wage Price Index released by the Australian Bureau of Statistics is an indicator of labor cost inflation and of the tightness of labor markets. The Reserve Bank of Australia pays close attention to it when setting interest rates. A high reading is positive (or bullish) for the AUD, while a low reading is seen as negative (or bearish).
In recent trade today, the People’s Bank of China (PBOC) set the yuan (CNY) at 6.7421 vs the prior fix of 6.7854 and the previous close of 6.7376.
China maintains strict control of the yuan’s rate on the mainland.
The onshore yuan (CNY) differs from the offshore one (CNH) in trading restrictions, this last one is not as tightly controlled.
Each morning, the People’s Bank of China (PBOC) sets a so-called daily midpoint fix, based on the yuan’s previous day closing level and quotations taken from the inter-bank dealer.
US Dollar Index (DXY) remains on the back foot for the fourth consecutive day, refreshing a weekly low around 103.20 by the press time of Wednesday’s Asian session.
The greenback gauge’s latest weakness contrasts with the recently upbeat comments from Chicago Fed President Charles Evans. The reason could be linked to the market’s cautious optimism amid an absence of major data/events.
Fed’s Evans seems to have weighed on the market’s mood by renewing fears of a faster rate hike as the policymaker said, “(the Fed) Should raise rates to 2.25%-2.5% neutral range 'expeditiously'.” On Tuesday, Fed Chair Jerome Powell and a generally-hawkish St Louis Fed President James Bullard pushed for a 50 bps rate hike and weighed on the USD.
It’s worth observing that the previous day’s firmer US data underpinned the market’s risk-on mood as it joined multiple statistics from the UK and Eurozone to defy the growth concerns. That said, The preliminary Eurozone GDP for Q1 2022 rose past 5.0% YoY to 5.1% while also rising above 0.2% QoQ expectations to 0.3%. On the other hand, the US Retail Sales rose at a pace of 0.9% MoM in April, slightly better than the expected pace of 0.7% but softer than the upwardly revised 1.4% growth (from 0.5%). Recently, Japan’s preliminary readings of Q1 2022 GDP rose past -0.4% expectations to -0.2% QoQ whereas the Annualized GDP improved to -1.0% versus -1.8% forecasted.
Elsewhere, the Financial Times (FT) news that China diverts anti-poverty funds to covid testing as the crisis deepens joins the chatters over the European Commission’s (EC) plan to move away from Russian energy imports weighing on the market sentiment.
Amid these plays, the US 10-year Treasury yields rose 1.8 basis points (bps) to 2.988% whereas the S&P 500 Futures struggle for clear directions even as Wall Street posted heavy gains.
Looking forward, housing data from the US will join inflation numbers from Eurozone and Canada to entertain momentum traders. Though, Fedspeak and risk catalysts will be more important to follow for clear directions.
A sustained break of the one-month-old rising trend line, around 104.67 by the press time, directs DXY bears towards an upward sloping support line from late March, close to 102.50.
West Texas Intermediate (WTI) futures on NYMEX, has rebounded sharply after testing its crucial support of $110.00 in the New York session. After a mild correction, the oil prices are set to advance further towards the round level resistance of $115.00.
The strength in the oil bulls is backed by lower oil inventories in the US Strategic Petroleum Reserve (SPR). The US SPR has fallen to 538 million barrels, the lowest since 1987, as per Reuters. Earlier, US President Joe Biden announced the highest release of oil from its US SPR to diminish the supply worries. Meanwhile, oil supply from Moscow has plunged by 9% as per Hellenic Shipping news. Russian oil output has been reported at 9.16 million barrels per day (bpd) in April, a deviation by 860,000 million bpd raises concerns over the supply issues in an already tight oil market.
On Wednesday, the European Union (EU) unveiled a 210 billion euro plan to end its dependence on oil from Russia by 2027 as per Reuters. This has elevated the oil supply worries, which will keep the bullish momentum intact
On the demand side, China has imposed more restrictive measures to curb the spread of the Covid-19. The Chinese administration is advocating a Work From Home (WFH) policy to contain the spread of the virus and remove curbs on the movement of men, materials, and machines.
Asia-Pac stock markets and risk appetite are higher on Wednesday as the region takes impetus from the gains across global peers. In Japan, the Nikkei 225 opened evenly the prior day and rose to the close, finishing up 0.4% yesterday and has started the day over 1% higher today.
A softer yen against the US dollar boosted export issues while Asian stock markets have tracked higher on the outlook that Beijing will ease both anti-pandemic lockdowns and regulations upon the nation's tech industry. Overnight, risk appetite in the US was helped by Industrial Production and Retail Sales data, leading the way for a positive start in Asia.
Overnight, the Federal Reserve Jerome Powell said that the US central bank will raise interest rates until there is “clear and convincing” evidence that inflation is in retreat. The remarks at a Wall Street Journal live event were some of his most hawkish so far yet the markets were relieved that nothing more hawkish was stated, such as the prospects of 75bps hikes in the coming meetings. If the economy performs as expected, 50bp hikes remain on the table.
Powell does see upside wage inflation risks, and he reiterated that the FOMC needs "to see inflation coming down in a clear and convincing way and we're going to keep pushing until we see that. If that involves moving past broadly understood levels of neutral we won't hesitate at all to do that."
GBP/USD bulls take a breather around 1.2500, after rising the most in 19 months the previous day. That said, the cable pair battles with the 20-DMA around the weekly top by the press time of Wednesday’s Asian session, while waiting for the monthly inflation data from the UK.
Read: UK CPI Preview: Inflation “apocalypse” priced in, GBP/USD has room to fall
Although the 20-DMA level near 1.2500 tests the GBP/USD bulls, the cable pair’s ability to cross the one-month-old descending trend line, around 1.2250 at the latest, joins the firmer RSI line to underpin bullish bias.
That said, the quote presently aims for the monthly peak surrounding 1.2640 before approaching the support-turned-resistance line from late 2021, around 1.2900 by the press time.
On the contrary, two-week-old horizontal support around 1.2400 could restrict the short-term pullback of the GBP/USD prices before directing the bears toward the previous resistance line near 1.2250.
In a case where GBP/USD drops below 1.2250, a south-run towards the latest multi-month low of 1.2155 and the 1.2000 psychological magnet can’t be ruled out.
Trend: Further upside expected
USD/CAD is moving below critical support on the charts and the pair could be in for a deeper run towards structure lower down. The following illustrates the potential price path on various time frames for the foreseeable future.
The price would be expected to meet with demand in the low 1.2700s and potentially mitigate upside territory and price imbalances over the course of the coming days between there and 1.2900 vs. the counter trendline.
The price has melted all the way through four-hour support and is now embarking on a run even lower to test the next critical layer of support in the 1.2770s.
This is identified even clearer on the hourly chart.
The USD/JPY pair is witnessing a gradual fall in the Asian session after the Japanese Cabinet Office reported the annual Gross Domestic Product (GDP) numbers at -1% vs. the expectation of -1.8% and the prior print of 3.8%. A less negative GDP figure has supported the Japanese yen against the greenback. The quarterly GDP numbers have also outperformed after landing at -0.2% against the estimated figure of -0.4%.
Apart from the GDP numbers, the vulnerable performance of the US dollar index (DXY) is also hurting the asset. The DXY is set to display more losses as the asset has tumbled below Tuesday’s low at 103.23. An improvement in the risk appetite of the market participants has dampened the safe-haven appeal of the DXY. Meanwhile, odds of a 50 basis point (bps) rate hike by the Federal Reserve (Fed) has been bolstered as the Fed is focusing on scaling down the soaring inflation in a most ‘convincing’ way.
To cool off the heated inflation, Fed needs to feature more rate hikes sooner rather than later. Investors should brace for more than two jumbo rate hikes in the calendar year. It is worth noting that the Fed has already announced one jumbo rate hike in the first week of May.
This week, the major event will be Japan’s inflation numbers, which are due on Friday. A preliminary estimate for the annual Consumer Price Index (CPI) figure is 1.5% vs. the prior print of 1.2%. Along with this, the core CPI could drop to -0.9%, against the former figure of 0.7%.
Having witnessed an upbeat start to the week, trading sentiment eased during the mid-Asian session on Wednesday as a lack of major catalyst, as well as hawkish comments from the Fed official, challenged previous optimism.
Amid these plays, the Wall Street benchmarks closed positive even if the US 10-year Treasury yields rose nearly 10 bps to 2.99% at the latest. The S&P 500 Futures struggle, however, around 4,090 by the press time.
That said, recent comments from Chicago Fed President Charles Evans seem to have weighed on the market’s mood by renewing fears of a faster rate hike as the policymaker said, “(the Fed) Should raise rates to 2.25%-2.5% neutral range 'expeditiously'.” On Tuesday, Fed Chair Jerome Powell and a generally-hawkish St Louis Fed President James Bullard pushed for a 50 bps rate hike and weighed on the USD.
Also weighing on the market’s mood is the news, shared by Reuters, suggesting that the European Commission is up for releasing plans to escape route from Russian fossil fuels.
It’s worth noting that Shanghai’s plans for unlock, after witnessing a three-day streak of zero covid cases outside the quarantine area, joined the dragon nation’s readiness for further infrastructure spending to underpin market optimism the previous day.
On the same line were firmer Eurozone GDP and the US Retail Sales figures that shrug off growth concerns. The preliminary Eurozone GDP for Q1 2022. The bloc’s GDP rose past 5.0% YoY to 5.1% while also rising above 0.2% QoQ expectations to 0.3%. On the other hand, the US Retail Sales rose at a pace of 0.9% MoM in April, slightly better than the expected pace of 0.7% but softer than the upwardly revised 1.4% growth (from 0.5%).
Recently, Japan’s preliminary readings of Q1 2022 GDP rose past -0.4% expectations to -0.2% QoQ whereas the Annualized GDP improved to -1.0% versus -1.8% forecasted.
Moving on, headlines concerning covid, geopolitics and growth become crucial for short-term directions amid a light calendar day ahead, except for inflation numbers from Eurozone and Canada, not to forget second-tier housing data from the US.
Also read: Forex Today: Dollar extends its decline as sentiment improves
|Index||Change, points||Closed||Change, %|
Silver (XAG/USD) steadies around $21.60, following a pullback from the weekly high, during Wednesday’s Asian session.
In doing so, the bright metal justifies Tuesday’s Gravestone Doji candlestick while also portraying failures to cross the 10-DMA, around $21.65 by the press time.
Even so, a looming bull cross of the MACD signal joins the metal’s successful break of a one-month-old resistance, now support around $21.20, to keep silver buyers hopeful.
Should the quote rises past $21.65, the $22.00 may offer an intermediate halt during the run-up to a monthly high near $23.30.
Meanwhile, a downside break of the resistance-turned-support, near $21.20, won’t hesitate to direct XAG/USD towards the multi-month low marked in May around $20.45.
Following that, the $20.00 psychological magnet will be crucial for the bears to watch.
Overall, silver remains directed towards the north but short-term hurdles test recovery moves.
Trend: Further upside expected
The USD/CHF pair is struggling below 0.9950 as the risk-on market mood deepens and safe-haven appeal loses strength. The pair has remained vulnerable after surrendering the psychological cushion of 1.0000 on Tuesday and has dropped to near 0.9920.
The US dollar index (DXY) has shifted into a correction phase after remaining firmer for the past few trading weeks. The DXY has tumbled to near 103.20 and has eased 1.5% after registering a fresh 19-year high at 105.00 last week. It looks like the market participants have already discounted the interest rate hikes, which are to be announced by the Federal Reserve (Fed) this year.
The Q&A session with Fed chair Jerome Powell at Wall Street Journal (WSJ), has cleared the intentions of the Fed towards bringing price stability to the economy. Mounting inflationary pressures are hurting the paychecks of the households. To contain the soaring inflation, the Fed would resort to deploying strict quantitative measures to scale down the heated inflation.
On the Swiss franc front, investors are awaiting the release of the Industrial Production numbers, which are due on Friday. Earlier, the Swiss Statistics reported the quarterly Industrial Production at 7.3%. A higher-than-expected figure will further strengthen the Swiss franc bulls against the greenback. Alternatively, the greenback bulls could regain control if the occurrence reverses.
CURRENCY MARKET DEFINITION
The concept of currency market has several definitions:
Simply put, currency market is the market where currency transactions are made, that is, the currency of one country is exchanged for the currency of another country at a certain exchange rate. The exchange rate is the relative price of currencies of two countries or the currency of one country expressed in another country's monetary units.
Currency market is part of the global financial market, where many operations related to the global movement of capital take place.
TYPES OF MARKETS. RUSSIAN AND INTERNATIONAL CURRENCY MARKETS
There are international and domestic currency markets.
Domestic currency market — is a market within a single country.
The international currency market — is a global market that covers currency markets of all countries in the world. It does not have a specific site where trading is carried out. All operations within it are carried out through a system of cable and satellite channels that link the world's regional currency markets. Regional markets today include the Asian (with centers in Tokyo, Hong Kong, Singapore, and Melbourne), the European (London, Frankfurt am Main, and Zurich), and the American (New York, Chicago, and Los Angeles) markets.
Currency trading on the international currency market is carried out on the basis of market exchange rates, which are set on the basis of supply and demand in the market and under the influence of various macroeconomic data. Forex is the international currency market.
Currency markets can also be divided into exchange and over-the-counter markets. Exchange currency market is an organized market where trading is carried out through an exchange—a special company that sets trading rules and provides all the conditions for organizing trading under these rules.
Over-the-counter currency market — is a market where there are no certain trading rules, and purchase and sale operations are not linked to a specific place of trade, as opposed to the case of an exchange.
As a rule, an over-the-counter currency market is organized by special companies that provide services for the purchase and sale of currencies, which may or may not be members of the currency exchange. Trading operations in this market are now carried out mainly via the Internet.
The over-the-counter currency market is much larger than the exchange market in terms of trading volume. The Forex international over-the-counter currency market is considered the most liquid in the world. It operates around the clock in all financial centers of the world (from New York to Tokyo).
CURRENCY MARKET FUNCTIONS
Currency market— is the most important platform for ensuring the normal course of all global economic processes.
The main macroeconomic functions of the currency market are:
Various currencies are the main trading tool in the currency market. Exchange rates are formed under the influence of supply and demand in the market.
In addition to that, currency rates are influenced by many fundamental factors related to the global economic situation, events in national economies, and political decisions.
News about these factors can be found in various sources:
The more stable an economy is developing, the more stable its currency is. Accordingly, it is possible to predict how the currency will behave in the near future, based on statistical data published in official sources of countries with a certain regularity.
This data includes:
Interest rate level, set by national authorities regulating credit policy, is an equally important indicator. In the European Union, this is ECB–the European Central Bank, in the US, this is the Federal Reserve System, in Japan—the Bank of Japan, in the UK—the Bank of England, in Switzerland—the Swiss national Bank, etc.
The interest rate level is determined at meetings of the national central bank. Then, the decision on the rate is published in official sources. If the central bank of a country reduces the interest rate, the money supply in the country increases, and the national currency depreciates against other world currencies. If the interest rate increases, the national currency will strengthen.
A speech or even a separate statement by a country's leader can reverse a trend. Speeches on these topics may change the currency exchange rate:
All this news is published in various sources. Major international news is more or less easy to find in Russian, but news related to the domestic economic policy and the economy of foreign countries is much less common in the Russian press. Mostly, such news is published by the national media and in the language of the country where the news is published.
It is very difficult for one person to follow all the news at once, and they are likely to miss some important event that can turn the whole situation on the market upside down. Guided by our main principle—to create the best trading conditions for our customers—we try to select the most important news from all over the world and publish them on our website.
The TeleTRADE Department of Analytics monitors news on most national and international news sources on a daily basis and identifies those that can potentially affect exchange rates. These are the main news items that are included in our news feed.
In addition, all our clients have free access to the Dow Jones news feed. This is a joint project of Dow Jones Newswires, the world's largest news agency, and the leading Russian news agency Prime-TASS. The news feed is created specifically for currency traders and those who are interested in getting information about the world's currency markets.
© 2000-2022. All rights reserved.
This site is managed by Teletrade D.J. Limited 20599 IBC 2012 (First Floor, First St. Vincent Bank Ltd Building, James Street, Kingstown, St. Vincent and the Grenadines).
The information on this website is for informational purposes only and does not constitute any investment advice.
Making transactions on financial markets with marginal financial instruments opens up wide possibilities and allows investors who are willing to take risks to earn high profits, carrying a potentially high risk of losses at the same time. Therefore you should responsibly approach the issue of choosing the appropriate investment strategy, taking the available resources into account, before starting trading.
Use of the information: full or partial use of materials from this website must always be referenced to TeleTrade as the source of information. Use of the materials on the Internet must be accompanied by a hyperlink to teletrade.org. Automatic import of materials and information from this website is prohibited.
Please contact our PR department if you have any questions or need assistance at firstname.lastname@example.org.