Analytics, News, and Forecasts for CFD Markets: currency news — 19-06-2022.

• USD/CAD pares recent gains at 19-month high, renews intraday low of late.
• Higher inflation expectations ahead of Canada CPI data inflate hawkish hopes from the BOC.
• Fedspeak, recession fears join downbeat oil prices, despite the recent bound, to keep pair sellers hopeful.
• Qualitative catalysts to offer short-term directions ahead of Powell’s testimony, Canada inflation data.

USD/CAD takes offers to renew intraday low around 1.3000 as buyers take a breather around the highest levels since late 2020 amid a sluggish start to the week. That said, a corrective pullback in WTI crude oil prices and expectations of firmer inflation in Canada seems to have underpinned the Canadian Dollar’s (CAD) recent gains. Even so, the pair sellers remain cautious ahead of testimony from Fed Chair Jerome Powell and Canada’s headline inflation data, up for publishing during the late weekdays.

“A Conference Board of Canada survey for May shows that 78% of Canadians expect inflation to exceed the Bank of Canada’s (BOC) target of 2% over the next three years, up from 77% in April,” said Reuters. The survey results hint at the BOC’s further rate hikes amid a broad rush to tame inflation by the global central bankers.

Elsewhere, WTI crude oil prices rebound from the monthly low flashed on Friday, up 0.15% intraday around $108.70 by the press time.  The black gold dropped the heaviest since early May on the previous day as markets feared recession and rushed to the US dollar for a safe haven.

That said, US Dollar Index (DXY) manages to post a three-week uptrend despite falling around the Fed’s surprise interest rate lift by 75 basis points (bps). The greenback’s following gain could be linked to the broad chatters of a 1.0% rate hike and hawkish Fed policymakers.

While the US Industrial Production for May was softer, the Federal Reserve’s (Fed) bi-annual Monetary Policy mentioned the Gross Domestic Product (GDP) appears to be on track to rise moderately in the second quarter, per Reuters. Considering the data, Fed speakers were more confident over their latest vote for a 0.75% rate hike. Among them was Minneapolis Fed President Niel Kashkari who backed another 75 bps rate hike in July.

Recently, a piece of news from Reuters saying, “President Joe Biden's administration is reviewing the removal of some tariffs on China,” joins upbeat covid news from Beijing to exert downside pressure on the USD/CAD prices.

Against this backdrop, the US equities marked an unconvincing relief rally while the Treasury yields were also sluggish.

Moving on, Fed Chair Jerome Powell’s testimony will join Canada’s Consumer Price Index (CPI) and BOC CPI Core data for May to highlight Wednesday as the key event day for the USD/CAD traders.

Also read: USD/CAD Weekly Forecast: US dollar stars at the Fed after party

Technical Analysis

USD/CAD sellers attack an upward sloping trend line from June 08, near 1.3010, quickly followed by the 1.3000 psychological magnet, to retake control. However, March’s high of 1.2900 appears a decisive point for the pair traders to watch before eyeing a reversal of the current bullish trend.

Meanwhile, a daily closing beyond the recent double tops surrounding 1.3080 becomes necessary for the bulls.

• NZD/USD stays defensive after three-week downtrend, pares recent losses amid a quiet session.
• New Zealand Business PSI rose past 52.2 prior to 55.2 in May.
• Hawkish Fed, recession fears favor US dollar, news from China probe Kiwi bears.
• Light calendar highlights the risk catalysts for fresh impulse.

NZD/USD grinds higher around 0.6320 while consolidating the previous three-week advances during Monday’s Asian session. The kiwi pair’s latest gains could also be linked to New Zealand’s services activity data for May, as well as headlines from China.

New Zealand’s Business NZ PSI for May rose past 52.2 prior reading to 55.2. The private activity data joins upbeat figures of Business NZ PMI data flashed the last week, which in turn propel the hopes of another hawkish surprise from the Reserve Bank of New Zealand (RBNZ).

A piece of news from Reuters saying, “President Joe Biden's administration is reviewing the removal of some tariffs on China,” joins upbeat from Beijing that suggests receding covid fears also seemed to have favored the NZD/USD pair’s rebound.

Furthermore, Friday’s downbeat US data offer additional upside momentum to the Kiwi pair. That said, US Industrial Production for May dropped to 0.2% MoM, below 0.4% market forecast and 1.4% prior. The details suggested steady Capacity Utilization and a contraction in the manufacturing output. While the US data were softer, the Federal Reserve’s (Fed) bi-annual Monetary Policy mentioned the Gross Domestic Product (GDP) appears to be on track to rise moderately in the second quarter, per Reuters.

It should be, however, that China’s testing of anti-ballistic missile and hawkish Fedspeak are some of the main clues that exert downside pressure on the NZD/USD prices. Recently, Federal Reserve Governor Christopher Waller mentioned that he will support a 75 bps interest rate hike in July policy if data matches his expectations.

Amid these plays, the US equities marked an unconvincing relief rally while the Treasury yields were also sluggish.

Looking forward, Testimony from Fed Chairman Jerome Powell become this week’s key event amid a light calendar at home. That said, today’s interest rate announcement from the People’s Bank of China (PBOC) could also entertain NZD/USD traders if managed to surprise the markets with any rate change.

Technical analysis

Despite the corrective pullback, NZD/USD battles the 10-DMA immediate hurdle surrounding 0.6330, a break of which could direct the quote towards early June’s swing low near 0.6360. Until then, the Kiwi pair is likely to remain directed towards the yearly low marked in the last week around 0.6195. 

• GBP/USD is juggling in a 1.2205-1.2233 range ahead of UK Inflation.
• A CPI figure of 9.1% may compel the BOE to elevate its interest rates in July significantly.
• The UK economy looks unable to avoid slowing growth if a technical recession won’t kick in.

The GBP/USD pair is oscillating in a narrow range of 1.2205-1.2233 in the early Asian session after a minor rebound from a low of 1.2173, recorded on Friday. The pair is displaying a balanced market profile and is expected to turn imbalance as higher expectations of Consumer Price Index (CPI) figures by the UK economy will spurt the recession fears and will weaken the cable further.

As per the market consensus, the UK inflation is seen at 9.1%, a little higher than the prior print of 9%. The maintenance of an inflation figure equal to or above 9% is eventually a wake-up call for a recession situation. This will force the Bank of England (BOE) to sound extremely hawkish in its July monetary policy meeting. The BOE has elevated its interest rates by 25 basis points (bps) last week, which has pushed its interest rate officially to 1.25%.

Meanwhile, a forum of more than 50 senior executives from finance, business, and policymaking on FTs City Network said that policymakers faced difficult decisions on how to mitigate the worst effects of an economic downturn. If the UK misses a technical recession, a situation of stagnation cannot be ruled out. This may add further volatility to the cable going forward.

On the dollar front, the US dollar index (DXY) is displaying a subdued performance. The DXY is oscillating between 104.70-104.80 and is expected to shift into the grip of bears after violating the crucial support of 104.60. This week, investors will focus on the release of the US PMI numbers by the IHS Markit. The Composite PMI is seen higher marginally to 53.5 from the prior print of 53.4.

“A recession is not at all inevitable,” said US Treasury Secretary Janet Yellen during an interview with ABC News, per Reuters.

The news also adds, “Some tariffs on China inherited from the administration of former President Donald Trump made ‘no strategic sense’ and added that President Joe Biden was reviewing them as a way to bring down inflation”.

Additional quotes

Market reaction

Given the weekend news, the US dollar is yet to react to Yellen’s comments despite inflating recession fears, which in turn weigh on the EUR/USD prices.

Also read: EUR/USD stays on the bear’s radar around 1.0500, ECB’s Lagarde, Fed’s Powell eyed

• Gold price has recovered its opening losses and has reclaimed $1,840.00.
• Investors should brace for a longer time period for bringing price stability.
• The precious metal remained weak after it failed to sustain above 61.8% Fibo retracement.

Gold price (XAU/USD) has rebounded sharply after slipping below the potential cushion of $1,840.00. On a broader note, the precious metal is eyeing more downside as the Federal Reserve (Fed) is expected to announce a consecutive 75 basis point (bps) rate hike in its July monetary policy. The precious metal has displayed selling pressure at open and a follow-up selling is highly likely after a slippage below Friday’s low at $1,833.90.

Comments from Fed policymakers on price pressures and it's whatever it takes’ attitude of bringing price stability will have a major impact on the gold prices for a prolonged period. Cleveland Fed Bank President Loretta Mester in her interview with CBS News on Sunday dictated that the price pressures won’t get trimmed overnight. It will take a period of two years but will get back in its neutral state.

Meanwhile, the US dollar index (DXY) is facing barricades at around 104.80. The DXY’s rally saw exhaustion signals last week after hitting a multi-year high of 105.79. A correction after recording a multi-year high of 105.79 is followed by a minor reversal, however, volatility is likely to stay ahead of the PMI numbers. The US Composite PMI is seen a little higher at 53.7 against the prior print of 53.6.

Gold technical analysis

On an hour scale, the gold prices have witnessed a steep fall after failing to sustain above 61.8% Fibo retracement (which is placed from June 12 high at $1,879.26 to June 14 low to $1,805.11) at $1,851.09. The 20- and 50-period Exponential Moving Averages (EMAs) at $1,841.54 and $1,839.76 respectively are expected to display a bearish crossover, which will strengthen the gold bears. Also, the Relative Strength Index (RSI) (14) is oscillating in the 40.00-60.00 range and may slip below 40.00, which will trigger a fresh selling leg.

Gold hourly chart

“Federal Reserve Governor Christopher Waller on Saturday became the latest U.S. central banker to pledge a whatever-it-takes approach to fighting inflation, three days after the Fed raised interest rates by three-quarters of a percentage point and signaled more hikes to come,” per Reuters.

Reuters adds, "If the data comes in as I expect, I will support a similar-sized move at our July meeting," Waller told a Society for Computational Economics conference in Dallas. "The Fed is 'all in' on re-establishing price stability."

Additional comments

It’s worth noting that Atlanta Fed President Raphael Bostic also showed his comfort with the Fed’s 75 bps move during late Friday while also saying, “Inflation is not declining, implying that policy must be stronger.” The policymaker also added, “We will adjust policy based on data as needed.”

FX reaction

The news seems to increase the hawkish bets on the Fed’s next move and underpin the US dollar’s strength.

Also read: EUR/USD stays on the bear’s radar around 1.0500, ECB’s Lagarde, Fed’s Powell eyed

Cleveland Federal Reserve Bank President Loretta Mester said it will take two years for inflation to fall to the central bank's 2% target, adding that it will be "moving down" gradually from the current level, per Reuters.

The news also adds, “It isn't going to be immediate that we see 2% inflation. It will take a couple of years, but it will be moving down," Mester said in an interview with CBS News on Sunday.”

“We do have growth slowing to a little bit below trend growth and we do have the unemployment rate moving up a little bit. And that is OK, we want to see some slowing in demand to get it in line with supply,” said Fed’s Mester.

Market reaction

The news keeps the US dollar on the front foot amid a softer start to the week. However, risk-positive updates concerning China seem to have probed the Antipodeans’ downside during early Monday’s Asian session.

Also read: US reviews China tariffs, possible pause on federal gas tax to curb inflation

“President Joe Biden's administration is reviewing the removal of some tariffs on China and a possible pause on the federal gas tax as the United States struggles to tackle soaring gasoline prices and inflation, two top officials said on Sunday,” per Reuters

The news also adds that Energy Secretary Jennifer Granholm said the President was also evaluating a pause on federal gas tax to bring down prices, telling CNN that such a move was "not off the table".

“Biden has said he is considering removing some of the tariffs imposed on hundreds of billions of dollars worth of Chinese goods by his predecessor in 2018 and 2019 amid a bitter trade war between the world's two largest economies,” mentions Reuters as well.

It’s worth noting that the weekend updates from Beijing were also positive for the risk appetite and can offer intermediate relief to the markets. However, hawkish Fed bets and recession fears keep challenging optimists.

FX implications

Antipodeans seem to have reacted to the news by starting the week on a positive note. That said, the AUD/USD pair is up 0.23% around 0.6935 by the press time of early Monday morning in Asia.

• EUR/USD remains pressured towards yearly low after three-week downtrend.
• Hawkish Fedspeak, Fed’s 75 bp rate hike joins recession fears to underpin US dollar.
• ECB fails to impress bulls despite teasing rate hikes.
• Lagarde’s testimony eyed for fresh intraday clues amid light calendar.

EUR/USD begins the new trading week by extending Friday’s retreat from 1.0500, staying pressured by the press time after three consecutive weekly falls. The major currency pair bears the burden of the market’s rush towards the haven, which in turn joins hawkish Fed bets to favor the US dollar.

US Dollar Index (DXY) manages to post a three-week uptrend despite falling around the Fed’s surprise interest rate lift by 75 basis points (bps). The greenback’s following gain could be linked to the broad chatters of a 1.0% rate hike and hawkish Fed policymakers. However, talks of the US economic slowdown seemed to have probed the greenback bulls.

On Friday, US Industrial Production for May dropped to 0.2% MoM, below 0.4% market forecast and 1.4% prior. The details suggested steady Capacity Utilization and a contraction in the manufacturing output. While the US data were softer, the Federal Reserve’s (Fed) bi-annual Monetary Policy mentioned the Gross Domestic Product (GDP) appears to be on track to rise moderately in the second quarter, per Reuters.

Considering the data, Fedspeakers were more confident over their latest vote for a 0.75% rate hike. Among them was Minneapolis Fed President Niel Kashkari who backed another 75 bps rate hike in July.

On the other hand, the Eurozone’s final prints of May CPI confirmed 8.1% YoY and 3.8% MoM figures but the policymakers were a bit hawkish. That said, European Central Bank’s (ECB) policymaker Klaas Knot said, per Reuters, that the ECB could opt for several 50 bps rate hikes in case the inflation situation in the euro area were to worsen.

It’s worth noting that the receding covid fears in China and chatters surrounding the US readiness for easing China tariffs are some positives favoring the risk appetite despite major negatives that keep the US dollar on the bull’s radar.

Amid these plays, the US equities marked an unconvincing relief rally. It’s worth noting that today’s testimony by ECB President Christine Lagarde and Wednesday’s Testimony from Fed Chairman Jerome Powell are the week’s key events to watch for clear directions.

Technical analysis

EUR/USD pair’s pullback from a six-week-old horizontal support area surrounding 1.0630 keeps directing it to the yearly low surrounding 1.0350. That said, the 10-DMA level of 1.0510 restricts immediate upside.

• AUD/USD is expected to find offers around 0.6950 on rising odds of one more 75 bps rate hike in July.
• Fed’s Mester sees inflation near 2% in at least two years.
• This week, RBA minutes and PBOC‘s rate decision will be of significant importance.

The AUD/USD pair has opened around Friday’s last traded price and is expected to find offers around the critical hurdle of 0.6950. The pair witnessed a bearish open test-drive session on Friday, which is generally followed by a rangebound move or further weakness in the asset.

Last week, an unexpected three-quarter-to-a-percent rate hike by the Federal Reserve (Fed) brought a significant fall in the risk-perceived currencies. The downside will remain biased in the asset as consecutive 75 basis points (bps) rate hike announcement by the Fed is the new expectation of the town. Fed policymakers have started narrating an extreme hawkish stance on July monetary policy.

Cleveland Fed President Loretta Mester in an interview with CBS News on Sunday dictated It will take at least two years to achieve inflation near 2%. Also, a slowdown in the growth targets is the expectation but is not predicting a recession situation.

It is worth noting that only one Fed policymaker didn’t support a rate hike by 75 bps in June monetary policy. An all-around hawkish stance by Fed policymakers is advocating a similar rate hike in July. This will definitely hurt the employment rate but is necessary to be contained sooner.

On the aussie front, investors will keep an eye on the interest rate decision by the People’s Bank of China (PBOC). Considering the trade relations of the antipodean with China, a dovish stance by the PBOC may support the aussie. Apart from that, minutes from the Reserve Bank of Australia (RBA) will be of significant importance, which are due on Tuesday.