Analytics, News, and Forecasts for CFD Markets: currency news — 09-06-2022.

• Oil prices have been less impacted due to renewed lockdown worries in China.
• The oil shortage due to the ban on Russian oil imports won’t get offset sooner.
• The rising demand for gasoline in the US economy in peak summers will strengthen the oil bulls further.

West Texas Intermediate (WTI), futures on NYMEX, is holding itself above $119.00 and has faced a minor time correction after a vertical upside move. The black gold is holding its gains despite the renewed fears of a lockdown in China to contain the spread of the Covid-19.

The Chinese economy was recovering from lockdown measures in Shanghai and Beijing after a two-month lockdown period. Restrictions on the execution of various economic activities were getting the traction again, however, the discovery of fresh Covid-19 cases has raised questions over the zero Covid-19 policy of China.

No doubt, the restrictive measures in the Chinese economy will trim the demand forecasts but the broader upside in the oil prices will remain intact. The oil shortage due to the embargo on oil imports from Russia won’t get offset sooner. Investors have started considering the fact that the imbalance in the demand-supply mechanism after a prohibition of oil from Moscow will persist longer.

The restrictions on oil imports from Russia have forced many refineries worldwide to shut down their operations after its invasion of Ukraine. Availability of less capacity due to less number of operating refineries will keep the oil bulls' momentum intact. The oil prices are set to recapture their all-time-high levels at $126.35.

Meanwhile, the rising demand for crude oil to manufacture gasoline due to peak summer in the US economy will keep the requirement for oil at elevated levels.

US inflation expectations, as per the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, take round to the monthly high surrounding 2.76%, steady around 2.75% in the last two days by the end of Thursday’s North American session.

Despite the steady inflation signals from the FRED data, markets fear a higher number from the US Consumer Price Index (CPI) release for May, up for publishing later on Friday, which in turn weigh on the market’s sentiment and underpin the US dollar’s safe-haven demand.

That said, the chatters surrounding strong inflation to weigh on growth and the White House’s fear of stronger CPI data add to the market’s risk-off mood.

The sour sentiment could be witnessed via the biggest daily slump in the Wall Street benchmarks for the week whereas the US 10-year Treasury yields also refreshed their monthly high before retreating to 3.04%. The US Dollar Index (DXY) also rallied the most in a week while cheering the greenback’s safe-haven status.

It’s worth noting, however, that the headlines US CPI is expected to remain unchanged near 8.3% YoY while the CPI ex Food & Energy, known as Core CPI, may soften to 5.9% from 6.2%.

Also read: US Consumer Price Index May Preview: Fed policy is set but there is room for surprise

• Silver remains pressured around one-week low, down for third consecutive day.
• Clear downside break of one-month-old ascending trend line, 21-DMA favor sellers.
• Five-week-long horizontal resistance appears a tough nut to crack for bulls.

Silver (XAG/USD) stays depressed around the weekly low near $21.60 during Friday’s Asian session, after breaking the short-term key supports the previous day.

However, the bright metal’s further downside hinges on its ability to conquer a three-week-old upward sloping trend line, around $21.55 by the press time.

Given the downbeat RSI (14) and a clear break of the previously important support levels, namely the 21-DMA and an ascending trend line from May 13, XAG/USD is likely to extend the latest weakness below the immediate support.

In doing so, the quote could challenge the $21.30 and $21.00 supports before directing the bears towards the last monthly low near $20.45.

Meanwhile, recovery moves may initially be challenged by the 21-DMA and the support-turned-resistance line from early May, respectively around $21.85 and $22.00.

Following that, a horizontal area comprising multiple levels marked since early May and the 50-DMA, close to $22.40-50 and $23.00 in that order, will be crucial for the silver buyers to tackle.

Silver: Daily chart

Trend: Further downside expected

• The US Dollar Index (DXY) rose to fresh three-week highs, above 103.000.
• A negative sentiment boosted the US Dollar as investors scrambled toward safe-haven assets.
• US Dollar Index (DXY): To re-test the YTD highs in the medium-term.

The US Dollar Index, a measure of the greenback’s performance against a basket of six currencies, climbs sharply by 0.74% and is sitting at 103.306 at the time of writing, as the Asian Pacific session begins.

Risk-aversion is the name of the game in the financial markets. Another central bank, the ECB, decided to keep rates unchanged at -0.50% but signaled that it would begin to raise rates, starting as soon as July. The decision triggered an upward reaction in the EUR/USD but plummeted afterward, boosting the prospects of the greenback.

Therefore, risk appetite waned, as shown by global equities finishing Thursday’s session with losses. US Treasury yields are rising, led by the 10-year benchmark note rate, solid at 3.047%, underpinning the US Dollar.

The US economic calendar reported Initial Jobless Claims for the week ending on June 4, on Thursday. Albeit the reading rose by 229K more than the 210K, it was ignored by investors, as their focus is on the Consumer Price Index, expected to top 8.3% YoY expectations. Moreover, the University of Michigan Consumer Sentiment June’s preliminary number would give traders insight into US citizens regarding their current economic conditions.

US Dollar Index (DXY): Technical outlook

The US Dollar Index bottomed at the 50-day moving average (DMA) at around 101.297 on May 30. Since then, the index began trending higher, with a pair of pullbacks that were offset by upward days that lifted the DXY to fresh multi-week highs. That said, the US Dollar Index remains poised for further gains but would face some hurdles on its way north.

The US Dollar Index’s first resistance would be the May 19 high at 103.877. A breach of the latter would expose the May 17 daily high at 104.230, followed by the YTD high at 105.005.

• NZD/USD holds lower ground near a three-week low after falling the most since late May.
• New Zealand’s Manufacturing Sales slumped in Q1, Electronic Card Retail Sales also fell in May.
• Growth, inflation fears underpin US dollar’s safe-haven demand, China’s fresh covid woes exert additional downside pressure.
• China CPI/PPI and risk catalysts may offer intermediate moves but US CPI is the key.

NZD/USD bears keep reins, despite recent inaction, around a multi-day low of 0.6380 amid downbeat New Zealand and the US dollar’s upbeat performance ahead of the key catalysts. That said, the Kiwi dropped the most in nearly three weeks the previous day as risk-aversion drowned the Antipodeans.

New Zealand Q1 Manufacturing Sales turned negative to -3.5% versus the previous growth of 8.2%. Further, Electronic Card Retail Sales for May also disappointed the NZD/USD trades with 0.7% YoY growth compared to 2.1% prior. It’s worth noting, however, that the Kiwi pair failed to register any quick reaction to the downbeat data even if the prices remain pressured.

That said, the risk-off mood weighed on the Antipodeans the previous day as fears of inflation and growth accelerated after the European Central Bank (ECB) conveyed fears of inflation weighing on growth, via their forecasts. The bloc’s central bank also matched market consensus while announcing an end of Quantitative Easing from July 1 and 25 basis points (bps) of a rate hike on July 25, versus expectations of a 50 bps move.

Elsewhere, the White House has already conveyed the risk of higher inflation ahead of today’s US Consumer Price Index (CPI) data while the World Bank (WB) and the Organisation for Economic Co-operation and Development (OECD) have raised concerns over economic growth.

Furthermore, the resurgence of covid-led activity restrictions in Shanghai and Beijing joined no solution to the Russia-Ukraine crisis to exert additional downside pressure on the market’s sentiment.

The sour sentiment could be witnessed via the biggest daily slump in the Wall Street benchmarks for the week whereas the US 10-year Treasury yields also refreshed their monthly high before retreating to 3.04%. The US Dollar Index (DXY) also rallied the most in a week while cheering the greenback’s safe-haven status.

Looking forward, China’s CPI and Producer Price Index (PPI) data for May, expected 2.2% and 6.4% versus 2.1% and 8.0% in that order, will offer immediate directions to the NZD/USD traders ahead of the US CPI.

Also read: US CPI Preview: Soft core set to drive dollar down, and two other scenarios

Technical analysis

Not only a clear U-turn from the 0.6560 horizontal hurdle but a successful downside break of the 21-DMA, around 0.6440, also direct NZD/USD prices towards further south. That said, 0.6290 may attack short-term sellers before directing them to the yearly low marked in May at around 0.6215.

• USD/CHF remains sidelined near multi-day top, pausing five-day uptrend.
• Firmer MACD signals, RSI (14) joins successful break of 21-DMA to favor buyers.
• 50-DMA, May’s low act as the key support for bear’s conviction.

USD/CHF prices seesaw around 0.9800, after refreshing a three-week high during a five-day uptrend the previous day.

Even so, the Swiss currency (CHF) pair’s ability to stay beyond the 50-DMA and 21-DMA joins the recent bullish MACD signals, as well as firmer RSI (14), not overbought, to keep USD/CHF buyers hopeful.

That said, a five-week-old horizontal resistance area near 0.9855-75 appears a tough nut to crack for the USD/CHF bulls.

On the contrary, the 21-DMA and 50-DMA could restrict the quote’s immediate downside to around 0.9720 and 0.9650 respectively.

However, USD/CHF bears remain hopeful until the quote stays beyond May’s low of 0.9544.

Overall, USD/CHF has already signaled further upside but there is a little room on the north.

USD/CHF: Daily chart

Trend: Further upside expected

• EUR/JPY is juggling below 143.00 on stable interest rate policy by the ECB.
• The ECB has sounded hawkish on guidance amid higher inflation forecasts.
• Rising oil prices majorly contribute to a spurt in inflation levels in Japan.

The EUR/JPY pair is displaying back and forth moves below 143.00 and is expected to extend its losses as the European Central Bank (ECB) adopted a ‘neutral’ stance on the interest rates in its monetary policy meeting on Thursday. The ECB kept interest rates unchanged despite mounting inflationary pressures but dictated hawkish guidance for its July and September interest rate decisions.

A decision of keeping the interest rates at rock-bottom levels despite an inflation rate above 8% has depressed the shared currency bulls. The eurozone is facing extreme selling pressure from the market participants. It is worth noting that the price pressures are advancing majorly by higher food and energy prices, thanks to the military activities between Russia and Ukraine along with a disruptive supply chain.

As per the guidance, the ECB will end up its Asset Purchase Program (APP) on July 1 and will elevate the interest rates by 25 basis points (bps) in July and might be a higher than 50 bps rate hike announcement in September.

As per the statements, it looks like the ECB is moving toward the quantitative tightening process gradually so that the economy gets plenty of time to adjust to the turning wheel of the rate cycle.

On the Tokyo front, sustenance of ultra-loose monetary policy and capping of the bond yields at 0.25% against the hawkish G-10 is hurting the Japanese yen. The Bank of Japan (BOJ) is worried over lower demand levels despite the achievement of 2% inflation. The achievement of desired inflation levels is majorly contributed by higher fossil fuel prices.

• The European Central Bank (ECB) will begin hiking rates in July in small increments.
• ECB’s Lagarde: Conditions to begin raising rates have been met.
• Sentiment remains negative, as global equities recorded hefty losses.

On Thursday, the EUR/USD plummeted 100 pips after the European Central Bank (ECB) decided that it would lift rates in the July meeting. However, it would do so in 25 bps increments, shifting from a hawkish decision to a dovish one, as perceived by investors, which sent the euro tumbling against the greenback. At 1.0614, the EUR/USD records minimal gains of 0.03% as the Asian session starts.

Summary of ECB’s decision; the greenback remains buoyant and weighs on the EUR/USD

Recapping the ECB’s decision, the Governing Council (GC) said it would raise rates by 25 bps at its July meeting and expects it to do it again in September. Although the market penciled in 25 bps for both reunions, the ECB opened the door for a higher increase in September. However, the GC emphasized that it would depend on the medium-term inflation outlook.

In the ECB’s press conference, the President, Mrs. Lagarde, stated that the decisions “were unanimously approved” and emphasized that conditions were met to begin raising rates.

In the same meeting, the ECB updated its forecasts, with growth estimated to finish at 2.8% vs. March’s 3.7%, while inflation estimations were revised to the upside, at 6.8% from 5.1% in March.

Elsewhere, risk-aversion continues ruling the markets. US equities finished with losses between 1.94% and 2.75%, and Asian futures followed suit. Market participants flew toward safe-haven assets in the FX space, the US Dollar. Reflection of the previously mentioned is the US Dollar Index, gaining 0.74%, sitting at 103.306.

On Friday, the Eurozone calendar will feature a speech of the ECB’s President Christine Lagarde. On the US docket, the May Consumer Price Index is expected to remain unchanged at 8.3% YoY. At the same time, the core CPI for the same period is estimated to rose by 5.9% YoY, lower than April’s 6.2%.

Also read: Forex Today: The financial world is in risk aversion mode

EUR/USD Price Forecast: Technical outlook

Thursday’s fall left the EUR/USD vulnerable to further selling pressure. On its way down, the pair broke a solid demand zone, the June 1 low at 1.0627, weekly low until June 9. The Relative Strength Index (RSI) at 45.81 further reinforces the EUR/USD’s downward bias as the RSI accelerates its downtrend.

Therefore, the EUR/USD favors the bears. That said, the major’s first support would be 1.0600. Break below would expose the May 19 low at 1.0460, followed by the YTD low at 1.0340.

• USD/CAD bulls take a breather after the biggest daily jump in 2022.
• BOC’s Macklem reiterated support for higher rates amid inflation fears.
• US dollar benefits from risk-aversion, oil prices ease.
• China/US CPI, Canada Employment data for May will be crucial for fresh impulse.

USD/CAD steadies around 1.2700, following the big leap to a two-week high, as markets turn cautious ahead of the key data/events scheduled for publishing on Friday. The Loonie pair rallied the most since November 2021 the previous day as inflation and growth fears roiled market sentiment, underpinning the US dollar. Also contributing to the pair’s run-up could be softer prices of Canada’s main export item, namely WTI crude oil, as well as the Bank of Canada’s (BOC) remarks.

That said, global markets witnessed heavy risk-aversion on Thursday after the European Central Bank (ECB) conveyed fears of inflation weighing on growth, via their forecasts. The bloc’s central bank also matched market consensus while announcing an end of Quantitative Easing from July 1 and 25 basis points (bps) of a rate hike on July 25, versus expectations of a 50 bps move.

At home, the Bank of Canada (BOC) released details of a bank stress test and conveyed challenges emanating from tighter monetary policies. Even so, BOC Governor Tiff Macklem was spotted favoring faster rate hikes by citing the overheating economy.

Elsewhere, the White House has already conveyed the risk of higher inflation ahead of today’s US Consumer Price Index (CPI) data while the World Bank (WB) and the Organisation for Economic Co-operation and Development (OECD) have raised concerns over economic growth.

Furthermore, the resurgence of covid-led activity restrictions in Shanghai and Beijing joined no solution to the Russia-Ukraine crisis to exert additional downside pressure on the market’s sentiment.

As a result, the Wall Street benchmarks posted the biggest daily loss in a week, down for the second consecutive day, whereas the US 10-year Treasury yields also refreshed their monthly high before retreating to 3.04%.

Moving on, China’s CPI and Producer Price Index (PPI) data for May, expected 2.2% and 6.4% versus 2.1% and 8.0% in that order, will offer immediate directions to the USD/CAD traders ahead of the US CPI data and Canada’s jobs report. Given the already known fears of higher inflation, a disappointment from the Canadian employment numbers becomes necessary for the pair buyers to keep reins.

Also read: US Consumer Price Index May Preview: Fed policy is set but there is room for surprise

Technical analysis

Despite a successful break of the 200-DMA and one-month-old descending trend line, respectively around 1.2660 and 1.2630, the USD/CAD buyers need validation from the convergence of 21-DMA and 50-DMA, near 1.2725-30, to extend the run-up.

• Gold price is struggling at around $1,850.00 as stale US CPI forecasts support the DXY bulls.
• A slippage in the US CPI may not support the gold bulls while a higher CPI rate will strengthen the gold bears.
• The precious metal is still inside the woods and is expected to perform lackluster until the US inflation releases.

Gold price (XAU/USD) has witnessed a minor pullback after hitting a high near the critical hurdle of $1,850.00 on Thursday. The precious metal found significant offers amid improvement in the US dollar index (DXY)’s appeal and made a low of $1,840.10. However, a responsive buying action pushed the gold prices higher and at the press time, it is oscillating below $1,850.00.

Advancing uncertainty ahead of the US Inflation is responsible for wild moves in the FX domain. Doubtful breakouts and breakdowns have spooked the market participants. Market consensus is indicating a stable inflation rate at 8.3%, which states that two rate hikes announcements by the Federal Reserve (Fed) in March and May by 25 basis points (bps) and 50 bps have failed to perform their job seriously. A slippage in the core Consumer Price Index (CPI) is expected. The core CPI that excludes food and energy prices may shift lower to 5.9% vs. the prior print of 6.2%.

The price pressures are so high in the US economy that slippage in the US inflation may not support the gold’s appeal, however, a higher print will definitely trim the demand.

Gold technical analysis

On a four-hour scale, the gold price has bounced sharply after sensing a responsive buying action from the upward sloping trendline of the Ascending Triangle which is placed from the May 16 low at $1,786.94. While the horizontal resistance is plotted from May 24 high at $1,869.69. The 50-period Exponential Moving Average (EMA) at $1,850.66 is overlapping with the gold prices, which signals a consolidation ahead. Meanwhile, the Relative Strength Index (RSI) (14) is oscillating in the 40.00-60.00 range and dictates that the precious metal needs a trigger for a decisive move.

Gold four-hour chart

• The price is stuck below the hourly chart's resistance near 1.2550.
• If the bears break the support of 1.2430 then there is a price imbalance to 1.2390 and then 1.2330.

GBP/USD is making tracks to the downside and the bears will be seeking a continuation of the weekly chart as illustrated below. However, the price is trapped between daily resistance and support structure as the following shows.

GBP/USD weekly chart

The price has made a 50% mean reversion on the weekly chart and the bears are moving in again. This could be the last stop before a downside continuation for the weeks ahead. 

GBP/USD daily chart

On the daily chart, however, the price is trapped between resistance and support. A break either way will open the risk of a price imbalance mitigation for the days ahead.

GBP/USD H1 chart

The price will now need to hold below the hourly chart's resistance near 1.2550. If the bears break the support of 1.2430 then there is a price imbalance to 1.2390 and then 1.2330.

• The AUD/JPY retreated from multi-year highs but remained up by 1.12% in the week.
• Wall Street’s finished with hefty losses, and Asian futures are poised to a lower open.
• AUD/JPY Price Forecast: The pullback from around 97.00 might go as lower as 94.00, before re-testing YTD highs.

AUD/JPY plunged more than 1% on Thursday, courtesy of a downbeat sentiment and appetite for safe-haven assets, as worldwide central banks shifted to a restrictive monetary policy, which caused a jump in bond yields. At 95.33, the AUD/JPY is retreating from multi-year highs, down 0.05% as Friday’s Asian session begins.

Sentiment remains negative; safe-haven peers gained

US equities finished Thursday’s session with losses,  between 1.94% and 2.75%. Worries about global central banks restricting access to money might cause an economic slowdown and keeps market players uneasy, flying towards safe-haven assets. On Thursday, the European Central Bank (ECB) announced that it would hike rates in July at a slower rhythm than expected by some ECB hawks.

Recapping the AUD/JPY Thursday’s price action, the cross opened near the daily highs at around 96.80 and fell as soon as Tokyo’s session began. The AUD/JPY dipped towards a fresh two-day low at 95.29 and broke the 1-hour 50 and 100-simple moving averages (SMAs), each sitting at 96.07 and 95.46, respectively.

AUD/JPY Price Forecast: Technical outlook

The AUD/JPY daily chart depicts the pair as upward biased. Thursday’s pullback might extend towards the May 5 high at 94.02, as the Relative Strenght Index (RSI) at 64.17 is aiming lower. Nevertheless, once that area is tested, the AUD/JPY might resume its uptrend.

If that scenario plays out, the AUD/JPY first support would be the 95.00 psychological level. Once cleared, the following support would be the June 7 low at 94.80, followed by the above-mentioned 94.02. Once there, the AUD/JPY buyers could resume the uptrend and challenge the YTD high near 97.00.

Speaking at a New York event, US Treasury Secretary Janet Yellen explained that she does not think the US is going to have a recession. 

Key comments

Expects growth to slow down, but consumer spending is very strong, and investment spending is solid.
Believes there is a path through this that entails a soft landing.
It's unlikely that gasoline prices will fall anytime soon.
Inflation clearly a major problem.
Would not change policies if she could go back in time.
Amazing how pessimistic households are given job gains.

Earlier in the week, Yellen told Congress that the US is facing “unacceptable levels of inflation” on Tuesday as the treasury secretary defended herself from criticism of her previous comments that rising prices were “transitory”.

In response to a question about how she had initially framed inflation, Yellen said: “When I said that inflation would be transitory, what I was not anticipating was a scenario in which we would end up contending with multiple variants of Covid that would be scrambling our economy and global supply chains.

• AUD/USD bears are testing commitments of a key support area on the daily chart. 
• US CPI data will be the focus for the end of the week. 

At 0.7098, AUD/USD is down over 1.25% on the day and is moving in hard on the next critical support area after breaking the prior higher lows of the rising daily trend. This leaves the focus on the downside although a meanwhile correction could be on the cards. With that being said, the markets are risk-off with Wall Street's benchmarks closing in the red on Thursday ahead of Friday's important inflation data. 

Both US and European markets were a sea of red after the European Central Bank signalled it would hike interest rates next month for the first time since 2011. Consequently, eurozone borrowing costs hit an eight-year high when the ECB said inflation would remain "undesirably elevated" for some time. However, the ECB's steps to tackle inflation are not as hawkish as its counterparts at the Federal Reserve nor the Reserve Bank of Australia which earlier this week hiked more than expected. 

Nevertheless, the mood was soured due to inflation concerns and the S&P 500 dropped 2.4%, putting it on track for its ninth losing week in the last 10, with losses accelerating late in the day ahead of a highly anticipated report in US Consumer Price Index report that is due Friday morning in the North American session.

Central Bank observers now expect the Federal Reserve to hike rates by 50 basis points next week, especially if U.S. CPI data on Friday confirms an elevated inflation reading.

The consensus forecast calls for a year-over-year inflation increase of 8.3%, unchanged from April. However, we could see more USD resilience in the very short-term ''especially if US core CPI surprises to the upside,'' analysts at TD Securities argued. 

''Tactically, we see growing signs of an adverse risk backdrop in the coming weeks, as US real rates and equity correlations wane further and the USD peels away from relative US equity performance.''

A stronger CPI ''reading could put downward pressure on risky assets as investors look for the Fed to remain aggressive in its fight against inflation.''

That exposes US equities for which high beta currencies, such as the Aussie, would come under further pressure.

The Fed is scheduled to announce its next policy statement on Wednesday. A rate hike of at least 50 basis points from the central bank is already being priced in, according to CME's FedWatch Tool.

Meanwhile, as for the RBA, its to hike rates by 50 bps this month rather than 25 bps took the market by surprise, in a move that was described by the RBA Governor Phillip Lowe as “doing what is necessary” to ensure that inflation in Australia returns to target over time.   

''A faster trajectory in RBA rate rises is a currency supportive factor,'' analysts at Rabobank said.''However, many other central banks are also hiking aggressively and this will dampen the impact on interest rate differentials.  Moreover, the RBA’s sensitivity to growth risks, such as those that might stem from China’s zero Covid policy, is a potential headwind for the AUD.''

''On the upside,'' the analysts argue, ''the Australian economy should draw protection from a currently strong labour market, a high level of household savings and a healthy financial system.  Pandemic savings in Australia are estimated to be in the region of AUD270 bln.''

''On the other hand.'' the analysts warned, ''there is uncertainty about the hit to consumers from higher mortgage rates, increased fuel prices and the broad hit to real incomes.''

''Bearing in mind the positive impact on Australian terms of trade as a result of higher commodity prices, we see scope for AUD/USD to be moderately higher vs the USD at year-end.''

AUD/USD technical analysis

The price is meeting a support area following the break of prior support and falling outside of the rising trendline support. The M-formation is a reversion pattern which could draw in the price towards the old support and neckline of the pattern. This too has a confluence with the 38.2% Fibonacci retracement level. 

What you need to take care of on Friday, June 10:

The American dollar soared on Thursday as fears took over financial markets. The catalyst was the European Central Bank, as Lagarde & Co. reaffirmed their commitment to raise rates in July, although they anticipated a 25 bps move. Investors were hoping for a 50 bps hike amid inflationary pressures. She added that more hikes are likely in the near future, although the scale of each increment would depend on the medium-term inflation outlook.

Additionally, the central bank upwardly revised the annual inflation forecast, now seen at 6.8% for this year, then decreasing to 3.5% in 2023 and to 2.1% in 2024. On the other hand, growth has been slashed to 2.8% in 2022 and to 2.1% for the next two years.  

The EUR/USD pair plummeted, now trading near the 1.0600 price zone.

The GBP/USD pair fell sub-1.2500, affected by risk aversion but with the Pound was also hurt by comments from UK Prime Minister Boris Johnson, who said that the kingdom is in a better position than in the past when the nation has faced economic difficulties, although he added that there is no quick fix to the situation in Ukraine, one of the reasons of mounting price pressures.  

 The Bank of Canada published a bank stress test, revealing that major banks would incur huge financial losses but would remain resilient in the event of a large and lasting economic shock. The document also showed that monetary policy tightening would put the financial system's resilience to the test and may exacerbate current financial vulnerabilities. The USD/CAD pair is at1.2700 back from an intraday low of 1.2517. Softer crude oil prices weighed on the CAD as the black gold settled at $ 121.10 a barrel.

 The AUD/USD gave up to Wall Street's sell-off and finished the day just below the 0.7100 threshold. Gold weakened within range, now trading at around $1.847 a troy ounce.

USD/CHF and USD/JPY edged higher amid the dollar's strength and higher US government bond yields. The 10-year T note yielded as much as 3.073%, a multi-week high.

US indexes closed dip in the red, with the Nasdaq Composite being the worst performer, down 2.50%.

The focus will be on US inflation on Friday, as the country will release the May Consumer Price Index, foreseen stable at 8.3% YoY. However, the White House warned on Wednesday that the government expects inflation numbers to be "elevated."

• The NZD/USD slumps to fresh three-week lows, despite the RBNZ’s beginning of its QT program.
• US initial Jobless Claims rose more than expected, but market players are focused on US inflation data.
• The RBNZ will begin its Quantitative Tightening (QT) program at an NZ $5 billion rate.

The New Zealand dollar slides for the fifth consecutive day after reaching a daily high at 0.6461. However, the NZD/USD is dipping below the 0.6400 figure amidst a risk-off market mood. At the time of writing, the NZD/USD is trading at 0.6385, down by 0.86%.

Risk-aversion and a firm US Dollar, a headwind for the NZD/USD

On Thursday, the European Central Bank (ECB) kept rates unchanged but laid the ground for a lift-off. Worries that more central banks will begin tightening monetary conditions shift the market mood towards risk-off. That said, the NZD/USD fell as investors sought safe-haven assets in the FX complex, boosting the greenback.

Before Wall Street opened, the US Department of Labor reported that Initial Jobless Claims for the week ending on June 4 increased to 229K, higher than the foreseen 210K. Albeit a negative report, the market mainly ignored it, as they are focused on Friday’s US inflation report.

The May Consumer Price Index (CPI) is expected to print 8.3% YoY, in line with the previous two readings. Meanwhile, the core CPI is estimated to hit 5.9% YoY. Late in the day, the University of Michigan would release the preliminary reading for June of its Consumer Sentiment report, which would give investors a guide on how US citizens deal with the current economic outlook.

During the Thursday Asian session, the Reserve Bank of New Zealand is getting ready to unwind its pandemic stimulus program and will begin selling its securities back to the Treasury Department debt office at a rate of NZ $5 billion. The following RBNZ monetary policy will be on July 15, in which market players expect another 50 bps rate hike to leave the Overnight Cash Rate at 2.50%.

Key Technical Levels

• EUR/USD bears are in control and the price is at the edge of the abyss. 
• The 50% mean reversion weekly target is vulnerable. 

As per the pre-ECB analysis from Thursday's Asian morning session, EUR/USD Price Analysis: Bears are stalling bullish advances at key resistance, 50% mean reversion eyed, the euro has come under immense selling pressure and moved in on a critical area of price imbalance which leaves the 50% target vulnerable. 

EUR/USD weekly chart, prior analysis

The W-formation was spotted on the weekly chart, a reversion pattern that leaves the 50% mean reversion target vulnerable for the time ahead. 

EUR/USD live market, weekly, daily & H1 charts

The price extended the correction towards the target as illustrated above.

From a daily perspective, there is an M-formation being formed from Thursday's price action. However, while this too is a reversion pattern, there is a price imbalance between June 1's low and May 20 lows of 1.0532 that the bears are embarking on. Mitigation of this price area, around 80 pips to the downside, could play out over the course of the next sessions if bears stay in control. 

From an hourly perspective, the price is testing the mitigation area, but the drop could be ripe for a meanwhile correction:

• USD/JPY dips towards 134.00 as buyers book profits ahead of Friday’s US CPI.
• Sentiment remains negative as US equities record losses.
• USD/JPY Price Forecast: The major is upward biased, but negative divergence in the weekly/daily chart might open the door for a pullback towards 131.00.

The USD/JPY retreats from 2-decade highs around 134.55 but is trimming substantial losses, and albeit losing 0.09%, is preparing for a test of the 135.00 figure. At the time of writing, the USD/JPY is trading at 134.20, a signal that traders are booking profits ahead of the release of US inflation data on Friday.

USD/JPY falls as bulls take profits

A dismal market mood keeps global equities pressured. In the FX space, the safe-haven currencies are rising. The USD/JPY is dropping, as above-mentioned by profit-taking and the closeness of the 135.00 mark, seen by some Japanese officials as a line of the sand to intervene in the FX markets.

In the meantime, the US Dollar remains bid, gaining 0.59% as portrayed by the US Dollar Index. The DXY is sitting at 103.151, underpinned by the US 10-year benchmark note rate parked around 3.033%.

Elsewhere, the USD/JPY topped around 134.50 and edged lower, breaking demand zones on its way south, like the daily pivot point at 133.74 and stopped shy of the S1 pivot point, at 133.01.

USD/JPY Price Forecast: Technical outlook

The USD/JPY monthly chart depicts the pair as upward biased, but RSI readings at 83 suggest the major might be about to peak soon. However, a rally towards 2002’s yearly high at 135.16 is on the cards. If the USD/JPY clears that hurdle, then a move towards the August 1998 high at 147.67 is on the cards.

The USD/JPY weekly chart illustrates the formation of a negative divergence between price action and the Relative Strength Index (RSI). If that scenario plays out, the USD/JPY could fall towards 131.34.

The USD/JPY daily chart portrays the pair as in a strong uptrend, recording gains of more than 700 pips in the last ten trading days. Nevertheless, the USD/JPY lost 0.19% in one of those ten days and at the time of writing, is down by 0.04%. Also, a negative divergence between price action and the RSI formed and might open the door for a pullback.

That said, the USD/JPY’s first support would be the June 7 low at 132.54. A breach of the latter would expose the June 6 low at 131.84, followed by the May 9 swing high-turned-support at 131.34.

• The gold price is picking up a safe-haven bid amid global inflation concerns and risk-off markets.
• XAU/USD is rounding off a correction in the 38.2% Fibonacci retracement area.

At $1,850, the gold price is bouncing back from a low of $1,840.10 and has recovered to a high of $1,844.41 so far on the day as investors fear worsening inflation risks. The US Treasury's 30-year auction hit a high yield of 3.185% on Thursday, up from the 2.997% high in the previous auction and the US 10-year yield climbed to a fresh high of 3.07% intraday.

Gold is firmer despite a strong US dollar. The DXY index that measures the US dollar vs. a basket of currencies has rallied from a low of 102.152 to score a high of 103.23 so far on Thursday while the euro and US stocks gave up earlier gains after the latest policy announcement by the European Central Bank (ECB) that revised up its inflation projections "significantly" and unveiled plans for an interest rate hike in July.

ECB: Lower growth, higher inflation

The euro has dropped like a stone, falling over 0.8% already while the Dow Jones Industrial Average fell 0.45% after midday with the S&P 500 down 0.66% and the Nasdaq Composite 0.8% lower. Consequently, gold is enjoying a safe-haven bid.

The ECB announced the end of QE and signalled a 25bp rate hike in July while its forward guidance also set out the prospect of sustained rate hikes, even opening the door for larger steps.

''If the medium-term inflation outlook persists or deteriorates, a larger increment will be appropriate at the September meeting,'' the central bank said.

''This means that the ECB will only refrain from a 50bp step if the inflation outlook improves, which makes the larger hike look very likely,'' analysts at ABN Amro explained. 

However, a concern in markets came from the lack of any details for a plan about dealing with fragmentation concerns. The ECB has warned that the divergence between borrowing costs for different European countries hampers the execution of its monetary policy. Traders, as well as being concerned about lower growth but much higher inflation, took that as a green light to sell the euro and this pushed the greenback towards its second straight weekly gain and biggest weekly gain in five.

The ECB significantly lowered its forecast for Gross Domestic Product growth and raised its forecasts for inflation in 2022-2024. Headline inflation now is projected to be 6.8% in 2022, 3.5% in 2023 and 2.1% in 2024 on average (up from 5.1%, 2.1% and 1.9%, respectively). The central bank’s forecasts for GDP growth during the entire period 2022-2024 have been revised lower by 1.1 percentage points in total. The forecast for 2022 now is 2.8% (was 3.7%), for 2023 2.1% (was 2.8%) and for 2024 2.1% (was 1.6%).

US inflation in focus

Meanwhile, traders will get a look at the latest reading on US inflation on Friday in the form of the May Consumer Price Index (CPI). The consensus forecast calls for a year-over-year inflation increase of 8.3%, unchanged from April. However, we could see more USD resilience in the very short-term ''especially if US core CPI surprises to the upside,'' analysts at TD Securities argued. 

''Tactically, we see growing signs of an adverse risk backdrop in the coming weeks, as US real rates and equity correlations wane further and the USD peels away from relative US equity performance.''

A stronger CPI ''reading could put downward pressure on risky assets as investors look for the Fed to remain aggressive in its fight against inflation.''

The Fed is scheduled to announce its next policy statement on Wednesday. A rate hike of at least 50 basis points from the central bank is already being priced in, according to CME's FedWatch Tool.

Meanwhile, the analysts at TD Securities argued that ''a growing valuation gap between gold and real rates might eventually exacerbate the repricing lower in the yellow metal, despite it being attributed to both an undue rise in real rates given quantitative tightening, and to the still-massive complacent length in the yellow metal which has kept the prices elevated.''

Gold technical analysis

The gold price is rounding off a correction in the 38.2% Fibonacci retracement area and a subsequent series of offers could see the bulls off, sending the price significantly lower in the coming days. A snowball effect would likely squeeze length and result in a downside continuation on the weekly chart. On the other hand, should the bulls manage to stay the course, the daily chart's prospects opens the risk towards $1,920 (weekly 61.8% Fibo):

• The British pound clings to weekly gains of 0.24%, ahead of next week’s key events.
• Sentiment remains dismal, a headwind for the GBP/USD.
• GBP/USD Price Forecast: Buyers’ failure to recapture 1.2600 might open the door for selling pressure.

The British pound is sliding for the second consecutive day, after reaching a daily high near 1.2560, retreated and eyes for a re-test of the 1.2500 figure. At 1.2509, the GBP/USD falls courtesy of a dismal market mood, influenced by the ECB, which is preparing to lift off rates, although it would be done “gradually,” as ECB’s President Mrs. Lagarde acknowledged.

Sentiment, high US Treasury yields, and a strong USD weigh on the GBP/USD

Also, a risk-off mood keeps high-beta currencies, like the GBP, pressured. In the FX space, safe-haven peers led by the greenback rise, despite a higher reading in unemployment claims. The Initial Jobless Claims for the week ending on June 4 increased by 229K, worse than the 210K foreseen. The report shows that while the labor market remains tight, data indicates that there has been an uptick in layoffs.

Despite being a negative report, the buck remains in the driver’s seat, boosted by higher US Treasury yields. The 10-year US Treasury yield is rising two and a half basis points, at 3.051%, underpinning the greenback. The US Dollar Index, a measure of the US Dollar value vs. a basket of six currencies, advances close to 0.50% and is back above the 103.000 mark, which was last reached on May 23.

Aside from this, UK Prime Minister Boris Johnson said that its the time to cut taxes in the UK while announcing a house-buying scheme, aiming to give people an opportunity to buy a house.

In the week ahead, the US Consumer Price Index (CPI) May report looms. The headline figure expectation on an annual basis is 8.3%. The so-called core CPI, which excludes food and energy, is foreseen at 5.9% YoY. Additionally, the University of Michigan Consumer Sentiment report will shed some light on how households feel about the US economy, alongside inflation expectations for five years.

GBP/USD Price Forecast: Technical outlook

The GBP/USD daily chart depicts the pair remains downward pressured, though consolidating in a wide 1.2450-1.2600 range. The daily moving averages (DMAs) stay above the exchange rate and accelerate downwards. It’s worth noting that the Relative Strength Index (RSI), pushed to positive territory, though of late, is back below the 50 mid-line, which exacerbated the GBP/USD fall in the last two days.

Hence, the GBP/USD bias favors sellers. The GBP/USD first support would be the 1.2500 figure. A breach of the latter will send the pair towards challenging the June 7 swing low at 1.2430. Once cleared, the next demand level would be May 17, 1.2313 daily low, followed by the YTD Low at 1.2155.

On Thursday, as expected the European Central Bank (ECB) kept rates unchanged, confirmed it would end the purchase program (APP) in July and said it intends to raise interest rates in July by 25bps. Analysts at Wells Fargo point out that market participants and the ECB are unlikely to contemplate multiple 50bps rate hikes and see the ECB moving more gradually than the Federal Reserve, indeed expecting a softer EUR/USD. 

Key Quotes: 

“We acknowledge a larger move in September is not yet a done deal, and with ultimately depend on the inflation and activity data in the interim, but we are leaning in the direction of a larger increase at that September meeting. By December however, we see a greater chance that headline inflation will begin to recede even if energy prices simply stabilize, and that high energy prices will begin to weigh more noticeably on economic activity.”

“We expect the ECB to increase its Deposit Rate by 25 bps in July, 50 bps in September, and by 25 bps at each of the meetings in December 2022, March 2023 and June 2023, which would lift the Deposit Rate to +0.50% by the end of 2022, and +1.00% by mid-2023.”

“We believe it is unlikely the European Central Bank, or market participants, will contemplate multiple 50 bps rate hikes, and the ECB is still projected to raise interest rates much more gradually than the Federal Reserve over the medium-term. Thus, we do not expect today's announcement to be very supportive of the euro over time, and indeed still see a weaker euro versus the U.S. dollar over the medium-term.”

• Swiss franc rises across the board after the ECB meeting.
• Euro under pressure even as ECB announces it “intends to raise rates in July”.
• EUR/CHF off lows, still down by more than 50 pips.

The EUR/CHF reversed sharply on Thursday, falling 150 pips from the daily high to a three-day low in a few minutes on the back of the European Central Bank meeting.

EUR/CHF rejected from above 1.0500

After the ECB released the statement the EUR/CHF peaked at 1.0513. But again, as it happened in May, the euro was rejected and started to decline. It continues to face a strong resistance around 1.0500. On the flip side, on a closing basis, key support levels are seen at the 1.0400 zone and below at 1.0250.

The downside accelerated on Thursday after Lagarde’s press conference. The cross bottomed at 1.0370 and then rebounded. As of writing, it trades at 1.0415/20, off lows but still down more than 50 pips. It is the first daily decline after rising during five consecutive days.

The ECB announced the end of net purchases under the APP programme on 1 July and that they intend to raise interest rates by 25bp in July. For September, the ECB kept the door open to a larger hike depending on data.  The euro weakened even as German bond yields soared to the highest level since 2014.

“The SNB (Swiss National Bank) has sent out initial signals that it, too, is prepared to raise interest rates in the foreseeable future. First, however, it is likely to be the ECB's turn, which should support EUR/CHF. But only moderately, because the SNB is also likely to initiate the interest rate turnaround in September”, explained analysts at Commerzbank.

Technical levels

The European Central Bank held its meeting on Thursday. It announced the end of the purchase program (APP) by July 1st, kept interest rates unchanged as expected, and said it intends to raise rates in July by 25bp. Analysts at Danks Banks point out risks are still skewed for more than one 50bp rate hike, but with the current very uncertain outlook, we expect the economic outlook will dampen the medium inflation pressure, paving the way for ‘only’ 25bp hike. They still see the EUR/USD pair moving toward 1.00. 

Key Quotes: 

“For EUR/USD, ECB is provided some well-sought after clarity as to the entire likely policy path in to and including Q4. Further, this guidance appear quite in line with the market’s view. We are seeing a mild widening of credit spreads (higher Italian rates vs Germany) and during the press conference, and EUR/USD unwound some of the initial strength – likely due to the credit/risk aversion channel. This is well in line with the observation that FX strength upon hawkish central banks has faded rather fast and we have recently seen that in SEK, AUD and Eastern Europe. Also, EUR strength on ECB guidance has faded multiple events in the last 3-6 months.”

“In our view, this ECB meeting confirms our view that rate hikes are a global phenomenon intended to make markets rotate towards less risky positions and a lower EUR/USD spot is part of such a rotation. For Europe, widening spreads is also crucial to why EUR/USD heads south as we price in higher rates. Looking ahead, we continue to see EUR/USD towards 1.00 in 12m.”
 

• Euro under pressure after ECE meeting and despite higher yields.
• US dollar gains momentum as market sentiment deteriorates.
• EUR/USD falls to test 20-day Simple Moving Average.

The EUR/USD dropped further during the American session and bottomed at 1.0643 reaching the lowest level in a week amid a stronger US dollar on the back of risk aversion triggered by higher yields.

Euro unable to benefit from ECB shift

The euro peaked versus the US dollar on Thursday at 1.0773, the highest level in a week following the European Central Bank announcement. The central bank, as expected, kept interest rates unchanged and said it intends to raise rates at the July meeting by 25 bps.

“We adopt the ECB's implied near-term profile, and now expect a 25bps hike in July and a 50bps hike in September. Beyond that, we look for a further 50bps hike in October before the ECB slows the pace to 25bps hikes in December, February, and March. This would take the depo rate to 1.50%, which we believe is the ECB's estimate of its neutral rate”, explained analysts at TD Securities.

During Lagarde’s press conference the euro lost momentum even as German bond yields hit fresh multi-year highs at 1.46%. EUR/CHF tumbled from above 1.0500 to 1.0370 and EUR/GBP hit level under 0.8500.

In the US, Initial Jobless Claims rose more than expected, to the highest level in 20 weeks. On Friday, May’s CPI is due and next week is the FOMC meeting.

Testing the 20-day SMA

The slide of the EUR/USD so far found support around the 1.0635 zone. It is a relevant area that also contains the 20-day Simple Moving Average. A daily close below should weaken the outlook for the euro, exposing the next support level at 1.0585 followed by 1.0520.

If the pair remains above 1.0640 it will likely continue to trade in the range 1.0640/1.0750. A break above the upper limit should clear the way for an extension of the recovery.

Technical levels

• The USD/CAD recovers some ground and is positive in the week, up by 0.42%.
• BoC’s Macklem said that the Canadian economy is overheating and needs higher rates.
• USD/CAD Price Forecast: A break above 1.2700 would give control to buyers; otherwise, further downside is expected.

The USD/CAD rebounds from weekly lows at around 1.2510s and advances firmly during the North American session amidst a risk-off market mood that boosted the greenback and safe-haven currencies in the FX space. At 1.2647, the USD/CAD records gains of 0.71% at the time of writing.

Elevated US Treasury yields, a buoyant US dollar, and falling oil prices weigh on the CAD

On Thursday, the USD/CAD is pushing upwards, spurred by higher US Treasury yields. The 10-year benchmark note sits at 3.055%, up by two basis points, and underpins the buck. The US Dollar Index, a gauge of the greenback’s value, sits at 102.977, gaining almost 0.50%, a tailwind for the USD/CAD.

Falling crude oil prices also weigh on the Loonie. Western Texas Intermediate (WTI), the US crude oil benchmark, is at $121.83 per barrel, losing 0.27%.

Meanwhile, US economic data showed that Jobless Claims for the week ending on June 4 rose to 229K, higher than the 210K expected. Sources cited by Bloomberg said, “However, while we think labor markets are still currently quite tight, we can’t totally dismiss the notion that the rise in claims is a sign of a modest rise in layoffs.”

In the meantime, the Bank of Canada (BoC) Governor Tiff Macklem is crossing wires. When asked if households could handle a larger than 50 bps increase, he said the bank needs to take a larger step. He added that the chances of rates going above 3% have risen, meaning that the BoC would need more or bigger rate increases.

Macklem added that the Canadian economy is overheating and needs higher rates.

On Friday, the Canadian economic docket will reveal employment data. At the same time, the US calendar will announce US inflationary figures, with the Consumer Price Index (CPI) expected to rise to 8.3%. Excluding volatile items, ais expected at 5.2%. Also, later in the day, the UoM Consumer Sentiment will shed some light on how households feel about the US economy, alongside inflation expectations for five years.

USD/CAD Price Forecast: Technical outlook

The USD/CAD is neutral-downward biased, despite the two-day rally of almost 130 pips. The thesis is reinforced by the Relative Strength Index (RSI), at 45.18, is aiming higher, but unless it crosses bullish territory, it might shift downwards. Additionally, if the daily moving averages (DMAs) remain above the exchange rate, that would favor sellers, giving them better price entries.

If the USD/CAD is to shift to a neutral bias, buyers need to lift the pair to move above the 1.2658-1.2700 confluence of the 200 and the 100-DMA. Once cleared, that would pave the way for further gains. Otherwise, the USD/CAD first support would be 1.2600. Break below would expose the June 8 swing low at 1.2517, followed by the June 25 swing low at 1.2458.

• AUD/USD slumped to the low-0.7100s from near 0.7200 on Thursday as risk appetite worsened after a hawkish ECB announcement.
• That meant fresh weekly lows for the pair that failed to derive a lasting boost from this week’s RBA surprise.
• Having now snapped a medium-term uptrend, the pair is eyeing a test of its 21DMA.

The Australian dollar turned sharply lower on Thursday as broader market risk appetite took a turn for the worse in wake of the ECB’s hawkish policy announcement (which weighed on European equities) and amid a fall in industrial metal prices, with Bloomberg’s Industrial Metal Subindex last down around 2.0% on the day as traders watch Covid-19 updates in China.

As a result, AUD/USD has slumped nearly 1.0% from the upper 0.7100s to fresh weekly lows around the 0.7120 mark and is eyeing a test of its 21-Day Moving Average around the 0.7100 level. Tuesday’s post-larger than expected RBA rate hike and more hawkish than expected RBA rate guidance upside in the Aussie has proven short-lived.

Technicians will likely view the recent drop in AUD/USD as signaling the end of a bull run that had seen the pair rally over 6.5% from multi-year lows in low-0.68s to last week’s highs in the upper 0.7200s. Ahead, the main event for the remainder of the week will be Friday’s US Consumer Price Inflation report.

If the data reveals US price pressures to have eased in May, then that could provide AUD/USD with some respite via 1) a weaker US dollar as traders pare back their Fed tightening bets ahead of next week’s meeting and 2) via a likely improvement in risk appetite as inflation fears ebb.

AUD/USD bulls will be hoping for US inflation to trend lower from here on out, meaning a lasting drop in the buck and improvement in risk appetite, which could see AUD/USD resume its recent uptrend. But for now, traders will likely want to keep their powder dry.

• Gold Price witnessed some selling on Thursday amid a further rise in the US bond yields.
• Hawkish central banks further contributed to driving flows away from the commodity.
• A softer risk tone, modest USD downtick extended some support and helped limit losses.

Gold Price edged lower on Thursday and was last seen trading around the $1,848-$1,847 region, just above the very important 200-day SMA support. Elevated US Treasury bond yields, bolstered by hawkish Fed expectations, turned out to be a key factor that weighed on the XAUUSD. That said, some intraday US dollar selling, along with a generally weaker risk tone, helped limit deeper losses for the XAUUSD, at least for the time being.

Gold Price weighed down by hawkish central banks

Following a brief retracement during the early part of the week, the 10-year US bond yield climbed back above the 3.0% threshold amid concerns about rising inflation. Crude oil prices climbed to their highest levels since early March amid an improving demand outlook. Apart from this, the global supply-chain disruptions caused by the Russia-Ukraine war and the COVID-19 lockdowns in China could put upward pressure on already high consumer prices. This might force the US central bank to tighten its monetary policy at a faster pace, which remained supportive of the recent rally in the US bond yields.

The European Central Bank also hinted that it intends to raise interest rates by 25 bps in July and left the door open for a potential 50 bps hike in September. In the monetary policy statement, the ECB said that if the medium-term inflation outlook persists or deteriorates, a larger increment will be appropriate at the September meeting. This comes on the back of a 50 bps rate hike by the Reserve Bank of Australia and the Reserve Bank of India on Tuesday and Wednesday, respectively, which continued acting as a headwind for the non-yielding yellow metal.

Subdued USD demand, softer risk tone lend support

Meanwhile, the post-ECB buying around the shared currency weighed on the greenback and held back traders from placing aggressive bearish bets around the dollar-denominated XAUUSD. Meanwhile, doubts that major central banks can hike interest rates to curb inflation without impacting economic growth continued weighing on investors' sentiment. This was evident from the prevalent cautious mood around the equity markets, which could further lend some support to the safe-haven precious metal. Investors might also prefer to wait on the sidelines ahead of the US consumer inflation figures, scheduled for release on Friday.

Focus remains on US CPI

The US inflation report would determine the Fed's policy tightening path and influence the near-term USD price dynamics. This, in turn, should provide a fresh directional impetus to the XAUUSD, which is often considered a hedge against inflation. According to Joseph Trevisani, Senior Analyst at FXStreet: Even though Fed policy for at least the next two meetings will not be affected by the CPI results for May or June, there is considerable room for a market response depending on the deviation from forecasts. Market risk lies primarily with a higher than predicted inflation number. There are good reasons to suspect that a portion of the May oil and gas price increases were not captured in the analysts surveys that produce the forecasts.

Inflation fears

Gold Price technical outlook

Gold Price continued showing some resilience near a technically significant 200-day SMA. The said support, currently near the $1,842-$1,841 region, should act as a pivotal point, which if broken decisively could drag the XAUUSD to the $1,830 region. The downward trajectory could further get extended towards the $1,810-$1,808 intermediate support en-route the $1,800 round-figure mark.

On the flip side, the weekly high, around the $1,860 region touched on Wednesday, now seems to act as an immediate strong barrier ahead of the $1,870 supply zone. Sustained strength beyond the latter would negate any near-term bearish bias and lift the XAUUSD to the $1,885-$1,886 area. Bulls might eventually aim back to reclaim the $1,900 mark for the first time since early May.

Gold Price draws support from worsening economic outlook

The Bank of Canada said on Thursday that it is paying particular attention to the fact that a greater number of Canadian households are carrying high levels of mortgage debt, reported Reuters. 

Additional Takeaways:

Financial system vulnerabilities have become more complex, and risks have become more elevated. 

Vulnerabilities associated with elevated house prices increased further over the past year and evidence implies that the overall proportion of highly indebted households likely surpassed its pre-pandemic peak in 2021. 

It is too early to tell whether the recent decrease in housing resale activity and prices will be temporary or the beginning of a substantial correction. 

Those who entered the housing market over the last year would be more exposed in event of a significant price correction. 

Vulnerabilities associated with elevated household indebtedness and high house prices increase the downside risks to future GDP growth. 

The tightening of monetary policy globally will test the resilience of the financial system and could worsen existing financial vulnerabilities. 

Effects on the real economy could be significant if a trigger event occurs, even as systemically important financial institutions remain resilient. 

Stress-testing exercises showed major banks would suffer significant financial losses but remain resilient in case of a large and persistent economic shock. 

Market participants' confidence in the resilience of the Canadian financial system has hit its highest level reported. 

Publicly traded non-financial businesses are generally in good financial shape and appear well-positioned to handle higher rates. 

Fragile liquidity in fixed-income markets remains an ongoing structural vulnerability while the risk of a quick repricing of assets exposed to climate change has increased. 

New outbreaks of Covid-19 in China and associated lockdowns are another source of concern to the global economy and inflation. 

The risk of a further disorderly repricing of risk remains, which could lead to much tighter financial conditions globally and in Canada. 

• Silver fell to fresh weekly lows under its 21DMA after a hawkish ECB announcement but remains within recent ranges.
• XAG/USD was last trading near $21.80, down 1.0% as focus turns to Friday’s US CPI and next week’s Fed meeting.

Spot silver (XAG/USD) was trading with a negative bias at weekly lows in the $21.80 per troy ounce area on Thursday, down around 1.0% on the day, in wake of a hawkish ECB policy announcement that saw the bank signal a 25 bps rate hike next month plus the end of QE and a possible 50 bps hike in September depending on the development of the outlook for inflation.

But that still leaves XAG/USD well within recent ranges and support in the form of the 21-Day Moving Average at $21.80 continues to hold. Silver is thus currently close to the middle of a $21.50-$22.50ish range that has been in play since the end of May and traders will be looking to Friday’s US Consumer Price Inflation data and next Wednesday’s Fed meeting to see whether things get shaken up.

Silver bulls will be hoping for Friday’s inflation data to surprise to the downside and reinforce the idea that US inflation has now peaked, thus likely resulting in some further paring back of Fed tightening bets. This would weigh on US yields and the buck, both of which are typically positive for precious metals.

Meanwhile, the Fed is widely expected to raise interest rates by 50 bps at next week’s meeting (and again in July), so this shouldn’t come as a surprise to hurt silver. What will be more important is Fed Chair Jerome Powell’s commentary in the post-meeting press conference on the outlook for rate hikes beyond July.

If he starts sounding a little more confident that inflation is going to fall back from current elevated levels/concerned about the weakening US economy, then that, if CPI also surprised to the downside, could help XAG/USD rally into the $23.00-$23.50 area, where it would run into resistance in the form of its 50 and 200-Day Moving Averages.

• EUR/USD could not sustain the uptick beyond 1.0770.
• Next on the downside emerges the June low around 1.0630.

EUR/USD’s ECB-induced bullish attempt ran out of steam in the 1.0770 region on Thursday.

The inability of spot to surpass the 4-month resistance line near 1.0740 carries the potential to spark a corrective leg lower sooner rather than later. That said, there is an initial support at the so far June low at 1.0627 (June 1).

In the longer run, the pair’s bearish view is expected to prevail as long as it trades below the 200-day SMA at 1.1209.

EUR/USD daily chart

In response to a question about whether the European Central Bank's (ECB) commitment to prevent fragmentation in the Eurozone is enough to prevent it, President Christine Lagarde gave an unconvincing response, where she essentially just repeated the commitment the ECB made to prevent fragmentation that might impair the transmission of its monetary policy. Various commentators on Twitter accused Lagarde of not wanting to admit that the ECB hasn't yet created an actual monetary policy tool to prevent transmission. 

Market Reaction

The ECB's hawkish policy announcement on Thursday in which they highlighted a 25 bps hike in July and a likely 50 bps hike in September appears to have sparked fears of Eurozone economic fragmentation, as represented by the underperformance of so-called peripheral Eurozone bonds versus core bonds. For example, whilst German 10-year yields were last trading around 7 bps higher in the 1.40% area, Italian 10-year yields had jumped around 20 bps in wake of the ECB from around 3.45% to 3.65%.  

• EUR/USD fades the post-ECB uptick to the 1.0770/75 band.
• The ECB plans to hike rates by 25 bps in July.
• A larger rate hike depends on the progress of inflation.

EUR/USD advanced to multi-day highs past 1.0770, although that move rapidly fizzled out and motivated spot to slip back below the 1.0700 mark on Thursday.

EUR/USD looks offered, as investors digest Lagarde’s presser

EUR/USD now looks volatile after hitting tops in the 1.0770 region on Thursday.

Indeed, sellers seem to be gaining ground following the press conference by Chair Lagarde and after the ECB left its interest rates unchanged at its meeting.

Actually, Lagarde suggested that the outlook for the future has worsened, while near-term activity is expected be negatively affected by higher energy costs and price increases has spread across other sectors. She also added that risks to inflation remain tilted to the upside.

Lagarde said that the policy decision was unanimous and the bank intends to raise rates by 25 bps in July, while a larger hike will be dependent on how inflation evolves in the next months.

What to look for around EUR

EUR/USD continues to trade in a side-lined mood near 1.0700 for the time being.

The pair’s recent multi-week recovery has been on the back of supportive ECB-speak, which continued to point at an initial rate hike as soon as in July, while the consensus view that the bond-purchase programme should end at some point in early Q3 has also lent legs to the European currency.

However, EUR/USD is still far away from exiting the woods and it is expected to remain at the mercy of dollar dynamics, geopolitical concerns and the Fed-ECB divergence, while higher German yields, persistent elevated inflation in the euro area and a decent pace of the economic recovery in the region are also supportive of an improvement in the mood around the euro.

Key events in the euro area this week: ECB Interest Rate Decision (Thursday).

Eminent issues on the back boiler: Speculation of the start of the hiking cycle by the ECB as soon as this summer. Asymmetric economic recovery post-pandemic in the euro bloc. Impact of the war in Ukraine on the region’s growth prospects.

EUR/USD levels to watch

So far, spot is losing 0.04% at 1.0712 and a breach of 1.0627 (monthly low June 1) would target 1.0532 (low May 20) en route to 1.0459 (low May 18). On the other hand, immediate up barrier emerges at 1.0786 (monthly high May 30) seconded by 1.0933 (100-day SMA) and finally 1.0936 (weekly high April 21).

When questioned on why the European Central Bank (ECB) has signalled its intention to raise interest rates by 25 bps in July and not by 50, President Christine Lagarde said that it is good practise to start an interest rate hiking cycle with an incremental increase that is sizeable, but not excessive, as per a tweet by Bloomberg's Jonathon Ferro. 

European Central Bank (ECB) President Christine Lagarde said on Thursday in the Q&A section of her post-ECB meeting press conference that the ECB needs to ensure that fragmentation doesn't prevent the transmission of its monetary policy, reported Reuters. If necessary, the ECB can deploy new instruments to tackle fragmentation, she added. 

On a separate note, Lagarde warned that when the ECB revisits its inflation forecasts in September, if the ECB staff see 2024 inflation coming in at 2.1% or higher, then a larger than 25 bps rate hike is likely at that meeting. Meanwhile, Lagarde noted that the ECB deliberately didn't discuss the neutral rate of interest on Thursday. 

European Central Bank (ECB) President Christine Lagarde said on Thursday in the opening remarks of her post-meeting press conference that inflationary pressures have broadened and remain undesirably high, which is a major challenge, reported Reuters. Moreover, price pressures are becoming more widespread across sectors, she added. 

Near-term economic activity is to be dampened by high energy costs, she noted, noting that the war in Ukraine and recent lockdowns in China have made supply chain snags worse. Wage growth has started to pick up, Lagarde continued, and the initial signs of inflation expectations above target warrant monitoring. The war in Ukraine is a big downside risk to economic growth, while risks to inflation are primarily tilted towards the upside. 

• Weekly initial jobless claims rose to 229K, above expected. 
• Currency markets did not react, given they are more focused on the ECB right now. 

There were 229,000 initial jobless claims in the week ending on 4 June, above the prior week's reading of 202,000 and expectations for a rise to 210,000. That pushed the four-week average higher to 215,000 from 207,000 a week earlier. 

Continued jobless claims in the US in the week ending 28 May remained unchanged versus one week earlier at 1.306M, almost bang in line with market expectations. That meant the insured unemployment rate remained unchanged at 0.9%. 

Market Reaction

Currency markets did not react to the latest US weekly jobless claims figures and are instead much more focused on the ECB right now. 

The Reserve Bank of Australia’s (RBA’s) aggressive hike did not help the aussie much, with equities fragile. Post-FOMC next week, once the dust settles, economists at Westpac expect to see the AUD/USD a little softer, near 0.7100.

RBA cash rate pricing is aggressive

“Aggressive market pricing for RBA tightening reinforces the aussie’s fundamentals and should limit the scale of pullbacks for months to come. A previously very shaky support pillar has been shored up.”

“FOMC meetings often deliver volatility, but when the dust settles, we should see AUD/USD at the lower end of recent ranges, near 0.7100, with risks lower until the global mood brightens.”

The overall burden of taxes in the UK is high and must come down, UK PM Boris Johnson said on Thursday in a speech, reported Reuters. The time has come for the government to enact supply-side reforms, he continued, noting that it is time to start cutting taxes and regulations. 

Boris had previously said that the UK's position is better than in the past when the nation has faced economic difficulties and that the UK government has the fiscal firepower to help, and it will. 

As broadly expected, the ECB left rates unchanged today.  What’s more, the European Central Bank (ECB) has signaled its intent to raise rates by 25 bps in July but left the door open to a 50 bps move in September. Still, economists at TD Securities do not believe that the EUR/USD is ready to push higher.

EUR/USD is at risk of returning to sub-1.07 If Lagarde cannot sound more hawkish

“ECB institutionalized dovishness wins out by essentially saying that it ‘intends to’ hike by 25 bps in July.” 

The ECB did throw a bone to the hawks by opening the door to a 50 bps hike in September if high inflation is sustained. But, with the ECB still focusing on ‘gradualism’ and a small upgrade to 2024 inflation (to 2.1%), we do not get the sense that EUR/USD is ready to push higher, particularly with the risk of a stronger US core CPI read tomorrow (on a MoM basis).”

“If Lagarde cannot sound more hawkish in the press conference, EUR/USD is at risk of returning to sub-1.07.”

UK PM Boris Johnson said on Thursday in a speech that the UK's position is better than in the past when the nation has faced economic difficulties, reported Reuters. However, the price of oil, gas, grain and feed looks likely to remain high, he added, noting that there is no quick fix to the situation in Ukraine. But the economic consequences of the war in Ukraine will abate over time, he said. 

The UK has the fiscal firepower to help, and it will, Boris said. The government will help the British people for as long as it takes, he continued, caveating that no government can afford to shield everyone from the rising cost of living. When facing inflation, "you can't just pay people more", as this risks an inflationary spiral, he cautioned, adding that the only cure for this is higher interest rates. 

Lee Sue Ann, Economist at UOB Group, sees the BoJ sticking to its ultra-accommodative policy stance at the June 17 meeting.

Key Quotes

“Although Japan’s inflation has climbed in recent months, BOJ Governor Kuroda does not see 2% inflation in Japan as sustainable ‘when it’s triggered by a rise in commodity prices and worsening trade factors’ with wage growth still absent.”

“So, both Japan’s lacklustre economic recovery and the challenging growth outlook will imply the BOJ will not be tightening or signalling to do so anytime in 2022.”

• EUR/USD advances on a firmer note to 1.0750.
• ECB left its key rates unchanged, matching expectations.
• Investors now look to Lagarde’s press conference.

The buying bias in the single currency gathers extra steam and lifts EUR/USD back to the 1.0750 region, or 3-day highs, in the wake of the ECB interest rate decision.

EUR/USD now focuses on Lagarde

EUR/USD now adds to the weekly recovery after the ECB left intact the interest rate on the main refinancing operations, the interest rate on the marginal lending facility and the deposit facility at 0.00%, 0.25% and 0 -0.50%, respectively.

In its statement, the ECB plans to end the net asset purchase under the APP in July and hike rates by 25 bps later in the same month. If the inflation outlook worsens, then a larger hike in September could be on the cards.

The ECB revised its macro projections and now sees headline inflation at 6.8% this year, 3.5% in 2023 and 2.1% in 2024. Regarding GDP, the bank sees the economy expanding 2.8% in 2022 and 2.1% in 2023.

Moving forward, market participants will now closely follow the usual press conference by Chairwoman Lagarde and the subsequent Q&A session.

EUR/USD levels to watch

So far, spot is gaining 0.20% at 1.0737 and faces the next hurdle at 1.0786 (monthly high May 30) seconded by 1.0933 (100-day SMA) and finally 1.0936 (weekly high April 21). On the downside, a breach of 1.0627 (monthly low June 1) would target 1.0532 (low May 20) en route to 1.0459 (low May 18).

• EUR/GBP witnessed some selling after the ECB announced its monetary policy decision.
• Hints of a 25 bps rate hike in July disappointed some investors and weighed on the euro.
• Traders seemed reluctant to place aggressive bets ahead of the post-meeting presser.

The EUR/GBP cross quickly reversed an intraday dip to the 0.8530 region that followed the European Central Bank policy decision and was last seen trading just a few pips below the daily high.

As was widely expected, the ECB decided to leave its key rates unchanged at the end of the June monetary policy meeting this Thursday and said that it intends to hike rates by 25 bps in July. The announcement might have disappointed some investors anticipating a clear signal for a 50 bps raise at the next meeting, which, in turn, was seen as a key factor that weighed on the shared currency.

The downside, however, remains cushioned, at least for the time being as investors prefer to wait for ECB President Christine Lagarde's remarks at the post-meeting press conference. Market participants will look for clues about the pace of future policy tightening amid a continuous rise in inflationary pressures. This, in turn, would provide a fresh impetus to the EUR/GBP cross.

On the other hand, the British pound was undermined by the latest UK political jitters and modest US dollar strength. This might further contribute to limiting the downside for the EUR/GBP cross, suggesting that any meaningful slide could be seen as a buying opportunity.

Technical levels to watch

On Thursday, the European Central Bank's (ECB) governing council decided to keep its benchmark deposit rate at -0.50%, as unanimously expected by market participants. The bank also said that it intends to raise interest rates by 25 bps at the July meeting, after having ended its Asset Purchase Programme (APP) on 1 July. The ECB added that a larger than 50 bps rate hike might be appropriate at the September meeting. 

Key Additional Takeaways: 

The ECB reaffirmed its commitment to bringing Eurozone inflation back to 2.0% and referred to inflation as a challenge for us all. 

The ECB said that in May, inflation rose significantly due to surging food and energy prices, partly due to the impact of the Russo-Ukraine war. Inflation pressures have broadened and intensified, the bank noted.  

Eurosystem staff have revised their baseline inflation projections up significantly and these projections indicate that inflation will remain undesirably elevated for some time. 

However, moderating energy costs, an easing of supply disruptions related to the pandemic and the normalisation of monetary policy are expected to lead to a decline in inflation. 

New staff projections foresee annual inflation at 6.8% in 2022, before it is projected to decline to 3.5% in 2023 and 2.1% in 2024, much higher than the projections in March.

This means that headline inflation at end of the projection horizon is projected to be slightly above ECB’s target. 

Inflation excluding energy and food is projected to average 3.3% in 2022, 2.8% in 2023 and 2.3% in 2024, also above the March projections. 

Russia’s unjustified aggression towards Ukraine continues to weigh on the economy in Europe and beyond. 

It is disrupting trade, is leading to shortages of materials, and is contributing to high energy and commodity prices. 

These factors will continue to weigh on confidence and dampen growth, especially in the near term. 

However, conditions are in place for the economy to continue to grow on account of ongoing reopening, a strong labour market, fiscal support and savings built up during the pandemic. 

Once current headwinds abate, economic activity is expected to pick up again. 

This outlook is broadly reflected in the Eurosystem staff projections, which foresee annual real GDP growth at 2.8% in 2022, 2.1% in 2023 and 2.1% in 2024. 

Compared with the March projections, the outlook has been revised down significantly for 2022 and 2023, while for 2024 it has been revised up. 

On basis of its updated assessment, the ECB decided to take further steps in normalising its monetary policy. 

Throughout this process, the ECB will maintain optionality, data-dependence, gradualism and flexibility in the conduct of monetary policy. 

The ECB intends to continue reinvesting, in full, principal payments from maturing securities purchased under APP for an extended period of time past the date when it starts raising interest rates and, in any case, for as long as necessary to maintain ample liquidity conditions and an appropriate monetary policy stance. 

As concerns Pandemic Emergency Purchase Programme (PEPP), the ECB intends to reinvest principal payments from maturing securities purchased under the programme until at least the end of 2024. 

In any case, the future roll-off of the PEPP portfolio will be managed to avoid interference with the appropriate monetary policy stance. 

In the event of renewed market fragmentation related to the pandemic, PEPP reinvestments can be adjusted flexibly across time, asset classes and jurisdictions at any time. 

This could include purchasing bonds issued by the hellenic republic over and above rollovers of redemptions in order to avoid an interruption of purchases in that jurisdiction, which could impair the transmission of monetary policy to the Greek economy while it is still recovering from fallout from the pandemic. 

Net purchases under the PEPP could also be resumed, if necessary, to counter negative shocks related to the pandemic. 

If the medium-term inflation outlook persists or deteriorates, a larger rate hike will be appropriate at the September meeting. 

Beyond September, based on its current assessment, the ECB anticipates that a gradual but sustained path of further increases in interest rates will be appropriate. 

In line with the ECB’s commitment to its 2% medium-term target, the pace at which the ECB adjusts its monetary policy will depend on incoming data and how it assesses inflation to develop in the medium term. 

Refinancing operations at the ECB will continue to monitor bank funding conditions and ensure that maturing of operations under the third series of TLTRO (TLTRO III) does not hamper the smooth transmission of its monetary policy. 

• GBP/USD is flat in the low-1.2500s and within recent ranges as key risk events loom.
• If a hawkish ECB surprise lifts EUR, that could offer GBP/USD some short-term support.
• But BoE dovishness means a sustained GBP rebound remains unlikely.

Ahead of key risk events including the ECB’s imminent monetary policy announcement at 1145GMT followed by US Consumer Price Inflation at 1230GMT on Friday, GBP/USD continues to languish well within recent ranges. The pair was last trading in the low-1.2500s, having rebounded from an earlier test of the 1.2500 level, where the 21-Day Moving Average (at 1.2498) came in to offer support.

At current levels near 1.2540, cable is trading close to flat on the day, though analysts are highlighting the possibility that, given sterling’s positive correlation to the euro, if the ECB delivers some sort of euro-bolstering hawkish surprise, GBP/USD might test weekly highs in the 1.2600 area. While a hawkish ECB surprise could give the pair some short-term support, it by no means suggests the BoE is going to follow suit.

Indeed, in the World Bank’s latest forecasts for 2022 released on Wednesday, the UK is expected to post the slowest growth in the G20 (excluding Russia), as the country faces its worst cost-of-living squeeze in decades. Against the worsening backdrop in recent weeks, markets have been revising lower their expectations for how much further tightening is in store from the BoE.

In the absence of some good news on the UK economy, the prospect for a lasting sterling rebound remains limited. If GBP/USD was to break higher and test its 50DMA in the mid-1.2600s, that will likely be a US dollar story (i.e. perhaps Friday’s CPI data undershoots expectations, encouraging markets to pare back on Fed tightening bets and sell USD).

• DXY looks offered around 102.40 on Thursday.
• The 4-monht line near 101.30 underpins the upside.

DXY keeps the weekly choppiness well and sound around 102.40 on Thursday.

Considering the ongoing price action, further consolidation should not be ruled out, while occasional bullish attempts appear limited by the weekly highs in the 102.80/85 band. A Fibo level (of the mid May-late May sell-off) at 102.71 also underpins this region.

As long as the 3-month line around 101.20 holds the downside, the near-term outlook for the index should remain constructive.

Looking at the longer run, the outlook for the dollar is seen bullish while above the 200-day SMA at 97.18.

DXY daily chart

Christine Lagarde, President of the European Central Bank (ECB), is scheduled to deliver her remarks on the monetary policy outlook at a press conference at 12:30 GMT.

Follow our live coverage of ECB's policy announcements and the market reaction.

About ECB's press conference

Following the ECB´s economic policy decision, the ECB President gives a press conference regarding monetary policy. Her comments may influence the volatility of EUR and determine a short-term positive or negative trend. Her hawkish view is considered as positive, or bullish for the EUR, whereas her dovish view is considered as negative, or bearish.

• EUR/JPY retreats from recent cycle highs above 144.00.
• Extra gains now target the 2015 peak past the 145.00yardstick.

EUR/JPY is under some technical pullback following the needle-like upside seen in past sessions as well as overbought conditions, as per the daily RSI above the 70.00 threshold.

The cross probed the area above the 144.00 mark and opened the door to the continuation of the rally in the very near term. That said, the surpass of the 2022 peak at 144.25 (June 8) should lead up to a probable challenge of the 2015 high at 145.32 (January 2) prior to the 2014 high at 149.78 (December 8).

In the meantime, while above the 3-month support line near 136.00, the short-term outlook for the cross should remain bullish.

EUR/JPY daily chart

ECB monetary policy decision – Overview

The European Central Bank (ECB) is scheduled to announce its monetary policy decision this Thursday at 11:45 GMT, which will be followed by the post-meeting press conference at 12:30 GMT. The ECB is all but certain to announce an end to its long-running asset purchase program and lay the groundwork for an interest rate hike in July. The bets for a more hawkish shift have gathered steam amid a continuous rise in the Eurozone inflation, which hit a record high in May. Hence, the focus will remain on ECB President Christine Lagarde's comments at the post-meeting press conference. Investors will look for clues about the size and pace of policy tightening, which should play a key role in influencing the near-term sentiment surrounding the shared currency.

Analysts at TD Securities (TDS) offered a brief overview of the key event and explained: “We expect the ECB to announce that the APP will end within weeks, and send a strong signal that rate hikes are coming in July and September. Forecasts will show stronger inflation and weaker growth, highlighting the ECB's challenge going forward. With the Euribor curve already reflecting the ECB's most likely scenario for tightening, scope for EUR/USD gains remain limited from here.”

How could it affect EUR/USD?

The markets have been pricing in more than 135 bps of cumulative interest rate hikes by the end of 2022, implying a jumbo 50 bps raise at one of the four meetings after June. This, in turn, suggests that the euro could weaken if ECB President Christine Lagarde sticks to her previous stance for 25 bps rake hikes in July and September.

According to Yohay Elam, Analyst at FXStreet: “Another scenario that cannot be ruled out is that Lagarde leaves the door open to 50 bps hikes, even as soon as July. Such an outcome could be the result of fresh forecasts compiled after the most recent inflation data. If Lagarde says such an option is on the cards and depends on data, the euro would have room to rise.”

Nevertheless, the central bank commentary should infuse a fresh bout of volatility around the euro crosses. Meanwhile,  Eren Sengezer, Editor at FXStreet, outlined important technical levels to trade the EUR/USD: “1.0680 (100-period SMA on the four-hour chart) aligns as interim support for EUR/USD ahead of 1.0660 (static level). In case the latter support fails on a dovish ECB tone, this could be seen as a bearish development and attract sellers. In that scenario, additional losses toward 1.0620 (Fibonacci 38.2% retracement of the latest uptrend) and 1.0600 (psychological level, 200-period SMA) could be witnessed.”

“On the upside, a four-hour close above 1.0760 (static level) on a hawkish ECB policy outlook could open the door for an extended rally toward 1.0780 (the end-point of the latest uptrend) and 1.0800 (psychological level),” Eren added further.

Key Notes

  •  ECB Preview: Buy the July rumor, sell the fact and three other scenarios for EUR/USD

  •  ECB Preview: Laying groundwork for rate hikes but EUR/USD could still fall

  •  EUR/USD Forecast: Euro defines levels for ECB-fueled breakout

About the ECB interest rate decision

ECB Interest Rate Decision is announced by the European Central Bank. Usually, if the ECB is hawkish about the inflationary outlook of the economy and rises the interest rates it is positive, or bullish, for the EUR. Likewise, if the ECB has a dovish view on the European economy and keeps the ongoing interest rate, or cuts the interest rate it is seen as negative, or bearish.

• Silver remained under some selling pressure for the second successive day on Thursday.
• A convincing break below the 23.6% Fibo. level is needed to confirm a bearish breakdown.
• Sustained strength beyond the $22.50-$22.60 supply zone would negate any negative bias.

Silver struggled to capitalize on the overnight bounce from a multi-day low, around the $21.80 region and edged lower for the second successive day on Thursday. The white metal remained depressed through the first half of the European session and was last seen hovering around the $22.00 mark, just above the 23.6% Fibonacci retracement level of the $26.22-$20.46 downfall.

Given that the XAG/USD has repeated failed to make it through the 200-period SMA resistance on the 4-hour chart, a sustained break below the latter would be seen as a fresh trigger for bearish traders. Moreover, technical indicators on daily/hourly charts, so far, have been struggling to gain any meaningful traction, adding credence to the negative outlook.

Some follow-through selling, leading to a convincing break below the $21.50 area, would reaffirm the bearish bias and pave the way for further losses. Spot prices could then fall to the $21.00 mark with some intermediate support near the $21.30 zone. The downward trajectory could further get extended and expose the YTD low, around the $20.45 region touched on May 13.

On the flip side, move beyond the 200-period SMA on the 4-hour chart is likely to confront resistance near the $22.30 region. Any subsequent strength might continue to attract some selling and remain capped near the $22.50-$22.60 supply zone, or the 38.2% Fibo. level. A convincing break through the said barrier could shift the bias in favour of bullish traders.

The momentum could then allow bulls to reclaim the $23.00 mark and lift the XAG/USD further towards the next relevant hurdle near the $23.30 region, or the 50% Fibo. level.

Silver 4-hour chart

Key levels to watch

Lee Sue Ann, Economist at UOB Group, suggested the BoE could raise the key policy rate by another 25 bps at its event on June 16.

Key Quotes

“Previously, we had held a cautious view of the BOE pausing once the policy rate reaches 1.00%. However, the last voting outcome by the MPC has turned out a little less dovish than our expectations, and we thus now look for another 25bps hike in Jun.”

“As for asset sales, we will likely have to wait until at least then for some guidance, though we expect sales to begin in 4Q22 at GBP5bn a month.”

• USD/JPY corrected sharply from over a two-decade peak touched earlier this Thursday.
• The intraday corrective slide managed to find some support near the 23.6% Fibo. level.
• The technical set-up warrants some near-term consolidation before the next leg up.

The USD/JPY pair witnessed an intraday turnaround from its highest level since February 2002, around mid-134.00s touched earlier this Thursday and snapped a four-day winning streak. The corrective pullback extended through the first half of the European session and dragged spot prices to a fresh daily low, around the 133.40-133-35 region in the last hour.

A softer tone around the US Treasury bonds yields kept the US dollar bulls on the defensive and acted as a headwind for the USD/JPY pair. Apart from this, extremely overbought conditions on the daily chart prompted traders to take some profits off their bullish positions. That said, a goodish rebound in the US equity markets undermined the safe-haven Japanese yen.

Apart from this, a big divergence in the monetary policy stance adopted by the Fed (hawkish) and the Bank of Japan (dovish) helped limit losses for the USD/JPY pair. Spot prices found some support in the vicinity of the 23.6% Fibonacci retracement level of the 129.51-134.56 latest leg up, around the 133.30 area, which should now act as a pivotal point for traders.

Some follow-through selling, leading to a subsequent break through the 133.00 mark, would expose the 38.2% Fibo. level support, near the 132.65-132.60 area. Failure to defend the said support could drag the USD/JPY pair further towards the 132.00 mark, or the 50% Fibo. level, which if broken decisively should pave the way for a deeper corrective slide.

On the flip side, the 134.00 mark might now act as an immediate strong resistance ahead of the daily top, around the mid-134.00s. Sustained strength beyond should allow the USD/JPY pair to reclaim the 135.00 psychological mark and test the 2002 high, near the 135.15 region. That said, overstretched technical indicators warrant some consolidation before the next leg up.

USD/JPY 4-hour chart

Key levels to watch

At its event next week, the Federal Reserve is forecast to raise the FFTR by 50 bps, comments Economist at UOB Group Lee Sue Ann.

Key Quotes

“Given the clear indications for ongoing hikes to combat inflation spelt out in the May FOMC minutes but no intentions of cranking up the size of the hikes, we are comfortable to maintain our FFTR forecast for another 50bps each in the Jun and July FOMC.”

“We continue to expect 25bps in every remaining meeting of this year. This will bring the FFTR higher to the range of 2.50- 2.75% by end of 2022, a range largely viewed as the range for neutral stance.”

NZD/USD has corrected from the mid-0.65s to the mid-0.64s. Economists at Westpac see potential for a pullback to 0.6350.

NZ commodities expected to become a major driver of the kiwi

“NZD/USD could extend lower to 0.6350. If so, we would consider that as a buying opportunity, targeting 0.6700 in Q3 and 0.7000 in Q4.”

“Near-term risk sentiment is fragile, with oil prices approaching demand destruction levels and stagflationary prospects growing. But medium-term, we retain a bullish outlook. The rationale is that Fed pricing should start to stabilise in the latter part of this year, and NZ commodities are expected to become a major driver of the NZD as global food shortages become more acute.”

• EUR/USD comes under pressure near 1.0700.
• German 10y Bund yields approach 1.40%.
• The ECB is expected to keep the policy rate unchanged.

The single currency wobbles between gains and losses and motivates EUR/USD to trade within a volatile note around the 1.0700 region on Thursday.

EUR/USD focuses on the ECB

EUR/USD trades in an unresolved fashion so far on Thursday, gyrating around the 1.0700 neighbourhood amidst rising cautiousness ahead of the ECB event later in the session.

Indeed, the central bank is expected to leave the policy rate unchanged (for the last time?), while bets for a hawkish tone from both the Council and Chair Lagarde at her subsequent press conference remain on the rise. On the latter, it could be a big disappointment for bulls otherwise.

Nothing other than the ECB gathering in the domestic calendar, whereas the usual weekly Claims are due across the pond.

What to look for around EUR

EUR/USD continues to trade in a side-lined mood near 1.0700 for the time being.

The pair’s recent multi-week recovery has been on the back of supportive ECB-speak, which continued to point at an initial rate hike as soon as in July, while the consensus view that the bond-purchase programme should end at some point in early Q3 has also lent legs to the European currency.

However, EUR/USD is still far away from exiting the woods and it is expected to remain at the mercy of dollar dynamics, geopolitical concerns and the Fed-ECB divergence, while higher German yields, persistent elevated inflation in the euro area and a decent pace of the economic recovery in the region are also supportive of an improvement in the mood around the euro.

Key events in the euro area this week: ECB Interest Rate Decision (Thursday).

Eminent issues on the back boiler: Speculation of the start of the hiking cycle by the ECB as soon as this summer. Asymmetric economic recovery post-pandemic in the euro bloc. Impact of the war in Ukraine on the region’s growth prospects.

EUR/USD levels to watch

So far, spot is losing 0.01% at 1.0715 and a breach of 1.0627 (monthly low June 1) would target 1.0532 (low May 20) en route to 1.0459 (low May 18). On the other hand, immediate up barrier emerges at 1.0786 (monthly high May 30) seconded by 1.0933 (100-day SMA) and finally 1.0936 (weekly high April 21).

USD/JPY has printed fresh highs since 2002. Economists at Westpac highlight that a break past 135.20 would clear the way toward the 137 level.

USD/JPY should be two-way at times

“Commentary from Bank of Japan officials suggests little inclination to change policy at this month’s meeting. Some have explicitly described any widening of the 10-year JGB yield target range from +/-0.25% as a rate hike.” 

“The FOMC’s near-certain +50 bp hike and hawkish statement do not guarantee a break of 3.20% on the 10yr T-note, so USD/JPY should be two-way at times. But a break of 135.20 opens up a lot of clear skies, perhaps initially eyeing 137.”

• A combination of factors assisted EUR/GBP to attract buying for the second straight day on Thursday.
• The UK political turmoil undermined the GBP and extended some support amid ECB rate hike bets.
• The focus remains glued to the ECB decision and Lagarde's comments at the post-meeting presser.

The EUR/GBP cross attracted some buying for the second successive day on Thursday and has now recovered a major part of its weekly losses. The cross maintained its bid tone through the first half of the European session and was last seen trading just above mid-0.8500s.

The latest UK political jitters continued undermining the British pound, which, in turn, was seen as a key factor that extended some support to the EUR/GBP cross. It is worth recalling that British Prime Minister Boris Johnson survived the no-confidence vote on Monday, albeit by a smaller margin. Given that many MPs from within the Conservative Party voted against him, the developments have raised uncertainty over Johnson’s future as the UK Prime Minister.

On the other hand, expectations for imminent interest rate hikes by the European Central Bank (ECB) contributed to the shared currency's relative outperformance. This offered additional support to the EUR/GBP cross, though traders seemed reluctant to place aggressive bullish bets ahead of the key central bank event risk. The ECB is scheduled to announce its monetary policy decision on Thursday and is expected to lay the groundwork for an interest rate hike in July.

The prospect of a 50 bps rate hike has gathered steam following the recent data showing that inflation hit a record high in May. Furthermore, the markets are currently betting on a 75 bps of tightening by September and a total of 130 bps by year-end, implying a jumbo rise at one of the four meetings after June. Hence, ECB President Christine Lagarde's comments at the post-meeting press conference will be scrutinized closely and provide some meaningful impetus to the EUR/GBP cross.

Technical levels to watch

Economists at Westpac expect the EUR/USD pair to trade within a 1.05-1.09 range in the short-term. What’s more, the common currency is unlikely to enjoy sustained medium-term upside given ongoing geopolitical threats.

Europe’s geopolitical threats won’t subside anytime soon

“Temporary supply chain disruptions from China’s covid lockdowns will account for some of the April activity weakness. But a more sustained real income squeeze stemming from Europe’s geopolitical threats won’t subside anytime soon. Europe natural gas prices continue to trade near all-time highs.” 

“The ECB is unlikely to ultimately deliver on the 225bp in rate hikes priced by OIS markets through end-2023.” 

“EUR is likely to be held in a 1.05-1.09 range near term.”

GBP/USD is mainly a USD story, with UK-US yields spreads favouring the USD. Ahead of the Bank of England (BoE) meeting next week, economists at Westpac remain neutral, expecting an extension of the recent range of 1.2430-1.2600.

GBP/USD remains mostly a USD story

“The BoE is expected to hike four more times this year, taking the base rate to 2.0% which is considered around neutral. Despite the prospect of higher rates, GBP remains vulnerable to retesting its recent lows.” 

“GBP/USD is mainly a USD story, with UK-US yields spreads also favouring the USD.”

“Ahead of the MPC, we remain neutral, expecting an extension of the recent range of 1.2430-1.2600.”

Gold is on standby ahead of European Central Bank (ECB) meeting. Economists at Commerzbank expect the ECB decision to be ignored by the yellow metal.

Gold is popular with central banks as a safe haven and store of value

“We believe that the ECB will decide today to bring its bond purchases to an end at the start of the third quarter. In addition, it is likely to signal fairly clearly that interest rates will be raised at its next meeting in July and that the deposit rate will no longer be negative by the end of September. This would imply that the next rate hike will come in September.”

“We believe it is questionable whether any statement will be made about the longer-term interest rate outlook, as there is still a lack of consensus on this issue within the ECB Governing Council. The hawkish remarks expected from Lagarde are probably already priced in, for the most part, so under normal circumstances, we would not expect any major reaction from the gold price this afternoon.” 

“According to a survey of nearly 60 central banks conducted by the World Gold Council (WGC), about a quarter of central banks are planning to top up their gold reserves in the next twelve months. What is more, the majority of survey respondents expect the proportion of gold in the currency reserves to increase in the next few years.” 

“The WGC says that gold is popular with central banks as a safe haven and store of value. Furthermore, gold is expected to perform better in times of crisis. That said, central banks have been buying considerably less gold of late.”

See – ECB Preview: Forecasts from eight major banks, ready for lift-off

USD/CNH could extend the consolidative phase between 6.6200 and 6.7200 in the next weeks, commented FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang.

Key Quotes

24-hour view: “Our expectations for USD to ‘trade within a range of 6.6420/6.6770’ were incorrect as it soared to a high of 6.6890 before pulling back. Despite the advance, upward momentum not improved by much and USD is unlikely to strengthen much further. For today, USD is more likely to trade between 6.6500 and 6.6900.”

Next 1-3 weeks: “Yesterday (07 Jun, spot at 6.6600), we highlighted that downward momentum is beginning to wane and a break of 6.6850 would indicate that the downside risk has dissipated. USD subsequently popped to a high of 6.6890. Downward pressure has dissipated and USD is likely to trade between 6.6200 and 6.7200 for now.”

• DXY trades without clear direction in the mid-102.00s.
• Investors remain cautious ahead of the ECB, US CPI.
• Weekly Initial Claims come next in the NA session.

The greenback, in terms of the US Dollar Index (DXY), alternates gains with losses around 102.50 on Thursday.

US Dollar Index focuses on ECB, Fed

The index keeps the choppy trade so far this week amidst the generalized cautious mood among investors ahead of the upcoming ECB interest rate decision and the release of US inflation figures tracked by the CPI on Friday.

The erratic performance in the dollar comes in line with the equally choppy mood in the US cash markets, where yields seem to be stuck in the upper end of the recent range and always looking at speculations regarding the Fed’s policy for direction.

In the US data space, the usual Initial Claims will be the sole release later in the NA session.

What to look for around USD

The index seems to be in a waiting-mode ahead of the imminent ECB event and the publication of May’s US inflation on Friday.

The dollar’s weakness seen in mid-May came in response to the rising perception that inflation might have peaked in April, which in turn supports the idea that the Fed may not need to be as aggressive as market participants expect when it comes to raising the Fed Funds rates.

In the meantime, the Fed’s divergence vs. most of its G10 peers coupled with bouts of geopolitical effervescence, higher US yields and a potential “hard landing” of the US economy are all factors still supportive of a stronger dollar in the next months.

Key events in the US this week: Initial Claims (Thursday) – Inflation Rate, Flash Consumer Sentiment, Monthly Budget Statement (Friday).

Eminent issues on the back boiler: Powell’s “softish” landing… what does that mean? Escalating geopolitical effervescence vs. Russia and China. Fed’s more aggressive rate path this year and 2023. US-China trade conflict. Future of Biden’s Build Back Better plan.

US Dollar Index relevant levels

Now, the index is gaining 0.04% at 102.59 and a break above 102.83 (monthly high June 7) would open the door to 105.00 (2022 high May 13) and finally 105.63 (high December 11 2002). On the other hand, the next contention emerges at 101.66 (55-day SMA) followed by 101.64 (monthly low June 3) and then 101.29 (monthly low May 30).

• USD/CHF gained traction for the sixth straight day and climbed to a fresh three-week high.
• Elevated US bond yields continued acting as a tailwind for the USD and remained supportive.
• A softer risk tone could benefit the safe-haven CHF and keep a lid on any meaningful upside.

The USD/CHF pair prolonged its recent strong move up witnessed over the past one week or so and edged higher for the sixth successive day on Thursday. Spot prices climbed to a fresh three-week high during the early European session, with bulls now awaiting sustained strength beyond the 0.9800 round-figure mark.

Elevated US Treasury bond yields continued acting as a tailwind for the US dollar, which, in turn, was seen as a key factor that offered some support to the USD/CHF pair. After a brief pullback earlier this week, the yield on the benchmark 10-year US government bond shot back above the 3.0% threshold amid worries about the persistent rise in inflationary pressures.

Investors remain concerned that the global supply chain disruption caused by the Russia-Ukraine war would push consumer prices even higher. The recent rally in crude oil prices further ramped up inflation fears and fueled speculations that the Fed would tighten its policy at a faster pace. This, in turn, underpinned the US bond yields and the USD.

Hence, the market focus remains glued to the latest US consumer inflation figures, due for release on Friday. The US CPI report would play a key role in determining the Fed's policy tightening path and influence the near-term USD price dynamics. This, in turn, should assist traders to determine the next leg of a directional move for the USD/CHF pair.

In the meantime, the prevalent caution mood could drive some haven flows towards the Swiss franc and keep a lid on any meaningful upside for the USD/CHF pair. Market participants now look forward to the release of the US Weekly Initial Jobless Claims data for short-term trading opportunities later during the early North American session.

Technical levels to watch

• GBP/JPY corrected sharply from a fresh multi-year peak touched earlier this Thursday.
• A generally weaker risk tone benefitted the safe-haven JPY and prompted profit-taking.
• The UK political jitters undermined the GBP and contributed to the retracement slide.

The GBP/JPY cross witnessed an intraday turnaround from its highest level since February 2016 touched earlier this Thursday and snapped a nine-day winning streak. The retracement slide dragged spot prices to a fresh daily low, around the 167.20 region during the early European session.

Concerns that a more aggressive move by major central banks to constrain surging inflation could pose challenges to the global economic growth continued weighing on investors' sentiment. This was evident from a generally weaker tone around the equity markets, which extended some support to the safe-haven Japanese yen and prompted some profit-taking around the GBP/JPY cross.

On the other hand, the British pound was undermined by the UK political turmoil and modest US dollar strength. British Prime Minister Boris Johnson survived the no-confidence vote on Monday, albeit by a smaller margin. Given that many MPs from within the Conservative Party voted against him, the development has raised uncertainty over Johnson’s future as the UK Prime Minister.

Despite the combination of negative factors, the downside seems limited amid a big divergence in the monetary policy stance adopted by the Bank of Japan and other major central banks. In fact, BoJ Governor Haruhiko Kuroda reiterated on Wednesday that the central bank must continue its support for the economic activity by keeping its existing ultra-loose policy settings.

Adding to this, the Japanese central bank has promised to conduct unlimited bond purchase operations to defend its near-zero target for 10-year yields. This, in turn, supports prospects for the emergence of some dip-buying around the GBP/JPY cross, warranting caution for aggressive bearish traders and confirming that a multi-week-old bullish trend has run its course.

Technical levels to watch

The uptrend in USD/JPY remains well in place and could extend to the 133.50/134.00 zone in the next weeks.

Key Quotes

24-hour view: “We highlighted yesterday that ‘further USD strength would not be surprising and that the next resistance is at 132.60 followed by 133.00’. We added, ‘the latter level is likely out of reach for today’. Our view was not wrong even though USD came close to taking out 133.00 (high has been 132.99). While deeply overbought, there is room for the rally in USD to extend to 133.50. The next resistance at 134.00 is likely out of reach for now. Support is at 132.40 followed by 132.10.”

Next 1-3 weeks: “We have expected USD to strengthen since early last week. As USD soared, in our latest narrative from yesterday (07 Jun, spot at 132.10), we highlighted that solid upward momentum suggests USD could continue to strengthen towards 133.00. USD subsequently surged to a high of 132.99. Momentum remains strong and USD could rally further to 133.50, possibly 134.00. On the downside, a break of 131.40 (‘strong support’ level was at 130.80 yesterday) would indicate that the USD strength has run its course. On a shorter-term note, 132.10 is already a rather solid support.”

The euro was the top performing G10 currency on Wednesday. Regarding the European Central Bank (ECB) meeting, the crucial aspect for the markets is how much guidance President Lagarde is willing to give in relation to the size of the rate hike in July. Economists at MUFG expect the common currency to strengthen unless a 50 bps rate hike in July is completely discarded.

EUR to continue recovering lost ground

“President Lagarde is unlikely to explicitly indicate 50 bps is coming but will Lagarde be in a position to explicitly exclude it? We doubt it and if that is the case, the rates market may well move to fully price 50bps. That implies further upside scope for market rates and the euro.” 

“We expect Lagarde to emphasise the scope for reinvestments to be undertaken flexibly implying the willingness to shift reinvestments from say Germany to Italy. If a strong commitment is expressed on that, it would likely reinforce expectations of more aggressive rate hikes over the short-term.”

“The outperformance of the euro yesterday may be an indication of direction today following the ECB meeting.”

See – ECB Preview: Forecasts from eight major banks, ready for lift-off

The yen has continued to trade at weaker levels during the Asian trading session with USD/JPY hitting a fresh intra-day high of 134.56 as it moves closer to the high from back in 2002 at 135.15. Yen weakness’ is set to extend further on a break above the latter, economists at MUFG Bank report.

BoJ’s contrasting stance with other major central banks leaves JPY vulnerable to further weakness

“The BoJ’s contrasting stance with other major central banks leaves the yen vulnerable to further weakness in the near-term at least while the sell-off in global equity markets has paused for now.”

“Yen weakness is likely to accelerate further if USD/JPY breaks above 135.15. BoJ Governor Kuroda is not convinced though that there is much further room for the USD/JPY to continue marching higher unless the Fed to delivers faster and more rate hikes than currently planned.”

• USD/RUB braces for the second weekly loss amid broad US dollar weakness.
• Hakwish expectations from ECB weigh on greenback despite firmer yields.
• IIF signals Russia’s economic slump to wipe out 15 years of gains.

USD/RUB takes offers to renew a two-week low around 59.10 during the early Thursday morning in Europe.

In doing so, the Russia ruble (RUB) pair cheers the US dollar retreat, as well as the market’s indecision, to keep the bears hopeful.

US Dollar Index (DXY) fades the previous day’s recovery near 102.50, down 0.07% intraday, as hawkish expectations from the European Central Bank (ECB) allow traders to slow down on the USD buying. In doing so, the greenback gauge ignores the firmer US Treasury yields. That said, the US 10-year Treasury yields seesaw around 3.04% after rising over five basis points (bps) the previous day.

Other than the US dollar pullback, Russia’s recent policies supporting the RUB, including payments in local currency and market intervention, are also likely to have drowned USD/RUB prices.

On the contrary, fears of Russia’s economic hardships and downbeat prices of crude oil, Moscow’s key export, challenge the USD/RUB bears. “Russia's economy will shrink 15% this year and 3% in 2023 as the hit from Western sanctions, an exodus of companies, a Russian ‘brain-drain’ and collapse in exports wipe out 15 years of economic gains,” a global banking industry lobby group Institute of International Finance (IIF) said per Reuters.

That said, the market sentiment remains sluggish amid fears of inflation and global economic growth, especially when major central banks are up for scaling down easy money policies. These fears could be linked to comments from the White House, OECD and the World Bank. On Wednesday, White House spokeswoman Karine Jean-Pierre said they expect the inflation numbers to be released at the end of the week to be elevated. Additionally, the Organisation for Economic Co-operation and Development (OECD) cuts the global growth outlook for 2022 while World Bank (WB) President David Malpass warned that faster-than-expected tightening could recall a debt crisis similar to the one seen in the 1980s.

Considering the broad downtrend, despite not so weak US dollar, the USD/RUB prices may rely on the Russia-Ukraine headlines, as well as the US inflation data, for fresh moves.

Technical Analysis

Unless crossing the 64.40 hurdle, USD/RUB is vulnerable to rest the May 2022 swing low, also the lowest level in four years, around 55.90.

The South African rand has made a very impressive recovery from above 16/USD in early May. However, economists at ING expect the USD/ZAR to remain close to the 16 over the next couple of months.

Doubts about the longevity of the recovery in the rand

“We still have our doubts about the longevity of this recovery in the rand. We would still much more prefer the Mexican peso in the emerging market high yield space.”

“For today, look out for the South African 1Q22 current account release. This is expected at a 1.5% of GDP surplus. Commodity price gains have certainly improved South Africa's external position, but with US real rates set to go higher this summer, we suspect USD/ZAR will likely end up closer to 16 than 15 over the next one to two months.”

European Central Bank (ECB) President Christine Lagarde will deliver her remarks on the policy outlook and respond to questions from 12:30 GMT. Economists at ING expect Lagarde to reiterate the previously outlined plans for 25 bp hikes in July and September, pushing EUR/USD closer to 1.05.

No hawkish surprise unless Lagarde hints at 50 bp hike

“Given the market’s aggressive expectations on tightening, we think it will take some quite clear openness by the Governing Council to a 50bp rate hike in July to surprise on the hawkish side this week.”

“While we cannot exclude a hawkish surprise, we see a greater risk that President Lagarde will stick to her recently outlined plan for 25 bp hikes in July and September, ultimately raising the risk of some dovish repricing across the EUR swap curve; for EUR/USD this means that the balance of risks appears slightly skewed to the downside.”

A return to 1.05 in the coming weeks remains our base-case scenario.”

See – ECB Preview: Forecasts from eight major banks, ready for lift-off

There are no plans to challenge Prime Minister Boris Johnson for the leadership, Senior British Minister Michael Gove said on Thursday, per Sky News.

When asked about potentially running against Johnson for leadership of the Conservative Party, Gove said, "Oh God no!"

Johnson narrowly won a confidence vote on Monday and is set to deliver his first policy speech after the win later this Thursday.

Market reaction

GBP/USD is dropping further to test 1.2500, as the US dollar catches a fresh bid amid a damp mood. The spot is down 0.29% on the day.

• USD/CAD gained traction for the second straight day and recovered further from a seven-week low.
• Retreating crude oil prices undermined the loonie and acted as a tailwind amid modest USD strength.
• Elevated US bond yields extended support to the USD amid the worsening global economic outlook.

The USD/CAD pair built on the overnight recovery move from its lowest level since April 21 and gained some follow-through traction for the second successive day on Thursday. The pair maintained its bid tone through the early European session and was last seen trading around the 1.2570-1.2575 region, up over 0.10% for the day.

Crude oil prices witnessed some profit-taking from a three-month high touched on Wednesday amid the imposition of a new mini-lockdown in Shanghai - China’s biggest city and a global financial hub. This, in turn, undermined the commodity-linked loonie and acted as a tailwind for the USD/CAD pair amid modest US dollar strength.

Doubts that major central banks can hike interest rates to curb inflation without impacting economic growth continued weighing on investors' sentiment. This was evident from a generally weaker tone around the equity markets, which, along with elevated US Treasury bond yields, extended some support to the safe-haven greenback.

The yield on the benchmark 10-year US government bond held steady above 3.0% amid worries about rising inflationary pressures that might force the Fed to tighten its policy at a faster pace. Investors remain concerned that the global supply chain disruption caused by the Russia-Ukraine war would push consumer prices even higher.

Hence, the market focus will remain glued to the latest US consumer inflation figures on Friday, which might influence the Fed's tightening path. The US CPI report will be accompanied by the release of the monthly Canadian employment details. The key macro data should assist traders to determine the near-term trajector for the USD/CAD pair.

In the meantime, traders might take cues from the US Weekly Initial Jobless Claims data and Bank of Canada Governor Tiff Macklem's scheduled speech later during the North American session. Apart from this, the US bond yields, the broader market risk sentiment and oil price dynamics could provide some impetus to the USD/CAD pair.

Technical levels to watch

EUR/USD has been fluctuating in a very tight range above 1.07. Today, the European Central Bank (ECB) will announce policy decisions and release updated economic projections. ECB's rate hike guidance could trigger a significant reaction in the pair, FXStreet’s Eren Sengezer reports.

Euro defines levels for ECB-fueled breakout

“In case the policy statement shows that the majority of policymakers lean toward a 50 bps rate hike in July, this could be seen as a bullish development and provide a boost to the euro. On the flip side, a cautious rate hike outlook with the bank not entertaining the idea of double dose increases could cause the shared currency to suffer heavy losses against the dollar.”

“If the bank sees a significant risk to growth in the remainder of the year, the euro is likely to lose interest. A softer inflation forecast, however, should help EUR/USD gain traction.”

“1.0680 (100-period SMA on the four-hour chart) aligns as interim support for EUR/USD ahead of 1.0660 (static level). In case the latter support fails on a dovish ECB tone, this could be seen as a bearish development and attract sellers.”

“On the upside, a four-hour close above 1.0760 (static level) on a hawkish ECB policy outlook could open the door for an extended rally toward 1.0780 (the end-point of the latest uptrend) and 1.0800 (psychological level).”

See – ECB Preview: Forecasts from eight major banks, ready for lift-off

The Czech koruna appreciated modestly on Wednesday following the nomination of new Czech National Bank (CNB) new board members. In the opinion of economists at Commerzbank, the EUR/CZK could move back towards the 24.30 area soon.

New CNB’s appointments appear to be fairly ‘regular’

“There was relief news in that Czech President Milos Zeman nominated three new board members (somewhat earlier than we had anticipated), but they turned out to be relatively uncontroversial names such as ex-board members, Eva Zamrazilova and Jan Frait (the latter, the existing head of CNB’s financial stability department) and Karina Kubelkova (from the Czech Chamber of Commerce). Zamrazilova will be a deputy governor.”

“Our conclusion only is that these appointments appear to be fairly ‘regular’ and not amounting to some controversial overhaul in favour of dovish members.”

“The markets are likely to now put this whole controversy about presidential interference into monetary policy behind – which means that EUR/CZK could return towards the 24.30 levels soon.”

Considering advanced prints from CME Group for natural gas futures markets, open interest dropped for the second session in a row on Wednesday, this time by around 25.6K contracts. Volume, instead, went up for the third consecutive session, now by more than 271K contracts.

Natural Gas faces minor support around $7.85

Natural gas prices added to the weekly leg lower after being rejected from Wednesday’s new 2022 high past $9.50. The daily pullback, however, came amidst another drop in open interest, signalling that a deeper retracement looks not favoured in the very near term. The commodity faces an interim support at $7.83 (May 20 low).

• EUR/JPY extends pullback from seven-year high, sellers attack immediate support line.
• Bearish MACD signals, RSI pullback hints at further weakness.
• Ascending trend line from May-end, 100-HMA offer additional downside filters.
• Bulls need to cross double tops to retake control.

EUR/JPY retreats from a seven-year high after consecutive 10 days of bull’s dominance, down 0.35% intraday as bears jostle with a one-week-old support line. In doing so, the cross-currency pair remains pressured around daily lows heading into Thursday’s European session.

Given the RSI pullback from overbought territory, bearish MACD signals and the double tops near 144.20-25, EUR/JPY is likely to break the immediate support near 143.30.

Following that, a downward trajectory towards the 50-HMA and the seven-day-old rising support line, respectively near 142.80 and 142.30, will be in focus.

It’s worth noting that the 100-HMA level of 141.60 acts as the last defense for the short-term EUR/JPY buyers.

Alternatively, fresh buying needs to cross the aforementioned double tops surrounding 144.25 to restore the bull’s confidence.

During the quote’s run-up beyond 144.25, the late 2013 peak near 145.70 could offer an intermediate halt before directing the EUR/JPY buyers towards the year 2014 peak of 149.78.

EUR/JPY: Hourly chart

Trend: Further pullback expected

• EUR/GBP looks to test symmetrical triangle hurdle at 0.8583.
• Daily chart suggests a golden cross formation, with eyes on ECB.
• The RSI looks north above the midline, pointing to more gains.

EUR/GBP is trading firmer in early European trading, as EUR bulls bet on a more hawkish than expected ECB monetary policy announcement.

Markets have widely priced in the central bank to announce the end of its Asset Purchase Programme (APP) on July 1. Lagarde and Company are set to hint at a July rate hike, with more signals on an aggressive rate hike track could be seen, given that Eurozone Q1 GDP data was revised upwardly on Wednesday.

On the GBP side of the story, cable remains offered amid the UK political and the renewed Brexit concerns. Meanwhile, a classic caution trading ahead of the ECB event also keeps the higher-yielding pound on the back foot, in turn, supporting EUR/GBP.

Technically, EUR/GBP’s daily chart shows that the price is wavering within a month-long symmetrical triangle formation, with bulls now eyeing a test of the triangle resistance at 0.8583.

Ahead of that, they need to find a strong foothold above 0.8565 recent range highs.

A sustained move above the triangle resistance will confirm an upside break, opening doors towards 0.8600 and beyond.

The 14-day Relative Strength Index (RSI) is looking north above the midline, justifying the ongoing uptrend.

Adding credence to the bullish potential, the upward-sloping 50-Daily Moving Average (DMA) is on the verge of crossing the horizontal 200 DMA for the upside.

If the crossover occurs on a daily closing basis, it would validate a golden cross formation, backing a fresh upswing in the cross.

EUR/GBP: Daily chart

However, if the ECB decision disappoints the hawks, then the cross could fall back towards the powerful confluence support of 0.8512, where the triangle support and horizontal 21-DMA coincide.

A breach of the latter will invalidate the bullish thesis in the near term, exposing the downside towards the 0.8480 demand area.

EUR/GBP: Additional levels to consider

USD/JPY turned south and declined below 134 after having touched its highest level in two decades at 134.54 on Wednesday. Still, in the view of economists at Commerzbank, the trade “buy USD/JPY” is principally the easiest at present.

Is the market testing the Bank of Japan?

“Attractive yields are available elsewhere, not in Japan. That means one cannot really blame the market if it continues to drive USD/JPY upwards.” 

“But perhaps the BoJ is quite happy about a weaker yen, as Kuroda signals, as it makes Japanese goods cheaper on the world market and imported inflation might finally cause price pressure in Japan to rise so that the BoJ would at least get closer to its inflation target. For that reason, I am not entirely certain whether the market would even be able to test the BoJ.”

“Of course, if the BoJ were to reverse its approach at some point that would constitute an earthquake for the yen. However, as long as it doesn’t move whereas interest rates rise elsewhere the yen remains a ‘sell on rallies’.”

What are we to expect from the European Central Bank (ECB) meeting today? In the view of economists at Commerzbank, comments on future rate developments become important. They expect the EUR/USD pair to hover around the 1.07 zone following the announcement.

ECB to paint a similar picture that it has already laid out

“If any doubts arise about whether the market is too optimistic about the ECB, for example, because the ECB puts too much emphasis on the downside risks for the economy as a result of a possible energy crisis this might cause some investors, who have come to expect a relatively tight interest rate cycle, to become more cautious and sell the euro.”

“If the ECB seems optimistic that the key rate will rise even beyond September so as to counterbalance price risks this is likely to further fuel the euro, as it would cement the ‘turning point’ in ECB monetary policy.”

“I could imagine that the ECB will paint a similar picture that it has already laid out in numerous statements and blog contributions and that we will not see any major surprises in one direction or the other – also as regards the longer-term interest rates in the peripheral countries.” 

“I can imagine that EUR/USD will settle back into the 1.07 area in the end, following some initial hectic fluctuations this afternoon.”

See – ECB Preview: Forecasts from eight major banks, ready for lift-off

In the opinion of FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang, NZD/USD is expected to remain side-lined in the 0.6425-0.6580 range for the time being.

Key Quotes

24-hour view: “We expected NZD to weaken yesterday but we were of the view that ‘the major support at 0.6425 is not expected to come under threat’. While NZD weakened as expected, it dropped to 0.6424 before rebounding strongly. Downward pressure has eased with the rebound and NZD is likely to trade sideways for today, expected to be between 0.6450 and 0.6510.”

Next 1-3 weeks: “Two days ago (06 Jun, spot at 0.6515), we highlighted that NZD is likely to trade sideways between 0.6425 and 0.6580. Yesterday (07 Jun), NZD dropped to 0.6424 before rebounding quickly. There is no change in our view for now and we continue to expect NZD to trade sideways between 0.6425 and 0.6580.”

Gold Price trades water near $1,850. For how long can XAUUSD defend $1,842 support? FXStreet’s Dhwani Mehta analyzes the pair’s technical picture.

XAUUSD eyes ECB, US inflation for next big move 

“The ECB is widely expected to announce an end to its QE program while hinting at a July rate hike. Christine Lagarde’s guidance on the future rate hike will hold the key for markets. A more hawkish than expected Lagarde could likely limit the upside in the non-interest-beating yellow metal. Although any reaction to the ECB announcements will be limited, as traders look forward to Friday’s US inflation data for the next big move in the bullion.”

“On the downside, a selling resurgence could challenge the confluence of the horizontal 21 and 200-Daily Moving Averages (DMA) at $1,842 once again. Bears will then attack Tuesday’s low of $1,837, below which a test of the previous week’s low of $1,829 remains on the cards. The $1,820 round level will be the line in the sand for buyers.”

“On the upside, XAU bulls will need to find a strong foothold above Monday’s high of $1,858. The previous week’s high of $1,870 will be tested on gold’s northward trajectory towards the monthly top of $1,874.”

See – ECB Preview: Forecasts from eight major banks, ready for lift-off

• AUD/USD is facing barricades around 0.7180 ahead of the US CPI.
• Upbeat China’s trade data has failed to cheer the aussie bulls.
• The DXY is trading vulnerable amid uncertainty over the US inflation, consensus indicates a stable figure.

The AUD/USD pair has displayed a subdued performance in the Asian session and is expected to showcase a similar performance in the European session.  The major is struggling to establish above 0.7180 despite the upbeat trade data by China’s National Bureau of Statistics.

In dollar-denominated terms, the Chinese imports have improved by 4.1% while exports have jumped firmly by 16.9%. The Trade Balance (USD) has landed at $78.76B, much higher than the estimates of 58B and the prior print of 51.12B. It is worth noting that Australia is a leading trader partner of China and Chinese trade data holds a significant impact on the antipodean.

It looks like the unexpected extreme hawkish stance by the Reserve Bank of Australia (RBA) has failed to cheer the antipodean. The RBA hiked its Official Cash Rate (OCR) by 50 basis points (bps) higher than the expectation of 25 bps. To corner the soaring inflation a jumbo rate hike looks optimal, however, its impact will also dent the employment generation ability of the Australian economy. Currently, the economy is facing the headwinds of lower job creation. The economy has added only 4k jobs in the labor market last month, extremely lower than the consensus of 30k.

On the dollar front, investors are awaiting the release of the US Consumer Price Index (CPI). The US dollar index (DXY) is displaying doubtful wild moves amid uncertainty over deviation in the annual inflation rate with respect to the consensus. As per the estimates, the US CPI is seen stable at 8.3% on an annual basis while the core CPI that excludes food and energy may shift lower to 5.9% from the prior print of 6.2%.  

• Gold Price extends two-day uptrend, sidelined near weekly top of late.
• Pre-ECB, US CPI anxiety joins growth, inflation fears to probe XAUUSD bulls.
• US dollar struggles to keep traction amid hawkish hopes from ECB, yields regain 3.0% mark.

Gold Price grinds higher during the third positive day as the softer US dollar battles the market’s cautious mood ahead of the ECB decision on Thursday. That said, XAUUSD picks up bids near $1,853 heading into the European session.

Market’s anxiety restricts XAUUSD moves

Although the US dollar’s weakness keeps the gold buyers hopeful, indecision before the key data/events keeps the precious metal traders on their toes, probing the two-day uptrend of late. It’s worth noting, however, that the US Treasury yields probe the XAUUSD buyers. While portraying the mood, the S&P 500 Futures remain sluggish at around 4,110 after posting the first daily loss in three the previous day.

Also read: Gold Price Forecast: Benefiting from temporal dollar’s weakness

Gold Price differs from US Treasury yields

US 10-year Treasury yields float around 3.05%, following the previous day’s five basis points (bps) upside to 3.04%. It’s worth noting that the Treasury bond yields are up for the second consecutive week, taking rounds to the one-month high flashed earlier in the week. That said, the Financial Times (FT) came out with the news suggesting increased market participation in bond trading, which in turn suggests further volatility for the gold prices. “Net flows into government bond exchange-traded funds hit a record high in May as deteriorating economic sentiment led investors to batten down the hatches,” said the news.

While tracking the clues favoring the US Treasury yields, broad pessimism surrounding inflation and growth takes the front seat. These fears could be linked to comments from the White House, OECD and the World Bank. On Wednesday, White House spokeswoman Karine Jean-Pierre said they expect the inflation numbers to be released at the end of the week to be elevated. Additionally, the Organisation for Economic Co-operation and Development (OECD) cuts the global growth outlook for 2022 while World Bank (WB) President David Malpass warned that faster-than-expected tightening could recall a debt crisis similar to the one seen in the 1980s.

ECB in focus

ECB President Christine Lagarde

Moving on, today’s monetary policy decision from the European Central Bank (ECB) will be important for gold traders. Following that, Friday’s inflation data from China and the US will be crucial to watch for fresh impulses. “ECB tightening expectations have picked up ahead of tomorrow’s decision. WIRP suggests liftoff July 21 remains fully priced in,” said Brown Brothers Harriman (BBH) in their latest report. Should the ECB policymakers manage to meet hawkish expectations, the gold prices may improve further.

Gold Price technical outlook

Gold Price tracks a three-week-old ascending support line to mark another attempt in crossing the 200-SMA. That said, the higher lows in prices join the highest lows of the RSI (14) to keep buyers overcome the immediate SMA hurdle surrounding $1,856.

Even so, the XAUUSD bulls need validation from the 61.8% Fibonacci retracement of the April 29 to May 16 downturn, around $1,870, to retake control.

Meanwhile, a downside break of the aforementioned support line, near $1,841, could witness multiple hurdles around $1,830 and $1,820 before testing the $1,807 support level, the last defense for gold buyers.

Following that, the precious metal becomes vulnerable to slump toward the previous monthly low of $1,786.

What’s next for gold price?

CME Group’s flash data for crude oil futures markets showed traders scale back their open interest positions by around 4.6K contracts on Wednesday, adding to the previous day’s pullback. In the same line, volume reversed two daily builds in a row and shrank by around 34.5K contracts.

WTI: Small correction in the offing?

Prices of the WTI printed new multi-month highs on Wednesday further north of the $120.00 mark. The move was accompanied by increasing open interest and volume and hints at the idea that a probable corrective downside lies ahead. The nearly overbought condition of the commodity also appears to reinforce that view for the time being.

Here is what you need to know on Thursday, June 9:

Markets stay quiet early Thursday and major currency pairs continue to fluctuate in familiar ranges ahead of the European Central Bank's (ECB) highly anticipated policy announcements. ECB President Christine Lagarde will deliver her remarks on the policy outlook and respond to questions from 12:30 GMT. The US Department of Labor's weekly Initial Jobless Claims will be the only featured data in the US economic docket later in the day.

The ECB is widely expected to announce an end to its Asset Purchase Programme (APP) and confirm a rate hike in July. Previewing the ECB meeting, "the central bank’s economic projections will be watched out for, given that a July rate hike is already baked in," noted FXStreet Analyst Dhwani Mehta. "Amidst looming recession risks, in the face of higher energy costs and supply chain crisis, a downgrade to the euro area growth estimates will not go down well with the EUR market should the ECB up its inflation forecasts."

ECB Preview: Laying groundwork for rate hikes but EUR/USD could still fall.

The US Dollar Index moves sideways near 102.50 for the third straight day on Thursday and the benchmark 10-year US Treasury bond yield holds comfortably above 3%. US stock index futures trade with small losses in the early European session, pointing to a cautious market mood. Earlier in the day, the city of Beijing reportedly suspended operations of all entertainment venues in the Chaoyang District from Thursday due to a COVID containment.

Meanwhile, US Treasury Secretary Janet Yellen reiterated that US President Joe Biden's administration is looking to make tariffs on Chinese goods more "strategic" but this comment had little to no impact on risk sentiment. During the Asian session, the data from China revealed that the trade surplus widened to $78.76 billion in 12 months to May from $55.12 billion. This print surpassed the market expectation of $58 billion by a wide margin. Furthermore, China's exports jumped by 15.3% last month, compared to analysts' forecast of 3.1%.

EUR/USD rose to 1.0750 on Wednesday but ended up closing the day flat near 1.0720. The pair moves up and down in a narrow band near that level early Thursday.

ECB Preview: Buy the July rumor, sell the fact and three other scenarios for EUR/USD.

GBP/USD edged lower on Wednesday following the two-day rebound and stays calm above 1.2500 in the European morning on Thursday. 

USD/JPY turned south and declined below 134.00 after having touched its highest level in two decades at 134.54 on Wednesday. International Monetary Fund’s (IMF) Japan mission chief, Ranil Salgado, said earlier in the day that a weak Japanese yen would help the Bank of Japan (BOJ) reach its inflation target but would also impact households negatively.

Gold failed to make a decisive move in either direction on Wednesday and closed flat near $1,850. XAU/USD extends its sideways grind near that level despite rising US Treasury bond yields.

Bitcoin lost 3% on Wednesday but manages to hold above the key $30,000 level. Ethereum continues to trade near $1,800 after having registered small losses in the previous two days.

GBP/USD is still seen navigating the 1.2430-1.2670 range in the next weeks, noted FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang.

Key Quotes

24-hour view: “We expected GBP to ‘trade sideways within a range of 1.2470/1.2570’ yesterday. However, GBP dropped to 1.2433 before snapping back up to close higher at 1.2590 (+0.49%). The rapid bounce from the low has scope to extend but a sustained rise above 1.2630 is unlikely (next resistance is at 1.2670). On the downside, a break of 1.2540 (minor support is at 1.2570) would indicate that the current upward pressure has eased.”

Next 1-3 weeks: “Last Friday (03 Jun, spot at 1.2570), we highlighted that the sharp but short-lived swings have resulted in a mixed outlook and we expected GBP to trade between 1.2470 and 1.2670. Yesterday (06 Jun, spot at 1.2515), we highlighted that the underlying tone has softened and GBP could dip below the support at 1.2470. We added, ‘looking ahead, GBP has to close below 1.2430 before a sustained decline is likely’. GBP subsequently dropped briefly to 1.2433 before rebounding sharply. With the whippy price actions, the outlook remains mixed and further choppy movement would not be surprising, likely between 1.2430 and 1.2670.”

Open interest in gold futures markets rose by around 3.5K contracts after three consecutive daily pullbacks on Wednesday, according to preliminary readings from CME Group. Volume followed suit and rose for the second day in a row, this time by around 3.6K contracts.

Gold remains capped by $1,875

Wednesday’s price action in gold was inconclusive amidst rising open interest and volume, exposing the continuation of the consolidative phase in the very near term at least. In the meantime, occasional bullish attempts are expected to face a tough resistance around $1,875 per ounce troy.

• The presence of buying tails near 17.00 is advocating for more upside.
• The formation of a Bullish Flag has strengthened the greenback bulls.
• Advancing 20- and 50-EMAs add to the upside filters.

The USD/TRY pair is oscillating back and forth in a narrow range of 17.18-17.21 in the early European session. The pair has remained in the grip of bulls for the last week after overstepping Friday’s high at 16.54.

The presence of sufficient buying tails near the psychological support of 17.00 is advancing the odds of an initiative buying action going forward. On an hourly scale, the asset is forming a Bullish Flag that signals a consolidation phase after a vertical upside move. The consolidation phase denotes inventory purchase by the initiative buyers, which prefer to enter in an auction after the establishment of a bullish bias.

Advancing 20- and 50-period Exponential Moving Averages (EMAs) at 17.14 and 16.99 respectively add to the upside filters.

Also, the Relative Strength Index (RSI) (14) is oscillating in the bullish range of 60.00-80.00, which signals that the upside momentum is intact.

Going forward, a firmer upside move above Wednesday’s high at 17.21 will drive the asset towards the round-level resistance at 17.50, followed by the psychological resistance at 18.00.

Alternatively, the Turkish lira bulls could gain control if the asset drops below Wednesday’s low at 17.03. An occurrence of the same will drag the asset towards Tuesday’s high at 16.87. A slippage below Tuesday’s high will bring more downside towards Monday’s high at 16.65.

USD/TRY hourly chart

• GBP/USD extends the previous day’s pullback from weekly top.
• Failure to stay beyond two-month-old resistance line, receding bullish bias of MACD to favor bears.
• Multiple hurdles to test sellers before May’s low surrounding 1.2150.

GBP/USD remains pressured towards an intraday low around 1.2520 as bears keep reins heading into Thursday’s London open.

In doing so, the cable pair extends the previous day’s losses amid the receding bullish bias of the MACD.

Also keeping the pair sellers is the multiple failures to cross a downward sloping trend line from mid-April.

However, the pair sellers need validation from the 21-DMA level of 1.2500 to retake control.

Following that, the 23.6% Fibonacci retracement level of the April-May downturn, near 1.2390, will precede the 1.2330 and 1.2260 support levels to challenge GBP/USD bears before offering them light to aim for the yearly low of 1.2155.

Meanwhile, a daily closing beyond the two-month-old resistance line, close to 1.2555, could aim for May’s high around 1.2665.

It should be noted that the GBP/USD pair’s successful run-up beyond 1.2665 enables the bulls to target an early April swing low near 1.2980.

GBP/USD: Daily chart

Trend: Further weakness expected

FX option expiries for June 9 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

- EUR/USD: EUR amounts        

• 1.0550 497m
• 1.0570 1.1b
• 1.0585 662m
• 1.0600 1.1b
• 1.0755 953m
• 1.0920 357m

- GBP/USD: GBP amounts        

• 1.2410 269m
• 1.2600 574m

- USD/JPY: USD amounts                     

• 130.00 818m
• 131.00 621m

- AUD/USD: AUD amounts  

• 0.7100 763m
• 0.7135 475m
• 0.7170 801m
• 0.7185 356m

- USD/CAD: USD amounts       

• 1.2500 389m
• 1.2690 360m
• 1.2800 344m
• 1.2820 682m
• 1.2900 570m

- EUR/GBP: EUR amounts

• 0.8600 200m
• 0.8650 312m

There is still scope for EUR/USD to trade within the 1.0625-1.0785 range in the next weeks, suggested FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang.

Key Quotes

24-hour view: “We held the view yesterday that EUR ‘is likely to edge lower but a sustained drop below 1.0650 is unlikely’. Our view was not wrong as EUR dropped to 1.0650 before rebounding to close little changed at 1.0699 (0.05%). Downward pressure has eased and EUR is likely to trade sideways for today, expected to be within a range of 1.0665/1.0725.”

Next 1-3 weeks: “Our view from yesterday (07 Jun, spot at 1.0695) still stands. As highlighted, the recent build-up in upward momentum has fizzled out and EUR is not ready to move above 1.0800 just yet. Overall, EUR is likely trade 1.0625 and 1.0785 for now.”

• NZD/USD licks its wounds during five-day downtrend, bounces off daily low.
• US dollar fails to cheer firmer Treasury yields amid pre-ECB anxiety.
• China reports upbeat trade numbers for May, floods in Hunan trim optimism.
• ECB’s verdict, US inflation are the key catalysts ahead of next week’s FOMC.

NZD/USD picks up bids to reverse daily loss around 0.6455, probing a four-day downtrend heading into Thursday’s European session. The kiwi pair’s latest rebound could be linked to the broad US dollar pullback, as well as upbeat data from China.

US Dollar Index (DXY) fades the previous day’s recovery moves near 102.50, down 0.07% intraday, as hawkish expectations from the European Central Bank (ECB) allow traders to slow down on the USD buying. In doing so, the greenback gauge ignores the firmer US Treasury yields. That said, the US 10-year Treasury yields seesaw around 3.04% after rising over five basis points (bps) the previous day.

Also supporting the NZD/USD recovery are the stronger-than-expected trade numbers from China. The nation’s Trade Balance came in at +78.76B versus +58B expected and +51.12B previous. Further details suggest upbeat figures for Imports and Exports for May.

Although the market’s consolidation allows the NZD/USD to pare recent losses, the broad pessimism surrounding inflation and growth exerts downside pressure on the Kiwi pair. These fears could be linked to comments from the White House, OECD and the World Bank. On Wednesday, White House spokeswoman Karine Jean-Pierre said they expect the inflation numbers to be released at the end of the week to be elevated. Additionally, the Organisation for Economic Co-operation and Development (OECD) cuts the global growth outlook for 2022 while World Bank (WB) President David Malpass warned that faster-than-expected tightening could recall a debt crisis similar to the one seen in the 1980s.

Moving on, ECB is all set to announce an end of the bond purchase and may keep the US dollar down. Though, clues for the July rate hike and economic forecasts will be crucial to watch for clear directions.

Technical analysis

NZD/USD bears flirt with 21-DMA support, around 0.6430 by the press time, a daily break of the same becomes necessary to witness the pair’s further declines towards 0.6380 horizontal support. Meanwhile, recovery moves need to cross the convergence of the 50-HMA and the immediate resistance line, near 0.6460-65, to please the bulls.

Despite the yen closing in on a 24-year low vs. the US dollar, Goldman Sachs Group Inc. strategists still remain bullish on the Japanese currency.

Key quotes

“We see rising chances of a change in the policy mix in Japan -- in the form of FX intervention or a shift higher in the yield-curve control tolerance limit.”

“The scenario where yen depreciates on a trend basis due to uniquely weak domestic inflation seems a relatively low probability outcome.”

“A US recession could lead to a 15%-20% drop in the dollar-yen.”

• USD/JPY attempts a rebound from 133.80, downside looks likely on improved risk appetite

• USD/JPY is expected to slip further as the negative market sentiment is fading away.
• A rebound in Japanese inflation is majorly contributed by higher oil prices.
• A higher-than-expected US inflation will diminish the demand for risk-perceived assets.

The USD/JPY has witnessed some offers after hitting a low of 133.82 in the Asian session. A minor pullback move after sliding from Thursday’s high at 133.56 looks weak and is expected to resume its downside journey sooner. The asset faced principal selling pressure from 133.56 as it was a weak test of Wednesday’s high.

The pair is expected to remain in the grip of bears as the US dollar index (DXY) has tumbled on Thursday after failing to sustain above 102.60. A rebound in the positive market sentiment has trimmed the DXY’s appeal. The DXY has remained in a consolidation phase from the previous two trading sessions after sensing a sell-off near the round-level resistance of 103.00.

Uncertainty over the release of the US inflation is bringing doubtful wild moves in the DXY. Investors are expecting no change in the annual inflation rate. A stable inflation rate at 8.3% might not trim the risk appetite, however, an above-expectation figure will definitely do the honor.

On the Tokyo front, the Bank of Japan (BOJ) is worried over the broader weakness in the Japanese yen.  The inflation rate in Japan has reached to its target of 2%, however, higher fossil fuel prices have been the major contributor to the recent surge in the CPI.

• WTI retreats from three-month high, snaps two-day uptrend.
• RSI pullback favors further weakness but previous support tests bears.
• Bulls need validation from $122.50 before targeting yearly top.

WTI bulls take a breather around the highest levels since March, pausing two-day advances around $120.50 heading into Thursday’s European session.

In doing so, the black gold takes clues from the RSI’s pullback from the overbought territory.

It should be noted, however, that the previous resistance line from May 31, around $119.70, holds the key to the WTI bear’s welcome.

Following that, the weekly support line and the 200-HMA, respectively around $118.30 and $116.20, will test the sellers before giving them control.

On the flip side, the recent high around 121.35 and multiple pauses near 122.50, marked during late March, will challenge the WTI crude oil buyers ahead of directing them to the yearly high of $126.51.

In a case where the energy benchmark remains firmer past $126.51, the odds of its run-up towards the $130.00 threshold can’t be ruled out.

WTI: Hourly chart

Trend: Further weakness expected

• Asia-Pacific markets remain depressed as Treasury bond yields remain firmer despite the market’s pre-ECB anxiety.
• Floods China’s Hunan dim importance of upbeat trade data.
• Fears of higher inflation, recession due to aggressive central bank actions also weigh on sentiment.
• ECB is ready to end bond purchases, details for July rate-hike, economic forecasts eyed for clear directions.

Markets in the Asia-Pacific region track Wall Street’s losses, as well as bear the burden of firmer yields, during early Wednesday. The government bond coupons rallied amid a rush to risk safety due to fears concerning inflation and global economic growth.

On Wednesday, White House spokeswoman Karine Jean-Pierre said they expect the inflation numbers to be released at the end of the week to be elevated. Additionally, the Organisation for Economic Co-operation and Development (OECD) cuts the global growth outlook for 2022 while World Bank (WB) President David Malpass warned that faster-than-expected tightening could recall a debt crisis similar to the one seen in the 1980s.

Amid these plays, MSCI’s index of Asia-Pacific shares outside Japan drops 0.30% while Japan’s Nikkei 225 struggles to justify the Bank of Japan’s (BOJ) refrain from policy tightening, up 0.30% near 28,320 by the press time.

It’s worth noting that fears of grain shortage due to floods in China’s Hunan province supersede the benefits of upbeat trade data for May from the dragon nation. That said, China’s Trade Balance came in at +78.76B versus +58B expected and +51.12B previous. With this, stocks in China grind lower while Hang Seng prints mild losses at the latest.

Stocks in Australia and New Zealand are both down near 1.0% whereas South Korea and India portray around 0.30% intraday losses by the press time. Alternatively, Indonesia’s IDX Composite rises 0.76% to 7,248 at the latest as the equity traders in Jakarta cheer the government’s export promotions schemes.

On a broader front, US 10-year Treasury yields seesaw around 3.05% after rising over five basis points (bps) to 3.04% the previous day. Also, S&P 500 Futures print mild losses near 4,110 after snapping a two-day rebound on Wednesday.

Looking forward, ECB’s verdict and President Christine Lagarde’s speech will be crucial to watch for intraday directions. Following that, inflation data from China and the US could direct the market moves.

Also read: S&P 500 Futures, US Treasury bond yields remain pressured ahead of ECB, US inflation

• EUR/USD is advancing towards 1.0750 as investors await interest rate decisions from the ECB.
• The shared currency bulls are strengthened by the upbeat GDP data.
• Investors will remain busy as the ECB’s policy will be followed by the US Inflation event.

The EUR/USD pair has bounced back sharply after ranging around 1.0710 in the Asian session. A minor rebound in the risk appetite has brought some bids for the shared currency bulls. More or less, the asset is going to react to the interest rate decision by the European Central Bank (ECB).

Despite, mounting inflationary pressures in the eurozone, the ECB is expected to stick to its neutral policy and won’t hike the interest rates. Russia’s invasion of Ukraine and eventually rising fossil fuels and commodity prices have pushed the inflation rate above 8% in the eurozone. Still, the ECB is expected to continue its accommodative policy.

Also, the shared currency bulls are performing well on upbeat Gross Domestic Product (GDP) data. Eurostat reported the quarterly GDP at 0.6% higher than the forecasts of 0.3% while the annual figure at 5.4%, outperformed the expectation of 5.1%.

Meanwhile, the US dollar index (DXY) is focusing on the release of the US Consumer Price Index (CPI), which is due on Friday.  A preliminary estimate for the annual CPI figure is 8.3%, similar to the former figure. However, the core CPI may tumble to 5.9% from the prior print of 6.2%, thanks to the quantitative tightening approach adopted by the Federal Reserve (Fed).

The Fed has already elevated its interest rates by 25 basis points (bps) and 50 bps in March and May’s monetary policies respectively. A consecutive 50 bps rate hike is expected from the central bank next week.

• USD/INR again retreats from a short-term key horizontal hurdle.
• 100-SMA, monthly ascending trend line to test pair sellers.
• RSI conditions, sustained trading beyond 200-SMA keeps buyers hopeful.

USD/INR fades the previous day’s corrective pullback, easing from a three-week-old horizontal resistance to 77.71 during Thursday’s mid-Asian session.

In doing so, the Indian rupee (INR) pair portrays the fifth rejection from the short-term key hurdle.

Even so, the pair’s successful trading above 100-SMA and a monthly ascending trend line join recently firmer RSI (14) to keep USD/INR buyers hopeful.

It’s worth noting that the quote’s weakness past 100-SMA and rising support line from early May, respectively near 77.60 and 77.43, will need validation from the 200-SMA level of 77.27 to convince the USD/INR bears.

Following that, the 77.00 threshold keeps the keys for the quote’s downward trajectory towards May’s low near 76.00.

Alternatively, a successful break of the previously stated horizontal resistance near 78.00 may not hesitate to refresh the record high of 78.12.

For that matter, the 80.00 psychological magnet will be crucial to watch for the USD/INR buyers.

USD/INR: Four-hour chart

Trend: Further upside expected

• Loonie bulls have weakened on Negative Divergence.
• The RSI (14) has signaled a loss of momentum, which advocates a bullish reversal.
• The greenback bulls have attacked the 20-EMA at 1.2650.

The USD/CAD pair has given an upside break of consolidation formed in a range of 1.2550-1.2565 in the Asian session. The greenback bulls have gauged a pullback from its monthly low of 1.2518 and are attempting to convert the pullback into a bullish reversal.

Exhaustion in the downtrend is weakening the loonie bulls. The momentum oscillator, Relative Strength Index (RSI) has displayed a loss of downside momentum. The asset formed lower lows continuously while the RSI (14) formed higher lows, which signals that the loonie bulls are out of gas now. Also, a pullback move is supporting the signs of bullish reversal.

On a broader note, the asset is auctioning in a Falling Channel, which signals a continuation of a downside move till the asset finds exhaustion in the same.

The greenback bulls have attacked the 20-period Exponential Moving Average (EMA) at 1.2560 and sustainability above the same will strengthen the greenback further.

A decisive move above the round-level resistance of 1.2600 will drive the asset towards May 30 low at 1.2651, followed by April 26 low at 1.2685.

On the flip side, the loonie bulls could strengthen further if the asset drops below Wednesday’s low at 1.2620. This will drag the asset towards the psychological support of 1.2500. A slippage below 1.2500 will expose the asset to more downside towards January 19 low at 1.2450.

USD/CAD four-hour chart

• Gold prints three-day uptrend despite being sluggish of late.
• US Dollar fails to track yields as pre-ECB optimism weighs on the greenback demand.
• Fears of inflation, growth keeps the metal buyers hopeful.
• ECB’s July rate hike signals may favor XAUUSD bulls but economic forecasts could probe the run-up.

Gold Price (XAU/USD) picks up bids to refresh intraday high around $1,855 as the US dollar bulls take a breather ahead of the European Central Bank’s (ECB) monetary policy decision on Thursday. In doing so, the precious metal rises for the third consecutive day even as the bulls lack momentum strength of late.

US Dollar Index (DXY) drops 0.08% near 102.47, consolidating the weekly gains, as market players brace for hawkish ECB. “ECB tightening expectations have picked up ahead of tomorrow’s decision. WIRP suggests liftoff July 21 remains fully priced in,” said Brown Brothers Harriman (BBH) in their latest report.

It’s worth noting that the US dollar’s weakness part ways from the firmer Treasury yields as the 10-year benchmark rises 1.5 basis points (bps) to 3.045%. The bond bears keep reins around a one-month high amid the prevailing inflation and growth fears, as well as hawkish hopes from the major central banks.

The firmer yields and pre-ECB anxiety weigh on the market sentiment and drown the S&P 500 Futures for the second consecutive day.

Moving on, today’s monetary policy decision from the European Central Bank (ECB) will be important for the traders, due to its direct impact on the US dollar and the market sentiment. Following that, Friday’s inflation data from China and the US will be crucial to watch for fresh impulse. Should the risk-aversion continue, the markets may witness further US dollar strength, which in turn could weigh on the gold prices.

Technical analysis

Gold rebounds from a convergence of the 200-HMA and a two-day-old bullish channel’s support. The upside momentum also gains support from the firmer RSI (14) and receding bearish bias of the MACD.

That said, the latest rebound eyes the stated channel’s resistance line near $1,862 before challenging the monthly peak of $1,874.

On the contrary, a downside break of the $1,851 support confluence could recall gold bears targeting the previous weekly low of around $1,828.

Gold: Hourly chart

Trend: Further recovery expected

• AUD/USD has rebounded to near 0.7180 on better-than-expected Chinese trade data
• Aussie bulls are underperforming despite the 50 bps rate hike announcement by the RBA.
• The DXY is expected to resume its upside journey amid uncertainty ahead of the US inflation.

The AUD/USD pair has attempted to overstep 0.7180 as China’s National Bureau of Statistics has reported better-than-expected trade data for year till date (YTD). In dollar-denominated terms, the imports have improved by 4.1% while exports have jumped firmly by 16.9%. The USD Trade Balance has landed at $78.76B, much higher than the estimates of 58B and the prior print of 51.12B. It is worth noting that Australia is a leading trader partner of China and Chinese trade data holds a significant impact on the antipodean.

Aussie bulls are underperforming against the greenback despite the announcement of a bumper rate hike by the Reserve Bank of Australia (RBA). The RBA elevated its Official Cash Rate (OCR) by 50 basis points (bps). As per the market consensus, a rate hike by 25 bps rate was expected.

The rationale behind the forecast of a 25 bps rate hike was higher inflation and a weak employment situation. Last week, the Australian economy reported the Employment Change of 4k i.e. the economy has managed to create 4k jobs in May, which were significantly lower than the expectations of 30k.

More quantitative tightening measures reduce employment opportunities due to the scarcity of liquidity in the economy. Therefore, a rate hike by a quarter to a percent was more optimal. Now, extreme quantitative restricting measures may result in inefficiency in the employment generation process.

On the dollar front, the US dollar index (DXY) is struggling to sustain above 102.60. Odds are favoring more upside in the DXY as investors are awaiting the release of Friday’s US inflation. A preliminary estimate for the annual inflation rate is 8.3% while the core Consumer Price Index (CPI) is seen at 5.9%, lower than the prior print of 6.2%.

China's Trade Balance for May, in Yuan terms, came in at CNY502.89 billion versus CNY443.88 expected and CNY325.08 billion last.

The exports jumped by 15.3% last month vs. 13.1% expected and 1.9% previous.

Imports rose by 2.8% vs. -9.0% expected and -2.0% prior.

In USD terms,

China reported a bigger-than-expected growth in the trade surplus, as imports and exports surpassed expectations.

Trade Balance came in at +78.76B versus +58B expected and +51.12B previous.

Exports (YoY): 16.9% vs. +8.0% exp. and +3.9% prior.

Imports (YoY): 4.1% vs. +2.0% exp. and 0% last.

Additional takeaways

China Jan-May yuan-denominated exports +11.4% YoY.

China Jan-May yuan-denominated imports +4.7% YoY.

China Jan-May dollar-denominated imports +6.6% YoY.

China Jan-May dollar-denominated exports +13.5% YoY.

FX implications

AUD/USD shows little reaction to the upbeat Chinese trade figures, keeping its bearish bias intact near 0.7175. The spot is down 0.25% on the day.

President Joe Biden’s Administration is looking to “reconfigure” tariffs imposed on Chinese goods under former President Donald Trump to make them more “strategic,” US Treasury Secretary Janet Yellen told lawmakers on Capitol Hill Wednesday.

Key quotes

“This administration inherited a set of 301 tariffs imposed by the Trump administration that I think really weren’t designed to serve our strategic interests.”

“We are taking a look at those and looking to reconfigure those tariffs in a way that would be more strategic.” 

Tariff reductions “could help to bring down the prices of things that people buy that are burdensome.”

“I honestly don’t think tariff policy is a panacea with respect to inflation.”

• GBP/USD is expected to tumble further on advancing hopes of a bumper rate hike by the Fed.
• Lower growth forecasts and higher sky-rocketing inflation levels will keep pound bulls on the tenterhooks.
• Higher US NFP has provided more liberty to the Fed to dictate more quantitative tightening.

The GBP/USD pair is scaling lower after failing to sustain above 1.2540 in the Asian session. The greenback bulls are dragging the asset towards the psychological support of 1.2500 as negative market sentiment has trimmed the risk appetite of investors. On a broader note, the cable is juggling in a range of 1.2430-1.2600 over the past two weeks.

Uncertainty is advancing in the FX domain as investors’ focus has shifted to the US inflation, which is due on Friday. The annual Consumer Price Index (CPI) is expected to remain unchanged at 8.3% while the core CPI that excludes food and energy will slip to 5.9% vs. the prior print of 6.2%. The extent of deviation in the US CPI will have a significant impact on the interest rate decision by the Federal Reserve (Fed) next week.

The upbeat US Nonfarm Payrolls (NFP) released last week has already bolstered the odds of a jumbo rate hike by the Fed. Efficiency in the employment generation process by the US administration has provided more room for the Fed to stretch the benchmark rates. Now, higher price pressures will compel the Fed to elevate interest rates as mounting inflationary pressures will depreciate the paychecks of households in the US vigorously.

On the pound front, lower growth forecasts amid sky-rocketing inflation are cornering the pound bulls. As per the British Chambers of Commerce, UK economic growth will 'grind to a halt and 10% inflation is on the way. Also, the economy is not expected to display any GDP expansion in 2023.

Shanghai is strengthening its covid control measures, including putting some residential neighborhoods back under lockdown, in an effort to prevent another citywide outbreak after a spike in cases followed the city’s reopening last week, per Chinese media agency, Caixin.

China’s financial hub reported four new confirmed symptomatic COVID-19 cases on Wednesday, all in zones already under quarantine.

Minhang District is a suburban district of Shanghai. the entire district is to enter lockdown.

Mass testing of people to begin from Saturday.

Zhao Dandan, Deputy Director of the Shanghai Municipal Health Commission, Shanghai will strengthen its capabilities to handle community cases.

Meanwhile, China reported 240 new coronavirus cases on June 8, of which 70 were symptomatic and 170 were asymptomatic, the National Health Commission (NHC) said on Thursday.

Market reaction

Risk sentiment remains tepid, with most major FX pairs in tight ranges ahead of the critical ECB decision. Chinese covid and growth concerns continue to haunt markets, with the S&P 500 futures down 0.21% so far. AUD/USD is pressured towards 0.7150, losing 0.38% on the day.

• EUR/USD snaps two-day rebound, holds lower ground near intraday bottom.
• Bullish chart formation joins upbeat RSI signals, sustained trading beyond 200-SMA to keep buyers hopeful.
• Weekly support line acts as an intermediate halt ahead of the key 1.0600 level.

EUR/USD consolidates recent gains around 1.0710 during the inactive Asian session on Thursday. In doing so, the major currency pair portrays the pre-ECB anxiety inside a bullish chart pattern called flag.

In addition to the bull flag, the sync of the higher lows in prices with those of the RSI (14), known as bullish divergence, as well as the pair’s sustained trading beyond the 200-SMA, also keeps EUR/USD buyers hopeful.

That said, the quote’s latest pullback eyes a weekly support line near 1.0665 but a confluence of the 200-SMA and the flag’s lower line, near 1.0600 appears a tough nut to crack for the bears.

Should EUR/USD drop below 1.0600, May 18 high surrounding 1.0565 could act as the last defense for the buyers.

Alternatively, an upside clearance of the flag’s upper line, at 1.0750 by the press time, will confirm the bullish chart pattern and suggest (theoretically) an upside move towards 1.1100.

However, tops marked during May and late April, respectively near 1.0785 and 1.0940, could act as the extra upside filters.

EUR/USD: Four-hour chart

Trend: Further recovery expected

• USD/CHF fades upside momentum near a three-week high, probes four-day uptrend.
• Market sentiment remains sour ahead of the key data/events.
• Inflation, growth fears adds strength to the risk-off mood amid.
• Hawkish hopes from ECB, indecision over the US inflation could challenge immediate moves.

USD/CHF probes bulls during the fifth day of upside as it takes rounds to 0.9785-90 during Thursday’s mid-Asian session. In doing so, the risk barometer pair aptly portrays the market’s anxiety ahead of the key monetary policy decision from the European Central Bank (ECB), as well as Friday’s US Consumer Price Index (CPI) for May.

Other than the pre-data/event caution, fears of inflation and growth, amid hopes of more hawkish central bank moves, also weigh on the market sentiment. However, a lack of major catalysts tests the USD/CHF traders of late.

That said, the ECB is likely to unveil clues for a July hike but the same may not save the traders. The reason is that the bloc’s central bank is the last among the major ones to most-probably end the asset purchase during today’s meeting, which in turn tests the bears.

Elsewhere, softer prints of the Fed’s preferred inflation gauge, namely the Core PCE Price Index challenges the pre-CPI notion. That said, US inflation expectations, as per the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, stay firmer around the one-month high of late.

On a broader front, fears that faster monetary policy normalization will weigh on the economic transition, mainly due to the recent covid and geopolitical woes, which seem to have challenged the market sentiment. On Wednesday, White House spokeswoman Karine Jean-Pierre said they expect the inflation numbers to be released at the end of the week to be elevated. Additionally, the Organisation for Economic Co-operation and Development (OECD) cuts the global growth outlook for 2022 while World Bank (WB) President David Malpass warned that faster-than-expected tightening could recall a debt crisis similar to the one seen in the 1980s.

Against this backdrop, US 10-year Treasury yields seesaw around 3.05% after rising over five basis points (bps) to 3.04% the previous day. Also, S&P 500 Futures print mild losses near 4,110 after snapping a two-day rebound on Wednesday.

To sum up, the risk-off mood keeps the USD/CHF prices higher but the anxiety ahead of the key data/event tests the upside moves.

Technical analysis

A daily closing beyond the 21-DMA, surrounding 0.9730, enables USD/CHF bulls to aim for the monthly horizontal resistance near 0.9860.

International Monetary Fund’s (IMF) Japan mission chief, Ranil Salgado, offered his view on the merits and demerits of the ongoing depreciation of the yen.

Key quotes

Related reads

• USD/JPY portrays market’s indecision around 20-year top past 134.00, ECB, US inflation eyed
• EUR/JPY skyrockets near 144.00 ahead of the ECB policy meeting

Sky News has reported that the British Chambers of Commerce says UK economic growth will 'grind to a halt and 10% inflation on the way.
''The business group downgraded its 2022 growth forecast from 3.6% to 3.5%, and said inflation would reach 10% in the last quarter - far higher than average wage rises.''

The news agency states that this follows another bleak warning this week from the OECD that Britain's growth in 2023 will be the worst of nearly all the G20 countries.

''The bleak outlook follows a warning from one of the world's leading economic authorities that Britain's growth next year will be worse than any G20 country except Russia.

There will be no GDP expansion at all in 2023, according to the OECD (Organisation for Economic Co-operation and Development).

The group said the UK was threatened by rising interest rates and taxes, as well as the high inflation that's leading to surging petrol prices and energy costs.''

The article had little impact on the pound initially, but it will do sentiment no favours amid an already pessimistic outlook for not only the UK growth story but the wider macro picture on the whole. The sour mood has been supporting the greenback in the mid-week trade. 

Sometime after the news started to circulate, the pound started to come off as illustrated below.

Meanwhile, the Bank of England is continuing its gradual tightening of monetary policy but analysts at Commerzbank argue that it is likely to act less restrictively than expected by the market. ''The pound should suffer increasingly from this. Moreover, the EUR should benefit from the ECB's interest rate hikes from the summer onward. We, therefore, see EUR-GBP higher until the end of the year.''

GBP/USD pressured

The price is dipping at the time of writing as illustrated in the five-minute chart above. 

Daily, the price will be in for a beating if it breaks below the prior support and lows near 1.2530 as there is a price imbalance that could be exploited by the bears to 1.2334 prior lows. 

Analysts at Scotiabank offer a detailed preview of their expectations from Thursday’s European Central Bank (ECB) monetary policy decision due to be announced at 1145 GMT.

Also read: ECB Preview: Laying groundwork for rate hikes but EUR/USD could still fall

Key quotes

“Widely expected to tee up the end to net purchases under the Asset Purchase Program in early July and set the scene for the first-rate hike of the cycle that is likely to be delivered on July 21st. That would generally be consistent with Lagarde’s guidance that was provided on May 11th when she said:

“The first-rate hike, informed by the ECB’s forward guidance on the interest rates, will take place sometime after the end of net asset purchases. We have not yet precisely defined the notion of ‘some time,’ but I have been very clear that this could mean a period of only a few weeks.”

“Global financial markets will be particularly attuned to whether Lagarde offers guidance toward a gradual initial pace of lift-off defined as a quarter-point hike, or a half percentage point hike as some of her colleagues prefer.”

“Markets lean more toward the quarter-point scenario with the deposit facility rate expected to rise by 125–150bps by year-end into early 2023 (chart 7). Inflation that is running at over 8% y/y with core at just under half that would lend itself to a quickened pace of lessening massive monetary policy stimulus.”

The Reserve Bank of New Zealand (RBNZ) said in a statement on Thursday, it will commence selling off the government bonds acquired during its quantitative easing (QE) program gradually over the next five years, Bloomberg reports.

Key quotes

“The Reserve Bank will sell bonds back to the Treasury Department’s debt management office at a rate of NZ$5 billion ($3.2 billion) per June year in order of maturity date, beginning with the longest maturity.”

“Sales will continue in a “gradual and predictable manner” until holdings have reduced to zero, which is expected to be in mid-2027. Shorter-maturity bonds will mature without reinvestment or sales.”

“The Reserve Bank and NZDM will continue to collaborate closely to ensure the efficient functioning of the New Zealand government bond market.”

Market reaction

NZD/USD remains under pressure near 0.6435, down 0.15% on the day, as of writing. The kiwi fails to benefit from rising yields on 10-year kiwi bonds, which hit its highest level since June 2015 on the above headlines.

• AUD/USD extends the previous day’s losses, renews intraday low of late.
• Convergence of the 100-EMA, 200-EMA challenge bears ahead of the key Fibonacci retracement levels.
• Weekly resistance line holds the key to fresh upside.

AUD/USD remains on the back foot around the intraday low, on its way to the first weekly loss in four, as bears approach key EMA confluence. That said, the Aussie pair drops to 0.7175 while taking rounds to the daily lows during Thursday’s Asian session.

Given the downward sloping RSI (14) line, coupled with the pair’s sustained tracing of the weekly resistance line, AUD/USD prices are likely to witness further declines.

However, bears need a clear downside of the 0.7155 key level, including 100-EMA and 200-EMA, to retake control.

Following that, the 38.2% and 50% Fibonacci retracements (Fibo.) of the pair’s May-June upside, near 0.7110 and 0.7055 in that order, could challenge the AUD/USD bears.

Meanwhile, recovery moves must cross the weekly hurdle surrounding 0.7220 to challenge the monthly peak of 0.7283.

In a case where AUD/USD bulls keep reins past 0.7283, a run-up towards the late April swing high near 0.7460 can’t be ruled out.

AUD/USD: Four-hour chart

Trend: Further weakness expected

In recent trade today, the People’s Bank of China (PBOC) set the yuan (CNY) at 6.6811 vs. the last close of 6.6850.

About the fix

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's closing level and quotations taken from the inter-bank dealer.

• Global markets turn cautious ahead of the week’s key data/events.
• S&P 500 Futures extend previous day’s losses but bond coupons struggle to remain firmer.
• Inflation, growth fears join the light calendar in Asia to also test the sentiment.

After witnessing a risk-off day on Wednesday, market players struggle for clear directions as they brace for crucial events amid a quiet start to Thursday. Also challenging the market moves are fears surrounding inflation and growth, not to forget cautious optimism in China and talks of hawkish monetary policy moves ahead.

While portraying the mood, US 10-year Treasury yields seesaw around 3.034% after rising over five basis points (bps) to 3.04% the previous day. Also, S&P 500 Futures print mild losses near 4,110 after snapping a two-day rebound on Wednesday.

The European Central Bank (ECB) is up for announcing the latest monetary policy verdict on Thursday amid the market’s expectation of witnessing clues for a July hike. It’s worth noting, however, that the bloc’s central bank is the last among major ones to most-probably end the asset purchase during today’s meeting, which in turn tests the bears.

On the other hand, softer prints of the Fed’s preferred inflation gauge, namely the Core PCE Price Index challenges the pre-CPI notion. That said, US inflation expectations, as per the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, stay firmer around the one-month high of late.

It should be observed that chatters surrounding the faster monetary policy normalization will weigh on the economic transition, mainly due to the recent covid and geopolitical woes, which seem to have challenged the market sentiment. On Wednesday, White House spokeswoman Karine Jean-Pierre said they expect the inflation numbers to be released at the end of the week to be elevated. Additionally, the Organisation for Economic Co-operation and Development (OECD) cuts the global growth outlook for 2022 while World Bank (WB) President David Malpass warned that faster-than-expected tightening could recall a debt crisis similar to the one seen in the 1980s.

Moving on, today’s monetary policy decision from the European Central Bank (ECB) will be important for the traders, due to its direct impact on the US dollar and the market sentiment. Following that, Friday’s inflation data from China and the US will be crucial to watch for fresh impulse. Should the risk-aversion continue, the markets may witness further US dollar strength.

Also read: US CPI Preview: Soft core set to drive dollar down, and two other scenarios

• Gold is fragile along at a 50% mean reversion level and bears eye to a dip to the 61.8% golden ratio. 
• The focus will turn to the ECB and the US inflation data at the end of the week. 

In Asia, the price is attempting to break below the 50% mean reversion level which exposes the 61.8% Fibo at $1,850 again.

At $1,852, the gold price is backpedaling further following a move into the 50% mean reversion area of the hourly bullish impulse identified in earlier trade, as illustrated in the technical analysis below. The US dollar has been on the front foot mid-week and remains firm in Asia, moving higher in the basket of currencies as measured by the DXY index. 

The US dollar index gained on Wednesday, reversing earlier declines as investors moved out of stocks at the same time that the US 10-year auction hit a high yield of 3.03%, up from the 2.943% high in the previous auction. Additionally, the greenback reached a fresh two-decade high against the yen as the Bank of Japan remains one of the few global central banks to maintain a dovish stance. We have seen a subsequent rally in US yields and the 10-year now hold above 3%, supporting the greenback.

Gold had otherwise been supported for its haven qualities following warnings from the OECD that the world will pay a hefty price for the war in Ukraine. ''It slashed its outlook for global growth this year to 3% from the 4.5% it saw in December. This follows the World Bank’s revised forecast for growth earlier this week. Gold gave up some gains late in the session as the USD strengthened,'' analysts at ANZ Bank noted. 

Meanwhile, analysts at TD Securities explained said, ''while the war in Ukraine helped to send the bears packing, the fading of geopolitical risk premia across global assets hasn't seen this cohort of discretionary traders liquidate their length.

''In turn, the gap between gold and real rates may be attributed to both an undue rise in real rates given quantitative tightening, and to the still-massive amount of complacent length being held in gold, keeping the yellow metal's prices elevated.''

For the day ahead, the attention will turn to the European Central Bank before traders get set for the US inflation data on Friday.

The analysts at TD Securities saif unless the governor, Christine Lagarde, ''commits to a series of 50s, EUR/USD has limited room to gain, particularly with the Euribor curve trading where it is and US CPI due the next day. Risk/reward more favorable for EURUSD to trade lower. Long-term inflation forecast will be key.'' 

The analysts at TDS also argued that the ECB will ''announce that the APP will end within weeks, and send a strong signal that rate hikes are coming in July and September (October remains a more interesting meeting in this sense). Forecasts will show stronger inflation and weaker growth, highlighting the ECB's challenge going forward.''

Consequently gold could be attractive for its haven qualities. The weakening economic backdrop has enabled the precious metal to find some support from investors. Gold has recently pushed above $1,850, despite a firmer USD. 

Gold technical analysis

In New York trade, it was stated and illustrated on the chart below that the price was embarking on a 50% retracement as follows:

In Asia, the price is attempting to break below the 50% mean reversion level which exposes the 61.8% Fibo at $1,850 again.

• USD/JPY dribbles around multi-year high, mildly bid during five-day uptrend.
• Firmer yields, monetary policy divergence between Fed and BOJ underpin bullish bias.
• USD’s safe-haven demand amid inflation, growth fears also favor upside moves.

USD/JPY bulls take a breather at a two-decade high amid the market’s anxiety ahead of the key data/events. That said, the yen pair retreats from the 20-year high to 134.30 but stays mildly bid while printing the five-day uptrend during Thursday’s Asian session.

Choppy moves of the US Treasury yields and the US stock futures depict the traders’ indecision and restrict the USD/JPY upside of late. The US 10-year Treasury yields seesaw around 3.034% after rising over five basis points (bps) to 3.04% the previous day. Also, S&P 500 Futures print mild losses near 4,110 after snapping a two-day rebound on Wednesday. It’s worth noting that the Wall Street benchmarks also closed in the red the previous day.

The market’s indecision could be linked to the fears of inflation and growth, as well as hawkish expectations from the European Central Bank (ECB) policymakers and hopes of firmer inflation data from the US.

Chatters that the faster monetary policy normalization will weigh on the economic transition, mainly due to the recent covid and geopolitical woes, seem to have challenged the market sentiment. On Wednesday, White House spokeswoman Karine Jean-Pierre said they expect the inflation numbers to be released at the end of the week to be elevated. Additionally, the Organisation for Economic Co-operation and Development (OECD) cuts the global growth outlook for 2022 while World Bank (WB) President David Malpass warned that faster-than-expected tightening could recall a debt crisis similar to the one seen in the 1980s.

On the same line, is the cautious mood ahead of this week’s US Consumer Price Index (CPI) data for May, especially after the softer prints of the Fed’s preferred inflation gauge, namely the Core PCE Price Index. That said, US inflation expectations, as per the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, stay firmer around the one-month high of late.

Above all, hawkish expectations from the Fed and the Bank of Japan’s (BOJ) refrain from tightening appears the key cause for the USD/JPY run-up. “BOJ must continue its support for the economic activity by continuing with the current monetary easing,” BOJ Governor Haruhiko Kuroda said on Wednesday.

Looking forward, today’s monetary policy decision from the European Central Bank (ECB) will be important for the USD/JPY pair, due to its direct impact on the US dollar and the market sentiment. Following that, Friday’s inflation data from China and the US will be crucial to watch for fresh impulse.

Also read: ECB Preview: Buy the July rumor, sell the fact and three other scenarios for EUR/USD

Technical analysis

Overbought RSI joins immediate resistance line near 134.60 to test USD/JPY bulls. However, sellers are less likely to take entry until the quote stays beyond May’s high near 131.35.

• The black gold has extended its gains and has climbed above $120.00 firmly.
• A shortage of oil due to the prohibition of oil imports from Russia won’t be offset easily.
• EIA has reported higher stockpiles at 2.025 million barrels.

West Texas Intermediate (WTI), futures on NYMEX, has climbed above the psychological resistance of $120.00 and is establishing above the same on escalating supply concerns. The black gold is experiencing a sheer upside momentum after overstepping March 24 high at $115.64.

The OPEC+ promise of pumping more oil has failed to support the oil bears. Oil prices are aiming higher as the think tank in the investing community believes that the promised additional output by the oil cartel won’t offset the amount of oil used to be exported by Russia. Prohibition of oil from Moscow by the Western leaders has not come with the tag of alternative suppliers. Therefore, supply constraints will continue to persist and oil prices will continue to rise. Investors should note that OPEC+ has promised to infuse 648k barrels of oil in July and August into the global oil supply.

Meanwhile, oil stockpiles by the Energy Information Administration (EIA) rose unexpectedly on Wednesday by 2.025 million barrels, much higher than the estimates and the prior print of -1.917 million barrels and -5.068 million barrels respectively.

It is worth noting that higher interest rates in the US economy are hoping for shrinkage in the Gross Domestic Product (GDP) numbers. Therefore, a lower requirement of oil for catering to economic activities will keep the oil stockpiles higher. The dollar-sensitive oil is going to be impacted after the release of the US inflation on Friday. A higher-than-expected inflation print will bolster the odds of a rate hike by the Federal Reserve (Fed) next week.

• NZD/USD remains pressured for the fifth consecutive day, pokes immediate support.
• Sustained trading below weekly resistance, 50-HMA joins downbeat MACD signals to favor bears.
• Three-week-old horizontal support appears tough nut to crack for bears.

NZD/USD flirts with the nearby support line as it dribbles around 0.6445-50, printing five-day downtrend during Thursday’s Asian session.

Given the Kiwi pair’s multiple failures to cross the 50-HMA, as well as sustained trading below the weekly resistance line, not to forget bearish MACD signals, the quote is likely to decline further.

That said, a clear downside break of the immediate support near 0.6440 will quickly direct NZD/USD prices towards a three-week-old horizontal support line of 0.6420.

In a case where the Kiwi pair remains pressured below 0.6420, the 0.6400 threshold and late May swing low near 0.6365-60 could lure the bears.

On the flip side, recovery moves need to cross the convergence of the 50-HMA and aforementioned resistance line, near 0.6460-65, to retake control.

Following that, the 0.6500 threshold will precede 0.6520 and 0.6560 hurdles to the north before directing NZD/USD bulls towards the monthly high of 0.6576.

NZD/USD: Hourly chart

Trend: Further weakness expected

• Copper advances along a dynamic support into a key hourly resistance. 
• The daily chart has all the makings for a bulliosh continuation. 

As per the prior analysis, Copper Price Analysis: Bulls lurking in daily demand area, bullish extension on the cards, the price of copper has found demand in the daily support and is stacking up for a move higher for the foreseeable future. 

Copper, daily chart prior analysis

It was stated in the prior analysis that '' we could start to see some accumulation start to come in.

''This would be expected to see the price supported in the demand area as illustrated below resulting in a subsequent bid making prospects for an upside continuation''

Copper live market, daily chart

Besides a dip to the 78.6% Fibonacci, the price has been accumulating along the 61.8% ratio and has been respecting the dynamic trendline support so far. 

Copper H1 chart

On the hourly chart, the bulls need to get over the line at this point i fthere are going to be near-term prospects of a break higher. 

• Overlapping of the 200-EMA with the cable price adds to the consolidation filters.
• The Darvas Box formation is hitting for an extreme squeeze in volatility.
• A 40.00-60.00 range by the RSI (14) is indicating the unavailability of momentum in the counter.

The GBP/USD pair is oscillating in a narrow range of 1.2530-1.2550 in Tokyo. On Wednesday, the cable witnessed a responsive selling action after attempting to overstep the critical hurdle of 1.2600. A balanced market profile is indicating a consolidative move ahead.

The formation of a Darvas Box chart pattern on an hourly scale is indicating a squeeze in the standard deviation. The asset is trading back and forth in a range of 1.2430-1.2600 for the past two weeks. Usually, a Darvas box formation after a vertical upside move dictates the presence of initiative buyers, which holds the potential of driving the asset higher.

The 200-period Exponential Moving Average (EMA) at 1.2544 is overlapping with the cable price, which firms the odds of consolidation ahead.

Also, the Relative Strength Index (RSI) (14) in the 40.00-60.00 range is hoping for a continuation of a lackluster performance.

An upside break of the Darvas Box above weekly highs at 1.2600 will send the asset towards May’s high and the round-level resistance at 1.2667 and 1.2700 respectively.

On the contrary, the pound bulls could lose their grip if the asset drops below Tuesday’s low at 1.2430. This will drag the major towards May 11 high at 1.2400 followed by May 18 low at 1.2280.

GBP/USD hourly chart

• EUR/USD fades two-day rebound, remains sidelined of late.
• Growth, inflation fears weigh on prices but hawkish expectations from ECB challenge bears.
• ECB’s end to the monetary stimulus and July rate hike signals are the key to watch.
• US CPI for May, risk catalysts act as additional downside filters.

EUR/USD aptly portrays the pre-ECB indecision as it dribbles around 1.0715-20 during Thursday’s Asian session. In doing so, the major currency pair fails to extend the previous two-day recovery amid mixed catalysts and sour sentiment.

The pair’s latest gains could be linked to the hawkish expectations from the European Central Bank (ECB) amid the skyrocketing inflation. “ECB tightening expectations have picked up ahead of tomorrow’s decision. WIRP suggests liftoff July 21 remains fully priced in,” said Brown Brothers Harriman (BBH) in their latest report.

Also keeping the EUR/USD prices firmer is the cautious mood ahead of this week’s US Consumer Price Index (CPI) data for May, especially after the softer prints of the Fed’s preferred inflation gauge, namely the Core PCE Price Index. That said, US inflation expectations, as per the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, stay firmer around the one-month high of late.

Alternatively, fears that faster monetary policy normalization will weigh on the economic transition, mainly due to the recent covid and geopolitical woes, seem to have challenged the EUR/USD pair’s an upside.

On Wednesday, White House spokeswoman Karine Jean-Pierre said they expect the inflation numbers to be released at the end of the week to be elevated. Additionally, the Organisation for Economic Co-operation and Development (OECD) cuts the global growth outlook for 2022 while World Bank (WB) President David Malpass warned that faster-than-expected tightening could recall a debt crisis similar to the one seen in the 1980s.

It’s worth noting that the Wall Street benchmarks snapped a two-day rebound whereas the US 10-year Treasury yields rose 5.3 bps to 3.027% to portray the risk-off mood and weigh on EUR/USD prices.

Looking forward, all eyes will be on the ECB as the regional central bank will be the last among the majors to end the stimulus. Market players expect hints of a July rate hike and an absence of bleak economic forecasts to challenge the currency pair’s weekly losses.

Technical analysis

A weekly symmetrical triangle restricts the EUR/USD pair’s immediate moves between 1.0745 and 1.0660. Adding strength to the upside filter is the four-month-old resistance line.