Analytics, News, and Forecasts for CFD Markets: currency news — 31-05-2022.

The latest BRC Shop Price Index jumped the most in over a decade, to 2.8% versus 2.7% prior, which in turn suggests that the food price inflation keeps pushing the Bank of England (BOE) towards tighter monetary policy.

“Shop prices accelerated in May at the fastest rate in more than a decade, according to new figures that reveal the pressure on retailers to pass on the cost of rising energy bills and the soaring price of imports,” said The Guardian following the data release.

The news also adds, “Fresh food prices were the most affected by rising costs, with farmers reporting that they were struggling to cope with the rising cost of labor since Brexit and the escalating price of fertilizer since Russia’s invasion of Ukraine.”

FX reaction

GBP/USD holds onto the day-start recovery moves around 1.2610 following the news suggesting further upside to track.

Read: GBP/USD picks up bids around 1.2600 as BOE, Brexit chatters join US dollar retreat

• USD/CAD is eyeing a re-test of its monthly lows at 1.2629 as investors await BOC monetary policy.
• The BOC is expected to elevate its interest rate by 50 bps.
• Oil prices faced selling pressure at around $120.00.

The USD/CAD pair is displaying a downside move in the Asian session, following the bearish sentiment on a broader note. The asset has recorded a five-day losing streak and its continuation looks likely if the asset drops below Tuesday’s low at 1.2629.

The loonie bulls are outperforming against the greenback as investors are awaiting the announcement of the interest rate decision by the Bank of Canada in the American session. As per the market consensus, an interest rate hike by 50 basis points (bps) is expected from the BOC. This will stretch the BOC’s interest rate officially to 1.5%. Canada’s annual inflation rate rose to 6.8% in April, which is compelling the BOC to continuously elevate the interest rates to avoid the inflation mess.

On the oil front, the black gold faced barricades around $120.00 and slipped to near $115.00, however, the overall trend is still bullish amid renewed supply concerns. The European Union (EU) Leaders Summit resulted in a prohibition of 90% of oil imports from Russia by the end of Calendar Year (CY) 2022. The announcement was highly expected by the market participants as Russia’s invasion of Ukraine was a punishable act and the EU wanted to isolate Russia badly.

On the dollar front, the US dollar index (DXY) witnessed a steep fall after failing to sustain above 102.00 on Tuesday. The asset displayed a reversal after hitting a fresh monthly low of 101.30 on expectations of a potential outcome from the Biden-Powell meeting to contain the price pressures. However, the unavailability of any material outcome brought offers in the DXY. This week, the US Nonfarm Payrolls (NFP) will be the key event for the FX domain. The US NFP is seen at 320k against the prior print of 428k.

Atlanta Fed President Raphael Bostic crossed wires during an interview with MarketWatch as he said that his suggestion that the central bank takes a September “pause” in its push to raise interest rates should not be construed in any way as a “Fed put,” or belief that the central bank would come to the rescue of markets.

Key quotes

The notion of any sort of “Fed put” was never a factor in his thinking.

I think it’s a good tale on some level for storybooks, but it’s not driving how I’m thinking about policy.

A pause might be a good idea because the market’s response to the Fed’s shift to raising rates “was far stronger than what we’ve historically seen.”

FX reaction

Following the news, S&P 500 Futures remain mildly bid and the EUR/USD pair consolidates recent losses around 1.0735.

• GBP/USD consolidates the first daily loss in five, mildly bid of late.
• DXY fades bounce off monthly low even as Yellen, Biden support Fed actions to tame inflation.
• Allegations on UK PM Johnson, NIP tussle and doubts over BOE’s performance probe cable buyers.
• US ISM PMIs, qualitative catalysts could determine short-term moves.

GBP/USD marches confidently above 1.2600 as it reverses the first daily loss in five during Wednesday’s quiet morning in Asia. That said, the cable refreshed daily top around 1.2610 by the press time.

The quote’s recent uptick could be linked to the US dollar’s failure to keep the bounce off one-month low, despite the increasing chatters surrounding inflation and the Fed’s prudent role.

Recently, US President Joe Biden praised the US Federal Reserve’s (Fed) task in controlling price increases, followed by comments from US Treasury Secretary Janet Yellen’s acceptance that she was wrong about inflation. “US Treasury Secretary Janet Yellen said on Tuesday that she was wrong in the past about the path inflation would take, but said taming price hikes is President Joe Biden's top priority and he supports the Federal Reserve's actions to achieve that,” said Reuters.

The US Dollar Index (DXY) flashed the first daily positive in four by the end of Tuesday’s trading, despite a pullback from 102.17. The greenback gauge recovered the previous day as the US traders cheered hawkish comments from Fed Board of Governors member Christopher Waller, as well as upbeat data at home.

Fed’s Waller said that he supports lifting interest rates by another 50 bps at the next several Fed meetings and that the policy rate should be above neutral by the end of the year to reduce demand, reported Reuters. On the other hand, the US Chicago Purchasing Managers’ Index and CB Consumer Confidence both rose past forecasts for May whereas the Dallas Fed Manufacturing Business Index dropped to the lowest levels in two years.

At home, agitations over UK PM Boris Johnson’s party during the covid-led lockdowns join the disappointment of British business leaders over the Northern Ireland Protocol (NIP) to weigh on the GBP/USD prices. On the same line are the doubts over the Bank of England’s (BOE) role in taming inflation. “In a downbeat assessment of the UK’s economic prospects, the impact of Brexit and the potential ‘politicization’ of monetary policy, the US investment bank (Bank of America) believes that investors will dump the pound after sustained weakness,” per The Times.

Looking forward, the US ISM Manufacturing PMI for May, expected 54.5 versus 55.4 prior, will decorate the calendar while Fedspeak and other risk catalysts may entertain GBP/USD traders.

Technical analysis

A daily closing below the 13-day-old rising trend line keeps GBP/USD sellers hopeful until the quote stays below 1.2690.

• The GBP/JPY extends its weekly gains up by 1.14%.
• Sentiment begins to shift positively, which could propel the GBP higher.
• GBP/JPY Price Forecast: Upward biased, but facing solid resistance around 162.18.

The British pound gains against the Japanese yen, albeit a risk-off market mood that usually benefits the Japanese yen, but the rally in the USD/JPY weighed on the JPY. At 162.31. the GBP/JPY gains some 0.20% as the Asian Pacific session begins.

Sentiment begins to shift positively but remains mixed

Asian equity futures fluctuate, portraying a mixed open. Meanwhile, US equities are rising, illustrating that month-end flows were the main reason for a dismal market mood. Sentiment-wise, any news from China regarding the coronavirus could shift market players’ mood. Additionally to the aforementioned, traders need to be aware of the release of China’s Caixin PMI for May, expected at 48, with April’s reading at 46.

The GBP/JPY Tuesday’s price action shows that the cross-currency opened near the 161.30s, 40 pips above the 160.94 daily low. However, the pair jumped as the JPY weakened, undermined by rising US Treasury yields, and underpinned the greenback. So, the GBP/JPY broke Tuesday’s early high at 161.95 and rallied 40 pips further, reaching a weekly high around 163.35.

GBP/JPY Price Forecast: Technical outlook

The GBP/JPY remains upward biased and poised for a re-test of April’s 28 daily high around 164.25. However, the cross-currency would face a wall of resistance levels on its way north. Nonetheless,  the Relative Strength Index (RSI) above the 50-midline in the bullish territory has enough room to spare before reaching overbought conditions.

Therefore, the EUR/JPY first supply zone would be May 9 high at 162.18. Break above would expose May 5 daily high at 163.57, followed by May 2 cycle high at 163.89. Once cleared, the EUR/JPY could rally towards April’s 28 cycle high at 164.25.

On the flip side, the GBP/JPY first support would be the 50-DMA at 161.70. A breach of the latter would expose May 31 low at 160.94, followed by May 30 daily low at 160.25.

• EUR/USD is juggling around 1.0733 ahead of multiple economic events.
• An improvement is expected in the eurozone jobless rate at 6.7% vs. 6.8% earlier.
• ECB policymaker is expecting two consecutive rate hikes in June and September by 25 bps.

The EUR/USD pair is displaying back and forth moves in a narrow range of 1.0730-1.0740 in early Tokyo. The major displayed a sheer reversal on Tuesday after hitting a low of 1.0679. A firmer rebound in the shared currency bulls is backed by rising odds of a rate hike by the European Central Bank (ECB) in its June monetary policy.

Soaring inflation in the eurozone is demanding the deployment of quantitative measures, which will incorporate a ceiling on the inflationary pressures. On Tuesday, Eurostat reported the annual Harmonized Index of Consumer Prices (HICP) at 8.1% vs. the expectation of 7.7% and the prior print of 7.4%.  A significant upside in the inflation numbers in Europe is compelling for an end of the lower rates cycle and rate hikes will be featured by the ECB in its upcoming monetary policy meetings.

Meanwhile, ECB Chief Economist Philip Lane has advocated two consecutive interest rate hikes by 25 basis points (bps) in June and September. This has bolstered the odds of a rebound in the ECB’s interest rate curve.

Going forward, investors will focus on the speech from ECB President Christine Lagarde and the release of the eurozone Unemployment Rate. Considering the galloping inflation levels, investors should brace for hawkish commentary from ECB’s Lagarde. While the eurozone Unemployment Rate is seen at 6.7% against the prior print of 6.8%.

On the dollar front, the US dollar index (DXY) is experiencing barricades around 101.80 ahead of the ISM Manufacturing PMI, which is seen lower at 54.5 against the former figure of 55.4.

"Inflation is number one concern for President Biden," US Treasury Secretary Janet Yellen said during early Wednesday morning in Asia.

More to come

• AUD/USD consolidates pullback from three-week high, sidelined of late.
• Australia’s Q1 2022 GDP is estimated to have softened by 0.7% QoQ.
• Bearish chart pattern, RSI retreat keeps sellers hopeful.
• 200-SMA adds to the downside filters, recovery moves have multiple hurdle to tackle.

AUD/USD picks up bids to 0.7178 as bears lick their wounds after the quote’s U-turn from a three-week high. In doing so, the Aussie pair consolidates the first daily loss in four ahead of the key Australia Q1 Gross Domestic Product (GDP) release during Wednesday’s Asian session.

Also read:

The AUD/USD pair’s pullback the previous day portrays a rising wedge bearish chart pattern on the four-hour play. The downside bias also gains support from the RSI (14) retreat.

However, the 200-SMA offers an additional barrier to the south around 0.7120, in addition to the stated wedge’s support line near 0.7135.

Should the quote drops below 0.7120, theory backs bears to expect a fresh yearly high under the previous month’s trough of 0.6828. During the fall, the 23.6% Fibonacci retracement (Fibo.) of April-May fall, around 0.7030, as well as the 0.7000 psychological magnet may offer intermediate halts.

On the flip side, recovery moves need to reject the wedge formation, by crossing the 0.7220 immediate hurdle, to convince short-term buyers.

Even so, the 50% Fibo. level and the previous monthly high, respectively around 0.7245 and 0.7270, can challenge the upside momentum past-0.7220.

Overall, AUD/USD teases bears ahead of the key Aussie data but the downtrend requires strong disappointment from scheduled data and has multiple challenges.

AUD/USD: Four-hour chart

Trend: Grinds lower

• USD/JPY bulls in charge but a correction could be on the cards. 
• The bulls are taking the lead on the back of Fed expectations. 

USD/JPY has soared on the back of a stronger US dollar on Tuesday that rallied against its major trading partners early doors after the long Memorial Day holiday weekend. The data schedule is busy again this week, with the focus on Friday's May employment report. Investors moved away from risk following the US Federal Reserve Governor Christopher Waller's hawkish remarks the prior day.

Subsequently, global equities came under pressure on news of record-high inflation in Europe. The Euro Stoxx 50 and CAC 40 closed 1.4% lower, and the DAX slipped 1.3%. The FTSE 100 posted a modest 0.1% increase. The Dow Jones Industrial Average fell by 0.7% to 32,990.12, the S&P 500 dropped by 0.6% to 4,132.15, and the Nasdaq Composite was 0.4% in the red at 12,081.39. For the month, the S&P and the Dow closed little changed while the Nasdaq was 2.1% lower after registering a more than 13% retreat in April. The US 10-year yield rose 10.2 basis points to 2.85%.

The Fed official Waller advocated for the central bank to raise interest rates at every meeting until inflation is curbed. Specifically, Waller said “I support tightening policy by another 50 bp for several meetings. In particular, I am not taking 50 bp hikes off the table until I see inflation coming down closer to our 2% target.”    

Consequently, the analysts at Brown Brothers Harriman explained that WIRP suggests 50 bp is fully priced in for June and July. ''However, a third 50 bp that was fully priced in for September is now about 50% priced in vs. 35% last week.  After September, two more 25 bp hikes are fully priced in and a third is partially priced in that would take the Fed Funds ceiling to between 3.0-3.25%.''

 What’s really changed is that rates are seen peaking in mid-2023 before falling in H2 23 and beyond, the analysts added. ''This would only happen if the US were to fall into recession next year and while it is possible, it is not our base case. This week’s data will be very important for near-term market expectations.''

The Nonfarm Payrolls and other important survey data will be reported. We get the regional Fed manufacturing surveys wrap-up and May ISM manufacturing PMI will be reported tomorrow and is expected at 54.5 vs. 55.4 in April. 

We also have US President Joe Biden who said he and Jerome Powell will discuss inflation in a White House meeting Tuesday and pledged to give the Federal Reserve chair space to do his job.

• Biden and Powell to discuss inflation, US dollar on a knife's edge

USD/JPY technical analysis

The price is meeting a daily resistance area and could be on the verge of a bearish correction to the 38.2% Fibo that meets prior resistance that would be expected to act as a support. 

• Gold price is declining sharply on advancing hawkish Fed bets.
• Measures to contain inflationary pressures will absorb liquidity from the economy.
• Investors will keep an eye on the release of the ISM Manufacturing PMI.

Gold price (XAU/USD) has given a downside break from its previous consolidation formed in a $1,846.20-1,864.16 range in the New York session. The precious metal has turned extremely volatile as investors are bracing for a rise in the extent of the hawkish stance to be dictated by the Federal Reserve (Fed) in June.

Mounting inflationary pressures in the US economy have created havoc for the Fed and the US administration. To discuss the same, US President Joe Biden and Fed chair Jerome Powell conducted a meeting on Tuesday to discuss measures that could contain the soaring inflation. No matter what kind of measures the Fed will take to tame the price pressures, one thing is for sure the liquidity absorption program will get tightened further and the gold prices will remain on the tenterhooks.

Meanwhile, the US dollar index (DXY) is consolidating above 101.70 and is likely to witness an initiative buying action after a pullback. In today’s session, investors will focus on the ISM Manufacturing PMI, which is seen lower at 54.5 against the prior print of 55.4.

Gold technical analysis

A downside break of the Symmetrical Triangle on the hourly scale resulted in a volatility expansion that dragged the gold prices significantly lower. The breakdown of the precious metal will find a cushion at around $1,820.00. Declining 20- and 50-period Exponential Moving Averages (EMAs) at $1,846.00 and $1,850.00 are hinting at more downside. Along with this, the Relative Strength Index (RSI) (14) has shifted into a bearish range of 20.00-40.00, which adds to the downside filters.

Gold hourly chart

• The EUR/JPY moderately climbs some 0.07% as the Asin Pacific session begins.
• Sentiment remains negative, though the JPY weakened as other global central banks began tightening monetary conditions.
• EUR/JPY Price Forecast: To accelerate towards 140.00, once EUR/JPY bulls reclaim 139.00.

The EUR/JPY extends its rally for the fourth consecutive trading day due to a weaker Japanese yen, the weakest currency of Tuesday’s trading session in the FX complex. At 138.13, the EUR/JPY aims higher, and bulls have set their target around May 9 daily high at 138.32.

Sentiment remains negative, fundamentally for no reason than broad US dollar strength, courtesy of month-end flows. US equities closed with losses between 0.31% and 1.35%. China’s reported positive news related to May’s Covid-19 outbreak as Beijing and Shanghai prepares to lift some restrictions.

Of late, the EU Commission agreed to Russia’s oil embargo. Earlier, in the European session, inflation in the Euro area skyrocketed towards 8.1% YoY, higher than the 7.7% estimation

EUR/JPY Tuesday’s price action showed that the cross-currency dipped towards 136.80 daily lows, below the daily pivot point at 137.11, on pure JPY strength. Nevertheless, as Europan traders got to their desks, the EUR/JPY shifted gears and rallied more than 130 pips, reaching a daily high at 138.23, returning to current prices.

EUR/JPY Price Forecast: Technical outlook

The EUR/JPY remains upward biased and poised for a break of the May 9 138.31 cycle high. However, the cross-currency would face a wall of resistance levels on its way north. Nonetheless,  the Relative Strength Index (RSI) is above the 50-midline in the bullish territory and has enough room to spare before reaching overbought conditions.

Therefore, the EUR/JPY first supply zone would be May 9 high at 138.31. Break above would expose April’s 25 daily high at 139.20, followed by April’s 22 cycle high at 139.48. Once cleared, the EUR/JPY could rally towards April’s 21 YTD high at 140.00.

Key Technical Levels

• NZD/USD pressured as US dollar battles back. 
• The Aussie GDP data will be eyed and US events this week are key. 

At 0.6517, NZD/USD is lower on the day, losing some 0.57% after falling from a high of 0.6563 to a low of 0.6482. We have seen a recovery in the greenback that was dragged higher by a rally in US bond yields. Equally, a weak open for key US equity indices weighed on the antipodean currencies.

''While the Kiwi recovered off lows below 0.65 as equities clawed back gains, it remains below levels prevailing yesterday. With no local data today, the immediate focus will be on Australian Gross Domestic Product data and more broadly on the state of global risk appetite,'' analysts at ANZ bank explained.

''As we noted yesterday, the medium-term outlook is complicated: NZ enjoys higher interest rates, but that’s offset by growing fears of a hard landing (here and, to complicate things, in the US too), and blockages in the FX forwards market that are suppressing carry. It all speaks to volatility and a period of range trading rather than the need to radically adjust levels.''

Meanwhile, investors moved away from risk following the US Federal Reserve Governor Christopher Waller's remarks the prior day who advocated for the central bank to raise interest rates at every meeting until inflation is curbed. Specifically, Waller said “I support tightening policy by another 50 bp for several meetings. In particular, I am not taking 50 bp hikes off the table until I see inflation coming down closer to our 2% target.”    

This has left markets with the expectation of further rate increases in the forthcoming months. Analysts at Brown Brothers Harriman explained that WIRP suggests 50 bp is fully priced in for June and July. ''However, a third 50 bp that was fully priced in for September is now about 50% priced in vs. 35% last week.  After September, two more 25 bp hikes are fully priced in and a third is partially priced in that would take the Fed Funds ceiling to between 3.0-3.25%.''

 What’s really changed is that rates are seen peaking in mid-2023 before falling in H2 23 and beyond, the analysts added. ''This would only happen if the US were to fall into recession next year and while it is possible, it is not our base case.  This week’s data will be very important for near-term market expectations.''

Looking ahead for the week, the US Nonfarm Payrolls and important survey data will be reported. We get the regional Fed manufacturing surveys wrap-up and May ISM manufacturing PMI will be reported tomorrow and is expected at 54.5 vs. 55.4 in April. 

We also have US President Joe Biden who said he and Jerome Powell will discuss inflation in a White House meeting Tuesday and pledged to give the Federal Reserve chair space to do his job.

• Biden and Powell to discuss inflation, US dollar on a knife's edge

What you need to take care of on Wednesday, June 1:

The day will start with Australia releasing the Q1 Gross Domestic Product and the May AIG Manufacturing PMI. Disappointing readings could unleash risk aversion after poor Chinese data released early Tuesday.

EU inflation soared to a record high of 8.1% YoY in May, according to preliminary estimates, further fueling concerns about the future of major economies. Asian and European stocks edged lower. Wall Street aimed to trim early losses but gave up ahead of the close and ended the day also in the red.

Meanwhile, EU representatives reached a deal over the sixth package of sanctions on Russia. They agreed to ban 90%  of the country's oil imports by the end of the year. Charles Michel, president of the European Council, said the move would immediately hit 75% of Russian oil imports. The embargo covers petroleum and derivatives brought in by sea, allowing a temporary exemption for imports delivered by pipeline.

Sanctions also include an asset freeze and travel ban on individuals and excluding the Russian biggest bank, Sberbank, from the SWIFT system. Finally,  leaders agreed to provide Ukraine with a €9 billion tranche of assistance to support the war-torn country's economy.

Crude oil prices soared at the start of the day but were sharply down during US trading hours. The black gold was affected by headlines indicating that OPEC members are considering exempting Russia from their oil production deal. WTI traded as high as $119.96 a barrel but settled at around $115.20.

Gold was unable to take advantage of the dismal mood and finished the day in the red below $1,840 a troy ounce.

Across the FX board, there was little change. The American dollar appreciated during the first half of the day but gave up during the US session. The EUR/USD pair trades around 1.0730, while GBP/USD stands around 1.2600.

The USD/JPY pair advanced alongside US Treasury yields, now trading at around 128.60, but USD/CHF saw little action and is currently at 0.9590.

The AUD/USD pair eased at the end of the day, posting modest losses as per trading in the 0.7170 price zone. The Canadian dollar appreciated alongside oil, with USD/CAD down to 1.2640.

• The Australian dollar slides from weekly highs above 0.7200 amidst a sour trading day.
• Sentiment shifted negatively as month-end flows boosted the greenback, and US Treasury yields rose.
• AUD/USD Price Forecast: A daily close below 0.7200 to open the door for further losses.

AUD/USD slumps in the North American session, dropping from weekly highs above 0.7200, spurred by a risk-off market mood, on May’s last trading day. At 0.7178, the AUD/USD reflects the greenback’s strength, benefitted by month-end flows and higher US Treasury yields.

US equities remain trading with losses, between 0.46% and 1.80%. Sentiment shifted sour as the Eurozone reported inflation for May, which increased by 8.1% YoY, higher than the 7.8% foreseen, triggering worries about elevated prices and a global stagflation scenario.

In the Asian session, positive news from China showed that May PMIs came better than expected. The Manufacturing PMI printed a solid 49.6, higher than the 49.0 expected. The Non-Manufacturing PMI index rose by 47.8 vs. 45.5 estimations. The previously mentioned, alongside some restrictions lifted in Beijing and Shanghai, paint a hopeful scenario for the second-largest economy and Australia’s largest trading partner.

Chinese data boosted the AUD/USD, which was suffering under some selling pressure, though in the end, it failed to cling to the 0.7200 mark.

On Monday, Fed’s Governor Christopher Waller said he wants to keep hiking rates in 50 bps size until inflation is moving back towards the 2% target. Specifically, he said, “I support tightening policy by another 50 bps for several meetings. In particular, I am not taking 50 bps hikes off the table until I see inflation coming down closer to our 2% target.”

In the day ahead, the Australian economic docket would feature the GDP for Q1. Along with China’s Caixin Manufacturing PMI for May, that data could influence the AUD/USD direction. On the US front, the US economic calendar would feature the US ISM Manufacturing and Non-Manufacturing PMIs, US employment data, led by the Nonfarm Payrolls, and the ADP and JOLTs openings report.

AUD/USD Price Forecast: Technical outlook

The AUD/USD daily chart depicts the pair as neutral-downward biased. Above the 0.7200 mark, AUD/USD buyers would face a firm supply area in the 0.7229-56 region, the confluence of the 50, 100, and the 200-day moving averages (DMAs), a reason for the pair’s dip below 0.7200, as AUD/USD bears stepped in.

If the AUD/USD records a daily close below the 0.7200 mark, that will open the door for further weakness. That said, the AUD/USD first support would be the May 30 low at 0.7152. Once that hurdle cleared, the AUD/USD would tumble towards 0.7100, followed by the 50-day moving average (DMA) at 0.7050.

On the other hand, the AUD/USD first resistance would be 0.7200. A breach of the latter would expose the major to the 0.7229.56 area, the confluence of the above-mentioned DMAs.

• Gold is on the verge of a test of critical daily support, resisted at a weekly 38.2% Fibonacci. 
• Forthcoming events on the Us economic calendar will be key. 

At $1,839.80, the gold price is down by some 0.85% on the day as the US dollar attempts to correct from the lowest levels since the last trading week of  April. Gold prices are headed for a second consecutive month of declines as rising US Treasury yields discourage investors from the non-yeilding asset, despite concerns over surging inflation.

The 10-year yield is currently trading near 2.82%, up from last week’s low near 2.70% but still well below the May 9 peak near 3.20%.  Elsewhere, the 2-year yield is trading near 2.54%, up from last week’s low near 2.44% but still well below the May 4 peak near 2.85%. US gold futures (GCv1) settled down 0.5% at $1,848.4 and the spot gold price is following in tow. 

Investors' nerves were shaken up by the US Federal Reserve Governor Christopher Waller who on Monday advocated for the central bank to raise interest rates at every meeting until inflation is curbed. Specifically, Waller said “I support tightening policy by another 50 bp for several meetings. In particular, I am not taking 50 bp hikes off the table until I see inflation coming down closer to our 2% target.”    

This has left markets with the expectation of further rate increases in the forthcoming months. Analysts at Brown Brothers Harriman explained that WIRP suggests 50 bp is fully priced in for June and July.  ''However, a third 50 bp that was fully priced in for September is now about 50% priced in vs. 35% last week.  After September, two more 25 bp hikes are fully priced in and a third is partially priced in that would take the Fed Funds ceiling to between 3.0-3.25%.''

 What’s really changed is that rates are seen peaking in mid-2023 before falling in H2 23 and beyond, the analysts added. ''This would only happen if the US were to fall into recession next year and while it is possible, it is not our base case.  This week’s data will be very important for near-term market expectations.''

The US Nonfarm Payrolls is critical at the last trading of this week, but before then, ahead of the jobs report, important survey data will be reported.  Chicago PMI will be reported today and is expected at 55.1 vs. 56.4 in April.  The regional Fed manufacturing surveys wrap up with Dallas today, which is expected at 1.5 vs. 1.1 in April.  May ISM manufacturing PMI will be reported tomorrow and is expected at 54.5 vs. 55.4 in April. 

In the immediate future, US President Joe Biden said he and Jerome Powell will discuss inflation in a White House meeting Tuesday, and pledged to give the Federal Reserve chair space to do his job.

• Biden and Powell to discuss inflation, US dollar on a knife's edge

The outcome of the meeting will be important for the gold price. While gold is viewed as a hedge against inflation, rising US interest rates increase the opportunity cost of holding non-yielding bullion and boost the dollar in which gold is priced.

''The world is chasing the same narrative: quantitative tightening is going to sap liquidity at a fast clip, while the Fed hikes into a slowing growth profile in a grand battle against inflation,'' analysts at TD Securities argued, ''and yet,'' they said, ''consensus positioning in gold remains to the long-side, keeping precious metals prices resilient.''

Gold technical analysis

The gold price is meeting resistance n the weekly chart at a key 38.2% Fibonacci retracement level as follows:

However, from a daily perspective, the price is forming an M-formation while on the way to completing the test of the neckline of the prior W-formation. 

Gold, daily chart

This makes for prospects of some meanwhile consolidation in the days ahead, with the price potentially trapped between the two opposing necklines acting as support and resistance.  

The Wall Street Journal reports that while there are no formal plans to push for OPEC to increase output, some members are planning for it. This has seen the oil market sell-off:

WTI H1 chart

The OPEC+ group of producers continues to underproduce, which had taken the sting out of the highly anticipated 430k bpd output hike this month.

''Following a decade of underinvestment, the world's spare capacity is left in the hands of a few Gulf nations,'' analysts at TD Securities said. ''With few able to ramp up production, deal compliance has already risen to a massive 220% last month, and Russian output is likely to continue to suffer in coming months. The insurance and re-insurance of Russian cargoes will likely also become an operational bottleneck driving Russian production lower.''

• GBP/USD bulls seeking a higher high on the daily chart. 
• The 4-hour time frame is offering some bullish structure. 

GBP/USD has been in the hands of the bulls in the New York session and has broken a key level of resistance on the four-hour time frame. The following illustrates the progress that the bulls have been making at the start of the week below a key counter trendline. 

GBP/USD H4 chart

The price broke below counter-trendline support but the tweezer bottom is encouraging for the bulls. A break of resistance and subsequent retest of the counter trendline will leave prospects of an inverse head and shoulders, a bullish reversal pattern, usually most effective at the end of a trend, however. Nonetheless, potentially bullish for the days ahead. 

GBP/USD daily chart

Meanwhile, the daily chart is promising given the support structures that have been formed on the breaks of resistance. 

DXY H4 chart

From a US dollar perspective, the bearish W-formation is drawing in the price towards the neckline of the pattern.

If this were to give out as a failed support structure, then this will likely give way to further downside and aid the GBP bulls in their quest for higher highs. 

• The USD/CHF climbs and reduces Monday’s losses, up by 0.02%.
• Sentiment remains dampened, courtesy of the buoyant greenback.
• USD/CHF Price Forecast: The 1-hour chart price action and oscillators suggest a downward move.

The USD/CHF snaps three consecutive days of losses and jumps from weekly lows near 0.9550s, after a long three-day weekend in the US, in the observance of Memorial Day. At the time of writing, the USD/CHF is trading at 0.9572, reflecting the broad US Dollar strength.

The market sentiment remains negative, as shown by global equities falling. In the meantime, the US Dollar Index is up by 0.38%, sitting at 101.753, underpinned by US Treasury yields. The 10-year US Treasury yield raises four bps and parks around 2.846%.

USD/CHF Tuesday’s price action showed that the USD/CHF opened near the daily’s pivot point and rallied shy of the R2 pivot point, at 0.9620. Then the major dropped towards the central daily pivot point, where it currently stands.

USD/CHF Price Analysis: Technical outlook

The 1-hour chart depicts the USD/CHF trading within the narrow Bollinger band’s range, meaning that volatility is constrained. The 20, 50, and 100-hour simple moving averages (SMAs) lie within the 0.9571-91 range, while the 200-hour SMA sits comfortably around 0.9636, and the Relative Strength Index (RSI) is below the 50-midline at 43.28, aiming lower. Therefore, the USD/CHF in the near term is downward biased.

That said, the USD/CHF first support would be the Bollinger’s band lower band at 0.9570. A breach of the latter would expose the confluence of the May 22 low and the S1 daily pivot at 0.9544, followed by the April 20 high-turned-support at 0.9536.

Key Technical Levels

President Joe Biden will meet with Federal Reserve Chair Jerome Powell at the Oval office to discuss the state of the American and global economy and address inflation.

Watch live

Meanwhile, Biden has crossed the wires and stated that he congratulates Powell on his confirmation and says they will discuss inflation.

Key quotes

• Says we need to transition from recovery to steady growth.
• Says he respects Fed's independence.
• Says his job is to give fed officials space to do their job.
• Says Powell has noted fed had a laser focus on inflation.
• Says he looks forward to leadership at the Fed.

Market implications

The US dollar is bid on Tuesday as Treasury yields climb and worries over a further acceleration in global inflation kept investors' risk appetite low key.

Hawkish comments from a Federal Reserve official spooked investors. Fed Governor Christopher Waller said the Fed should be prepared to raise interest rates by a half percentage point at every meeting from now on until inflation is decisively curbed.

Today's meeting will give further insight into the path of the Fed, inflation and growth so it will be keenly eyed by traders. The greenback is on a knife's edge on the four-hour chart:

The price of DXY, an index that measures the greenback vs. a basket of currencies is heading towards a key area of support , a break of which will be bearish for the near term. 

• The shared currency gives back Monday’s gains, courtesy of overall buck strength and high US Treasury yields.
• The EUR/USD reached new weekly lows below 1.0700 despite the EU inflation breaking above the 8% threshold.
• EUR/USD Price Forecast: The major is tilted to the downside; solid resistance lies around highs of 1.0700s near 1.0800 looms.

The euro slides in the North American session but bounced off daily’s lows in a high volatility trading session that witnessed the EUR/USD rallying near 1.0780 and falling to 1.0678, but at the time of writing is stabilizing. At 1.0726, the EUR/USD is trading below the 20-DMA  and down 0.41%.

The EUR/USD falls due to overall US Dollar strength and a risk-off market

Global equities remain trading with losses, illustrating a dampened mood. Due to month-end flows, the greenback remains buoyant, also underpinned by high US Treasury yields. The US Dollar Index, a measure of the buck’s value, gains 0.44%, up at 101.812, after briefly piercing the 102.00 mark. The US 10-year Treasury yield advances four bps, sitting at 2.842%.

The above-mentioned weighed on the EUR/USD. In the European session, the Euro area reported that inflation in the EU accelerated to 8.1% in May, up from 7.4% in April, while price pressures continued to broaden, indicating that’s not just energy lifting the headline reading.

Over the last couple of weeks, some ECB officials have been expressing the need to normalize the EU monetary policy. ECB’s President Christine Lagarde said that the central bank might raise rates in July and September by 25 bps once the QE is finalized. Some of the ECB hawks showed discomfort regarding the previously mentioned and have continued commenting about moving fast amid increasing fears that inflation will get out of control.

On Monday, Federal Reserve Governor Christopher Waller said that he supports 50 bps for “several meetings,” and he’s not taking 50 bps off the table until inflation closes to the 2% target. Furthermore, inflation is “stubbornly high,” and the Fed would need to be prepared to do more, Waller said. It’s worth noting that regarding the balance sheet reduction, he noted that it’s equivalent to a couple of 25 bps rate hikes.

The US calendar featured the May CB Consumer Confidence, which rose by 106.4, better than the 103.9 expected. The report showed that inflation expectations for one year are at 7.4%, lower than April’s 7.5%. Furthermore, Housing data was mixed but near the estimations, while the Fed Regional banks continued releasing their Manufacturing Indexes ahead of June’s 1 ISM Manufacturing PMI. Chicago’s PMI for May rose by 60.3, higher than the 55 expected, but the Dallas Fed Index contracted to -7.3, lower than April’s reading.

EUR/USD Price Forecast: Technical outlook

The EUR/USD daily chart depicts the pair as neutral-downward biased, despite rallying since the second half of May, from YTD lows near 1.0300, towards 1.0780s. In fact, the upward move caused the Relative Strength Index (RSI) to jump over the 50-midline, but of late, in the last two trading days, is poised to the downside, at 55.17.

Therefore, the EUR/USD path of least resistance is tilted to the downside. The EUR/USD first support would be 1.0700. Break below would expose the May 31 low at 1.0678, followed by the May 25 cycle low at 1.0641, and then the May 23 daily low at 1.0556.

• After hitting the highest level since March 2020, the Mexican peso reversed sharply.
• US dollar recovers ground on Tuesday as the rally in Wall Street ends.
• USD/MXN volatile, without clear signs.

With a 0.82% gain, the USD/MXN is having the best day in three weeks. On Monday, it bottomed at 19.41, the lowest since March 2020; since then it rebounded by 1.50%. The sharp reversal increases the risks of higher volatility and gains ahead.

Has it bottomed?

USD/MXN ended Monday with a small loss and far from the bottom, and above 19.50; all signs of exhaustion to the downside. On Tuesday, the pair continued to rebound and accelerated during the American session, reaching at 19.73, the highest since Friday.

The reversal, if sustained, could mean the end of the recent rally of the Mexican peso unless USD/MXN drops back under 19.50. A likely scenario is for the pair to start a short-term consolidation phase, trading back in the 19.50/19.75 range. A break higher would turn the attention to 19.90.

Volatility has increased during the last sessions, as the USD/MXN broke key support levels. Such price action could persist, also fueled by significant fluctuations in Wall Street. 

From a fundamental perspective, analysts at Standard Chartered Global Research, consider that a hawkish Bank of Mexico should support the Mexican peso in the near term. “Given high inflation prints near-term and strong conviction among most board members to accelerate the hiking pace, we now expect Banxico to raise the policy rate by 75bps to 7.75% at its June meeting (we previously expected a 25bps move to 7.25%); this would take the ex-ante real rate close to the upper level of the estimated real neutral rate range (1.8-3.4%).”

Technical levels

Data released on Tuesday showed that Canadian GDP rose below expectations during the first quarter. On Wednesday, the Bank of Canada (BoC) will announce its monetary policy decision. Analysts at CIBC point out that despite GDP figures, the central bank is still for a 50bp rate hike. 

Key Quotes: 

“Statisticians threw the Bank of Canada a soft curveball a day before it's policy decision, with GDP growth in Q1 coming in shy of previously released industry data and consensus expectations. However, the modest disappointment is unlikely to deter the Bank from hitting a double (50bp hike) at tomorrow's meeting, with economic growth over the first half of the year as a whole still tracking close to its April MPR projections, and inflation well ahead of previous expectations.”

“There were a lot of moving parts in today's report, but through all of the noise little has really changed for the Bank of Canada. The growth rate in Q1, while disappointing relative to heightened expectations, was still in line with the April MPR projections. For Q2, growth appears to be tracking in the 4.5-5% range, which would be only modestly below the 6% projected by the Bank in that previous MPR. As such, there is little to deter the Bank from another 50bp hike tomorrow, and likely a further outsized move in July. We forecast a deceleration in growth and inflation in the second half of the year, which will be the catalyst for the Bank to slow and then ultimately pause this rate hike cycle.

• Canadian Q1 GDP below expectations, still BoC 50 bp rate hike expected.
• Loonie is among the top performers of the American session.
• USD/CAD breaks range and tumbles to fresh lows.

The USD/CAD broke below 1.2650 and fell to 1.2628, reaching a fresh monthly low. The pair resumed the downside despite the Canadian GDP reading coming below expectations and ahead of Wednesday’s Bank of Canada meeting.

The loonie rose across the board during the last hours as the GDP report did not affect rate hike expectations from the BoC. The Canadian economy, measured by the GDP, rose by 3.1% during the first quarter (annualized), below the 5.4% of market consensus. Analysts at RBC Economics explained growth was supported by “robust household consumption and business investment that offset a sizable decline in net trade. Consumption expenditure increased 3.4% from the prior quarter despite a soft start to the quarter in January”.

On Wednesday, the Bank of Canada is expected to announce a 50 bp rate hike. “A strong economy, booming jobs market, and elevated inflation argue for another ‘forceful’ 50bp hike. And the BoC is unlikely to stop there, with a red hot housing market and support from rising commodity prices suggesting it may be even more aggressive than the Fed this year”, said analysts at ING.

The USD/CAD is falling despite the recovery of the US dollar. The DXY is having the best day in almost two weeks as US yields move higher. A deterioration in market sentiment is also helping the greenback. The Dow Joines is falling by 0.78% and the Nasdaq drops by 0.71%.

If USD/CAD rises back above 1.2650 the loonie will likely lose momentum favoring a return to the 1.2685/1.2650 range. Below the daily low, attention would turn to 1.2600. Ahead of the BoC meeting, volatility is set to remain elevated.

• The bright metal falls due to high US Treasury yields and broad US Dollar strength.
• US 10-year inflation expectations rose to 2.63%, keeping US bond yields up.
• Gold Price Forecast (XAU/USD): Seesawing around the 20 and 200-DMA’s but poised for a break below the 200-DMA.

Gold spot (XAU/USD) snaps two days of gains and retraces towards the 20-DMA after bouncing off the 200-DMA amidst a sour sentiment trading session as US traders come back from a three-day weekend and are propelling up the greenback and US Treasury yields. At $1842.36, XAU/USD remains on the defensive, almost 0.50% down.

Buoyant US dollar and higher US Treasury yields weigh on Gold Prices

Investors’ mood shifted negatively, as witnessed by global equities falling. The US Dollar Index, a gauge of the greenback’s value vs. a basket of rivals, advances 0.50%, sitting at 101.811, underpinned by elevated yields on US Treasuries. The 10-year benchmark note rate is gaining five bps, up at 2.868%.

The factors mentioned above, alongside fears of inflation anchored above the US Federal Reserve 2% target, caused a shift towards safe-haven assets. Meanwhile, 10-year breakeven inflation expectations are rising up to 2.63%, signaling that investors are not sure about buying the dip.

Elsewhere, China’s released its official PMIs for Mat, which increased by 49.6 from 47.4 in April, signaling a minimal recovery after May’s Covid-19 lockdowns. Additionally, reports on Monday’s Asian session said that Shanghai and Beijing would ease some of their restrictions to boost economic growth.

In the meantime, the US economic calendar released Housing data, which came mixed but close to forecasts. The highlight was May’s CB Consumer Confidence, which came at 106.4, better than the 103.9 expected. The report showed that inflation expectations for one year are at 7.4%, lower than April’s 7.5%.

Additionally, the Fed Regional banks keep releasing their Manufacturing Indexes ahead of June’s 1 ISM Manufacturing PMI. Chicago’s PMI for May rose by 60.3, higher than the 55 expected, but the Dallas Fed Index contracted to -7.3, lower than April’s reading.

Gold Price Forecast (XAU/USD): Technical outlook

Gold’s Tuesday price action witnessed a test of the 200-DMA at $1840.86, quickly rejected, as depicted by the candlestick. However, gold bears appear to be leaning towards the 20-DMA at $1846.76, maintaining the spot price seesawing in the $5 range. It’s worth noting that the Relative Strenght Index (RSI) is at 43.06, in bearish territory, aiming lower, meanings that gold seems poised to break to the downside.

Therefore, the XAU/USD path of least resistance is tilted to the downside. The XAU/USD’s first support would be the 200-DMA at $1840.86. Break below would expose the 4-year-old upslope trendline around $1830-34, which, once cleared, would send gold tumbling towards the Bollinger’s band bottom band at $1805.44.

• NZD/USD has slipped back towards 0.6500 on Tuesday amid a stronger buck plus risk-off trading conditions.
• Downbeat New Zealand business survey data for May has also weighed on the kiwi and triggered stagflation fears.

Month-end buying in the US dollar combined with downbeat New Zealand business survey data and a risk-off tone to US trade as market participants there returned from a long weekend weighed heavily on NZD/USD on Tuesday. The pair dropped back to probe the 0.6500 level, having been as high as the 0.6560s as recently as Monday, where it currently trades lower on the day by about 0.7%.

Regarding the downbeat New Zealand data, the headline ANZ Business Outlook Index for May dropped to -55.6% from -42.0% a month earlier, while the ANZ Own Activity Index dropped to -4.7% from 8.0% previously. That marked the worst reading since April 2020, when much of the global economy was under lockdown due to the initial spread of Covid-19.

The data triggered fears that New Zealand's economy might be headed towards/already in stagflation. Meanwhile, remarks from the RBNZ’s Deputy Governor that the central bank needs to keep decreasing stimulus and tighten conditions beyond the neutral rate of 2.0% added to concerns about the outlook for the economy. Tighter financial conditions tend to boost a currency, but not if they risk sending the economy into recession.

US data in the form of robust Chicago PMI and CB Consumer Confidence survey data for May have likely helped the US dollar hold onto earlier session gains. But tier one US data releases later this week in the form of ISM Manufacturing PMI and the official labour market report, also for May, will be more important. Despite Tuesday’s losses, NZD/USD still looks on course to end the month just shy of 1.0% higher.

The Bank of Canada (BoC) is set to announce its interest rate decision on Wednesday, May 1 at 14:00 GMT and as we get closer to the release time, here are the expectations as forecast by the economists and researchers of six major banks, regarding the upcoming announcement. 

The BoC is set to deliver another 50-basis point hike raising the Overnight Rate to 1.50% with a hawkish policy statement. 

TDS

“We look for the BoC to deliver another 50bp hike in June to bring the overnight rate to 1.50%. With little uncertainty around the decision itself, the focus will shift to the policy statement where we expect a hawkish tone. The Bank will note that growth and inflation are both tracking above the April MPR, and repeat that rates will need to rise further. Global factors remain a crucial driver of the loonie, likely limiting the impact of the BoC's anticipated 50bp rate hike. As a result, we expect USD/CAD to maintain the 1.26-1.30 range through the summer months but will look to fade extremes.”

ING

“A strong economy, booming jobs market, and elevated inflation argue for another ‘forceful’ 50bp hike. And the BoC is unlikely to stop there, with a red hot housing market and support from rising commodity prices suggesting it may be even more aggressive than the Fed this year. We expect CAD to benefit from BoC tightening in the medium-term.”

RBC Economics

“The overnight interest rate is widely expected to rise by another 50 bps to 1.5% as the BoC continues its efforts to fight inflation. The hike will build on the BoC’s 50 bp increase in April and 25 bp rise in March – with more increases likely in the months ahead.”

NBF

“The BoC is widely expected to follow April’s 50 basis point rate hike – which was the first in over twenty years – with another half-percentage-point hike, bringing the overnight target to 1.5%. With the announcement of QT already behind us and now underway, the focus will remain squarely on the Bank’s guidance for its key interest rate. For now, the BoC appears set to quickly move towards its 2-3% neutral range (implying a third straight 50 bp move in July) but thereafter, the outlook is murkier. That said, we don’t expect the Bank to show its cards on Wednesday. Instead, look for the Governing Council to retain flexibility.”

CIBC

“The BoC will have to sound hawkish. After all, non-standard 50bp hikes don’t happen every day, particularly back-to-back. Moreover, inflation has continued to surprise to the upside. However, any admission that the housing market is already responding to higher interest rates should also be seen as an admission that excess demand is about to become less excessive. That is one of the key reasons why we think that, after another 50bp hike in July, the pace of hikes will slow down, and the Bank won’t need to take rates any higher than the 2.5% mid-point of its neutral band to achieve 2% inflation sometime in 2023.”

Citibank

“We expect a 50bp rate hike from the BoC taking the policy rate to 1.5%.”

Banco de México (Banxico) raised the policy rate by 50bps in May. Economists at Standard Chartered now expect Banxico to raise the policy rate by 75bps in June (versus 25bps prior). In their view, hawkish Banxico should support the Mexican peso in the near-term.

Banxico to raise the policy rate by 75bps in June

“The increasing possibility of a 75bps rate hike from Banxico in June should exert downward pressure on USD/MXN.”

“In the near-term, with broad FX volatility declining, high carry should continue to support the peso. However, MXN has shown a rising correlation to US equities, which warrants caution given shaky risk sentiment.”

“Despite vulnerability to broader market moves, we think MXN benefits from attractive underlying macro fundamentals. Mexico’s external vulnerabilities are limited, with low foreign positioning in fixed income and a current account bolstered by record remittances.” 

“Over the medium-term, anaemic domestic growth and a lack of structural reforms will remain a headwind, while the potential for a US slowdown is a key risk to watch.”

EUR/GBP has broken over the resistance line drawn from April highs and is comfortably above the 40-week moving average of 0.8442 as a sign of budding recovery. Hawkish European Central Bank (ECB) rhetoric also adds fuel to the upmove, Benjamin Wong, Strategist at DBS Bank reports.

ECB's hawkish rhetoric paves the way for recovery

“EUR/GBP is now comfortably above the 40-week moving average at 0.8442 and trying to sustain gains over a minor intermediate dropped-down resistance line from 0.8719, the late April highs. The moving average convergence divergence (MACD) signal is grinding out a nascent buy signal, so all looks good for a budding recovery.”

“ECB hawkish rhetoric is driving the cart. The next ECB policy meeting scheduled for 9 June is watching out for signs of a July policy lift-off. Given that inflation has nudged to 8.1% in May for the eurozone, Klass Knot (a noted hawk, President of the Dutch central bank) has remarked a 50 bps rate hike is not off the table.” 

“EUR/GBP has edged higher and paved cloud support at 0.8358 on the daily Ichimoku charts. Nonetheless, the cross still has hurdles to clear. 0.8618 the mid-May spike high and 0.8659 are intermittent resistance levels to break.”

• WTI nearly hit $120 on Tuesday amid a cocktail of bullish catalysts, though has since dropped back towards $118.
• The EU agreed to phase out 90% of Russian oil import by the year’s end.
• China lockdown easing/Covid-19 infection decline and the incoming peak driving season in North America and Europe are further bullish drivers.

A cocktail of bullish factors supported global oil prices on Tuesday, with front-month WTI futures coming within a whisker of hitting the $120 per barrel mark earlier in the session before backing off somewhat following a risk-averse start to the final trading day on Wall Street of the month. At current levels just above $118, WTI is still trading with gains of around $0.50, having on Monday broken above key support in the form of the late March highs in the $116s.

Market commentators cited expectations for rising demand in the coming months as North America and Europe enter the peak summer driving season plus positive developments regarding the Covid-19 situation in China (lockdown easing continues as new infections in the country fell back under 100 for the first time since early March). Probably the most important development underpinning prices right now, however, is the news early on Tuesday that EU 27 leaders came to an agreement on a Russian oil embargo.

Seaborne crude oil imports from Russia will be completely phased out within the next six months and, while oil delivered via pipeline is exempt from sanctions to placate land-locked Hungary, other EU nations that import a lot of Russian crude oil via pipeline have pledged to end purchases by the end of the year. In sum, the bloc will have phased out 90% of its purchases of Russian crude by the end of the year, a devasting blow to the Russian energy industry.

OPEC+ are scheduled to meet later in the week and sources on Monday said that, despite the EU’s (widely anticipated) ban on Russian oil imports, they would stick to their existing policy of steady 432K barrel per day increases in output quotas each month. The group's slow approach to increasing output at a time when many of its smaller producers are struggling to keep up and Russian output is collapsing from pre-Ukraine invasion levels has contributed to a significant tightening of global oil markets.

Highlighting this tightness, commodity analysts on Tuesday pointed to a continued steepening of the current contango of the oil futures curve. The premium to buy Brent crude futures for delivery in August versus six months later rose to a fresh nine-week high of near $15.

• Silver prices are under pressure on Tuesday, though have recovered substantially from earlier session lows.
• XAG/USD dipped as low as under $21.50 before recovering closer to $22.00 amid the stronger dollar/higher US yields.

Though spot silver (XAG/USD) prices are still trading lower by about 0.3% on the day, they have erased the lion’s share of earlier losses and are back to trading in the $21.90s per troy ounce, more than 2.0% above earlier session lows under $21.50. That means spot prices continue to trade relatively close to their 21DMA (in the $21.80s) and only a little over 2.0% below last week’s highs near $22.50.

Month-end strength in the US dollar plus a month-end rebound in US bond yields, which some say is also being boosted by hawkish remarks from Fed Board of Governors member Christopher Waller on Monday, are the primary factors weighing on silver and precious metals more broadly on Tuesday. Recent US data in the form of housing figures, Chicago PMI and CB Consumer Conference numbers haven’t factored much into the equation.

Silver continues to trade about 7.0% above mid-month lows in the mid-$20s and, as Wall Street chatter about US inflation/Fed hawkishness having peaked builds, the prospects for a more lasting rebound are improving. But, for now, price action seems content in remaining glued to the 21DMA and ahead of key US data releases later in the week, this is likely to remain the case.

The Conference Board's measure of Consumer Confidence fell to 106.4 in May from 108.6 in April (revised higher from 107.3), smaller than the expected drop to 103.9, data released on Tuesday revealed. That is consistent with a level of consumer confidence that remains still well above post-pandemic lows, but, owing to sky-high inflation, remains substantially below pre-pandemic levels around 130. 

The Consumer Present Situation Index fell to 149.6 in May from 152.9 in April, while the Consumer Expectations Index fell to 77.5 from 79.0. The widely watched Jobs Hard-to-get Index rose a little to 12.5 in May from 10.1 in April, indicative of modest deterioration in labour market conditions. 

According to the latest release by ISM-Chicago, Inc, the Chicago PMI rose to 60.3 in May versus an expected drop to 55 from 56.4 in April. The latest numbers are in fitting with a gradually slowing, but still robust pace of growth in the US midway through the second quarter of 2022. 

European Central Bank (ECB) Governing Council member Pablo Hernandez de Cos said on Monday that if inflationary pressures persist, they are likely to feed into wage negotiations and trigger second-round and indirect effects on inflation, reported Reuters. These second-round effects have not yet materialised, with the latest data on wage settlements pointing to employees bearing a considerable loss of purchasing power in recent quarters. 

The natural rate of interest is relatively low in the euro area, de Cos continued, hovering around or slightly above 1.0% and this would suggest that, until these levels are reached, the ECB's monetary policy stance will continue to be expansionary, at least from a long-term perspective. 

In order for us to adopt a gradual normalisation approach, it is essential that inflation expectations remain anchored at the 2.0% target, he added. Moreover, it is not optimal to pre-commit to any specific interest rate path, much less in the current uncertain context. 

• USD/JPY caught aggressive bids on Tuesday and shot to a near two-week high.
• Resurgent USD demand was seen as a key factor that provided a strong boost.
• The set-up favours bullish traders and supports prospects for additional gains.

The USD/JPY pair built on the previous day's positive move and gained strong follow-through traction for the second successive day on Tuesday. The momentum pushed spot prices to a nearly two-week high, around the 128.70-128.75 region during the early North American session and was exclusively sponsored by resurgent US dollar demand.

Fed Governor Christopher Waller on Monday backed a 50 bps rate hike for several meetings until inflation eases back toward the central bank’s goal. The remarks triggered a sharp spike in the US Treasury bond yields, which, in turn, assisted the USD to make a solid comeback from over a one-month low touched the previous day.

From a technical perspective, the strong move up confirmed a breakout through a multi-day-old trading range resistance. The said barrier coincided with the top end of a descending channel extending from a two-decade high touched earlier this month and the 38.2% Fibonacci retracement level of the 121.28-131.35 rally.

Given that technical indicators on the daily chart have again started moving in the positive territory, the USD/JPY pair seems all set to surpass the 23.6% Fibo. and reclaim the 129.00 mark. Some follow-through buying should push spot prices to the 130.00 round figure with some intermediate resistance near the 129.60-129.70 area.

On the flip side, any meaningful pullback below the 127.60-127.55 confluence resistance breakpoint might now be seen as a buying opportunity and remain limited near the 127.10-127.00 region. This is followed by the monthly swing low, around the 126.35 region, which coincides with the 50% Fibo. level and should act as a pivotal point.

Failure to defend the said support levels would negate any near-term positive bias and make the USD/JPY pair vulnerable. The downward trajectory could then drag spot prices below the 126.00 round figure, towards testing the 125.65 support. The next relevant support is pegged near the 61.8% Fibo. level, around the 125.00 psychological mark.

USD/JPY daily chart

Key levels to watch

The CAD has backed off the 1.2660 area that provided support for the USD on Monday. Analysts at Scotiabank highlight the key levels to watch regarding the USD/CAD pair.

Resistance stretches from 1.2690 to 1.2715

“We spot support intraday at 1.2655/60 and resistance at 1.2690, although resistance likely extends up to the 1.2715 area, the early May low.”

“USD weakness through the mid-1.26s target losses to the mid-1.25s and potentially opens the door to a drop back to the Apr low at 1.2405.”

Today’s EUR decline may merely be corrective in nature as it nears the 1.08 level. Economists at Scotiabank believe that the EUR/USD pair could climb as high as 1.10 in the medium-term.

Some market participants are betting on a 50bps hike this year

“The EUR is still maintaining a higher highs and higher lows pattern that supports a breakthrough 1.08 in the near-term. A stretch of trading where it fails to break through the figure opens up a correction, however.”

“Continued inflation beats and a resilient Eurozone economy in the face of high energy prices may continue to bolster 50bps hike bets. This could see the EUR strengthen to 1.10 in the medium-term, something that seemed very unlikely a few weeks ago.”

The relief rally in copper is running out of steam. Economists at TD Securities expect the metal to dip under key support levels.

Copper appears to be in a more precarious position than its peers

“The metals complex is vulnerable to further weakening in the coming months, which fits with our view that the trading regime in base metals has morphed into a sell-rallies regime.”

“Copper appears to be in a more precarious position than its peers given its lower energy intensity, but CTA trend followers could now add to their shorts below $9,505/t.”

“A set-up is forming for copper prices to ultimately break below the support levels which have held since early-2021.”

• USD/TRY resumes the upside beyond 16.40.
• Turkey GDP expanded more than expected in Q1.
• Investors remain cautious ahead of upcoming CPI figures.

The Turkish lira loses ground for the second session in a row and sponsors the move higher in USD/TRY to the area past 16.40 on Tuesday.

USD/TRY up on dollar’s recovery

USD/TRY saw its upside accelerated so far on Tuesday in response to the rebound in the demand for the greenback, which managed to trim part of the recent losses vs. its main peers.

The move higher in the pair is so far accompanied by the recovery in US yields in the belly and the long end of the curve, while the Turkey 10y bond yields keep the range around 23.00%.

Further out, the lira is expected to keep the cautious note ahead of the publication of key inflation figures tracked by the CPI later in the week.

In the domestic calendar, better-than-expected GDP figures showed the economy expanded at an annualized 7.3% in Q1, while Trade Balance results saw the deficit shrink to $6.11B in April.

What to look for around TRY

USD/TRY keeps the underlying upside bias well and sound and looks to consolidate the recent surpass of the 16.00 yardstick for the first time since late December 2021.

So far, price action in the Turkish currency is expected to gyrate around the performance of energy prices, the broad risk appetite trends, the Fed’s rate path and the developments from the war in Ukraine.

Extra risks facing TRY also come from the domestic backyard, as inflation gives no signs of abating, real interest rates remain entrenched in negative figures and the political pressure to keep the CBRT biased towards low interest rates remain omnipresent.

Key events in Turkey this week: Q1 GDP, Trade Balance (Tuesday) – Manufacturing PMI (Wednesday) – Inflation Rate, Producer Prices (Friday).

Eminent issues on the back boiler: FX intervention by the CBRT. Progress (or lack of it) of the government’s new scheme oriented to support the lira via protected time deposits. Constant government pressure on the CBRT vs. bank’s credibility/independence. Bouts of geopolitical concerns. Structural reforms. Upcoming Presidential/Parliamentary elections.

USD/TRY key levels

So far, the pair is gaining 0.03% at 16.3812 and faces the next up barrier at 16.4554 (2022 high May 26) seconded by 18.2582 (all-time high December 20) and then 19.00 (round level). On the flip side, a breach of 14.6836 (monthly low May 4) would expose 14.5458 (monthly low April 12) and finally 14.5136 (weekly low March 29).

USD/TRY is set to move higher. Economists at Danske Bank 20.00 in a year. 

‘Perfect storm’ looming for Turkey and lira

“The rising stagflation fears combined with tightening financial conditions, negative terms of trade shock, and no signs of a turnaround in domestic economic policies indicate further weakness for the lira.”

“We see USD/TRY at 20 in 12M.”

“Risks are tilted towards even further TRY weakness as the intervention policies, which have supported the currency over the past months, begin to lose steam.”

• AUD/USD pulled back from a three-and-half-week high touched earlier this Tuesday.
• The risk-off impulse weighed on the risk-sensitive aussie amid resurgent USD demand.
• A sustained break below 0.7100 is needed to support prospects for additional losses.

The AUD/USD pair witnessed a modest pullback from a three-and-half-week high, levels just above the 0.7200 mark touched earlier this Tuesday and eroded a major part of the overnight gains. The pair maintained its offered tone through the early North American session and dropped to a fresh daily low, closer to mid-0.7100s in the last hour.

The overnight hawkish comments by Fed Governor Christopher Waller, along with a sharp spike in the US Treasury bond yields, assisted the US dollar to stage a solid rebound from over a one-month low. Apart from this, the worsening global economic outlook and the risk-on impulse further boost the safe-haven greenback and exerted some downward pressure on the risk-sensitive aussie.

Despite the negative factors, the AUD/USD pair, so far, has managed to hold its neck above the 38.2% Fibonacci retracement level of the 0.7662-0.6829 downfall. This is followed by the 0.7130 confluence support, comprising the 200-period SMA on the 4-hour chart and the lower boundary of an ascending channel extending from the YTD low touched earlier this month.

Given that technical indicators on daily/4-hour charts are still holding in the positive territory, the set-up favours bullish traders and supports prospects for the emergence of some dip-buying. That said, a convincing breakthrough the aforementioned confluence support will negate the positive outlook and shift the bias in favour of bearish traders, prompting some technical selling.

Some follow-through selling below the 0.7100 mark will reaffirm the bearish bias and drag spot prices to the 23.6% Fibo. level support, near the 0.7025-0.7020 region. The next relevant support is pegged near the 0.7000 psychological mark, below which the AUD/USD pair could slide to the 0.6940 area en-route the 0.6900 mark and the 0.6830-0.6825 region, or the YTD low.

On the flip side, a sustained move beyond the 0.7200 round figure is likely to confront resistance near the 100-day SMA, around the 0.7235-0.7245 region. The said barrier coincides with the 50% Fibo. level and is closely followed by the 200-day SMA, near the 0.7260 zone, which if cleared would be seen as a fresh trigger for bullish traders and pave the way for further gains.

AUD/USD 4-hour chart

Key levels to watch

• USD/CAD hit session highs in the upper 1.2600s in wake of underwhelming Canadian GDP figures.
• Focus now turns to upcoming tier two US data, the Biden/Powell meeting, and whether month-end USD strength can continue.

The Canadian dollar, which had been holding up relatively well versus a strengthening US dollar, has been on the back foot in recent trade in wake of a worse than expected Canadian GDP data release. Granted, the MoM pace of growth in March was stronger than expected at 0.7%, but GDP growth as a whole for the first quarter was much lower than expected, coming in at an annualised quarterly pace of 3.1% versus expectations for 5.4%.

That has been enough to send USD/CAD to fresh session highs in the 1.2680s, with the pair now trading with gains of about 0.2% on the day. Previously, higher oil prices as a result of the EU’s agreement on Tuesday quickly phase out all imports of seaborne Russian crude oil had been weighing on the pair.

Looking ahead, attention turns to various tier two US data releases including some home price figures, the May Chicago PMI survey and the May CB Consumer Confidence survey, as well as a meeting between Fed Chair Jerome Powell and US President Joe Biden. Traders will be assessing whether month-end USD strength can continue as US markets reopen following the long weekend, or whether the recent trend of weakening as a result of easing US inflation concerns/Fed tightening bets starts to weigh once again. 

• Real GDP expanded at a pace of 0.7% MoM in March, above expectations. 
• However, the annualised quarterly pace of growth in Q1 was below expectations. 
• The loonie seemed to weaken a tad initially in response to the data.  

Canadian real GDP expanded at a pace of 0.7% MoM in March, according to the latest data release by Statistics Canada on Tuesday. That was above the median economist forecast for a 0.5% MoM pace of expansion but down from February's 0.9% MoM growth rate. 

Meanwhile, the annualised quarterly pace of GDP growth in Q1 in Canada came in at 3.1%, well below the median economist forecast for a growth rate of 5.4% and down from Q4 2021's annualised quarterly growth rate of 6.6%. 

Market Reaction

The loonie seemed to weaken a tad initially in response to the data. 

Vice Chairman of the Swiss National Bank (SNB) Martin Schlegel said on Monday that while inflation in Switzerland is low relative to other countries, it is not irrelevant, reported Reuters. Moreover, Schelgel said that the high nominal value of the franc has dampened inflation in Switzerland and the nominal value has risen, but in real terms, it has been flat.

In a set of slides shown by the Vice Chairman, it said the SNB will maintain expansive monetary policy in order to secure price stability and support the domestic economy. Schlegel said that he thinks energy prices won't rise as quickly as they have recently and supply chain problems won't persist. 

Consensus positioning in gold remains on the long-side, keeping precious metals prices resilient. What is keeping gold bugs from capitulating? Strategists at TD Securities provide the answer.

CTA flows are immense

“CTA trend follower flows help to explain stubbornly elevated positioning levels, but prices are now challenging the threshold that would imply a sustained downtrend forming in coming months, suggesting the bar for additional liquidations from this cohort is low.”

“While CTA flows are immense, the pandemic has reinvigorated discretionary trading in gold, leaving 'Other Reportables' to play a larger role in speculative markets. This cohort has yet to capitulate, and without conviction that the Fed could blink, represents the greatest risk for a liquidation vacuum as we exit the pandemic-regime.”

Slovak central bank Governor and European Central Bank (ECB) Governing Council member Peter Kazimir said on Monday that he expects a 25 bps rate hike in July and is open to discussing a 50 bps move, perhaps for September, amid record-high Eurozone inflation, reported Reuters. The neutral rate in the Eurozone is closer to 2.0% than 1.0%, he opined, meaning it will take around 200 bps of tightening to get interest rates back to neutral. 

Lifting interest rates back to neutral may not be enough to contain inflation, he warned, noting that inflation will stay over the bank's target in 2024 and possibly return in 2025. Moreover, Kazimir warned that a short recession in some Eurozone countries is possible this year, but a recession for the entire bloc is unlikely. Finally, Kazimir noted that inflation is broadening, but not yet de-anchoring. 

• GBP/USD met with a fresh supply on Tuesday and snapped four straight days of the winning streak.
• Rebounding US bond yields, the risk-off impulse boosted the safe-haven USD and exerted pressure.
• The gloomy outlook for the UK economy supports prospects for additional losses amid Brexit woes.

The GBP/USD pair witnessed some selling on Tuesday and snapped a four-day winning streak amid resurgent US dollar demand. The intraday pullback from the vicinity of over a one-month high extended through the mid-European session and dragged spot prices to a fresh daily low, around the 1.2585 region.

The overnight hawkish comments by Fed Governor Christopher Waller triggered a fresh leg up in the US Treasury bond yields, which, in turn, assisted the USD to make a solid comeback. Speaking at an event in Frankfurt, Waller backed a 50 bps rate hike for several meetings until inflation eases back toward the central bank’s goal. This, along with the risk-off impulse, offered additional support to the safe-haven buck and exerted downward pressure on the GBP/USD pair.

The market sentiment remains fragile amid doubts that central banks can hike interest rates to curb inflation without impacting economic growth. The worries resurfaced following the release of official Chinese PMIs, which showed that business activity in both manufacturing and services sectors contracted in May. Furthermore, concerns that the global supply chain disruption would push consumer prices even higher, tempered investors' appetite for riskier assets.

On the other hand, the British pound was pressured by worries about the cost of living crisis, which the Bank of England cautioned could push the UK into recession later in 2022. Adding to this, the British government's legislation - that would effectively override parts of a Brexit deal - has raised fears about a trade war. This, along with expectations that a jumbo rate hike by the BoE would take its toll on the UK economy, adds to the grim outlook for sterling.

The fundamental backdrop seems tilted in favour of bearish traders and supports prospects for a further near-term depreciating move. That said, investors might refrain from placing aggressive bets ahead of this week's release of important US macro data, scheduled at the beginning of a new month, including the closely watched NFP report. In the meantime, traders will take cues from Tuesday's release of the Conference Board's US Consumer Confidence Index.

Technical levels to watch

• EUR/USD has pulled lower on Monday as higher US yields boost the buck at the month’s end.
• The euro has weakened despite further hot EZ inflation figures which have underpinned ECB tightening expectations.
• The pair was last probing 1.0700, down from closer to 1.0800 on Monday.

Month-end flows plus hawkish commentary from Fed Board of Governors member Christopher Waller on Monday are being cited as lifting US bond yields as US market participants return from a long weekend this Tuesday. This is being cited as lifting the US dollar and weighing on EUR/USD, which has dropped back from Monday’s peaks near 1.0800 to test the 1.0700 level once again and is currently trading lower by about 0.6% on the day.

The drop on Tuesday comes despite above consensus Eurozone inflation figures (which weren’t too much of a surprise given hot numbers out of Germany and Spain on Monday). As a result, Eurozone money markets have lifted ECB tightening bets, and now foresee 115 bps of tightening by the end of the year versus 110 bps on Monday.

Whether the ECB actually delivers that much tightening this year is another thing, but the recent data supports the central bank’s recent shift in stance towards signalling rates returning to positive territory by the end of next quarter. ECB policymakers speaking on Tuesday doubled down on the stance that normalisation is warranted, though Ignazio Visco cautioned that tightening much be gradual in order to avoid so-called “fragmentation” (i.e. a blowout in periphery-core Eurozone bond yield spreads).

Ahead, focus turns to various tier two US data releases, including S&P/Case Shiller house prices and the May Chicago PMI and Conference Board Consumer Confidence surveys. US President Joe Biden is also set to meet Fed Chair Jerome Powell, another event markets will be scrutinising. Biden, a strong past proponent of Fed independence has promised not to seek “to influence its decisions inappropriately”, even as sky-high US inflation weighing on his approval rating.

Economist at UOB Group Barnabas Gan assesses the latest results from the Industrial Production in Singapore.

Key Takeaways

“Industrial production expanded 6.2% y/y (+2.2% m/m sa) in Apr 2022, beating market expectations for a softer growth of 4.3% y/y (although the sequential increase is weaker than the projected +5.0% m/m sa). Excluding biomedical manufacturing, industrial production rose 7.7% y/y.”

“The global trade recovery and Asia’s gradual reopening of borders aided overall manufacturing momentum. This is led especially by the transport engineering cluster which expanded 17.2% y/y in Apr 2022, on the back of higher production of aircraft parts, maintenance & repair demand from commercial airlines. Strong demand from the semiconductor segment also underpinned the electronics and precision engineering industries.”

“On the back of Apr’s manufacturing print and Mar’s upward revision (Mar 2022: +5.1% y/y), Singapore’s industrial production rose 7.3% in the first four months of 2022. Despite the uptick year-to-date, it remains softer compared to the 9.2% growth print seen in the same period last year. Moreover, relatively higher base levels will dampen the IP growth numbers for the rest of this year, considering that industrial production expanded by double digit growth rates between May – Dec 2021 (except for Sep 2021).”

“In all, our outlook is for full-year manufacturing to grow by an average of 4.0% in 2022. This suggests that despite the high-base growth rate seen in 2021, global trade activity is expected to stay buoyant in the year ahead.”

• EUR/USD comes under pressure and puts 1.0700 to the test.
• Next on the upside comes the 3-month resistance line near 1.0800.

EUR/USD reverses part of the recent upside and retests the area around the 1.0700 level on Tuesday.

Despite the ongoing correction, there is still room for the pair to challenge the 3-month resistance line in the 1.0800 area, above which the selling pressure is expected to alleviate. The breakout of this level should put EUR/USD en route to extra gains with the next target at the weekly high at 1.0936 (April 21).

Looking at the longer run picture, while below the 200-day SMA, today at 1.1248, the medium-term outlook for the pair should remain negative.

EUR/USD daily chart

UOB Group’s Senior Economist Alvin Liew and Rates Strategist Victor Yong review the latest release of the FOMC Minutes of the May meeting.

Key Takeaways

“The three key takeaways from the minutes of the May 2022 FOMC were, 1) 50bps rate hikes will be necessary at the next couple of meetings to rein in inflation and that Fed policy may have to move beyond ‘neutral’ into ‘restrictive’ stance (but one point to note there was no indication of more hawkish intentions such as 75bps hike), 2) Fed policymakers remain very confident about the strength/fundamentals of the US economy and therefore near-term recession risks are low and its immediate objective is to tame inflation, and 3) There are downside risks to policy tightening, and by expediting the removal of policy accommodation the Fed will give itself policy flexibility at year-end.”

“The overarching message from the Fed remained centered on inflation with 60 specific mentions in the minutes and highlighted Russia-Ukraine conflict and China’s COVID-related lockdowns and their impact on prices and growth outlook. Some Fed policymakers suggested that the overall price pressures may no longer be worsening but cautioned it is too early to tell, and that inflation remains elevated.”

“Quantitative Tightening [QT] will start on 1 Jun 2022 and while all participants supported the plans for reducing it, a number of participants said it would be appropriate for the FOMC to consider active sales of agency MBS, so that it will hold primarily US Treasuries in the long run, adding that any sales of MBS will be announced well in advance.”

“FOMC Outlook – Affirming expectations for 50bps hikes in Jun and Jul FOMC: Given the clear indications for on-going 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 June and July FOMC. We continue to expect 25bps in every remaining meeting of this year. Including the Mar FOMC’s 25bps hike and May FOMC’s 50bps hike, this implies a cumulative 250bps of increases in 2022, bringing the FFTR higher to the range of 2.502.75% by end of 2022, a range largely viewed as the range for neutral stance. We maintain our forecast for two more 25bps rate hikes in 2023, bringing our terminal FFTR to 3.00-3.25% by mid2023.”

• DXY reclaims ground lost and approaches 102.00.
• Further downside remains on the cards in the near term.

DXY manages to regain some composure and rebounds to the upper-101.00s following three consecutive daily drops on Tuesday.

The index remains under pressure and extra losses should not be ruled out for the time being. That said, further decline is expected to target the temporary 55-day SMA, today at 101.16, ahead of the 3-month line around 100.80.

Looking at the longer run, the outlook for the dollar is seen constructive while above the 200-day SMA at 96.85.

DXY daily chart

According to FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang, USD/CNH remains poised to extend the 6.6500-6.8000 range in the next weeks.

Key Quotes

24-hour view: “The sharp drop in USD to 6.6548 yesterday came as a surprise (we were expecting USD to consolidate). The rebound from the low amidst oversold conditions suggests that USD is unlikely to weaken further. For today, USD is more likely to trade between 6.6580 and 6.7050.”

Next 1-3 weeks: “There is no change in our view from yesterday (30 May, spot at 6.7200). As highlighted, the recent choppy price actions have resulted in a mixed outlook and USD could trade within a broad range of 6.6500/6.8000 for now.”

• USD/JPY gained traction for the second straight day amid resurgent USD demand.
• The risk-off impulse benefitted the safe-haven JPY and capped gains for the major.
• The mixed fundamental backdrop warrants caution before placing fresh bullish bets.

The USD/JPY pair built on the previous day's positive move and gained some follow-through traction for the second successive day on Tuesday. The pair held on to its modest intraday gains through the first half of the European session and was last seen trading around the 128.00 mark, just a few pips below a near two-week high.

The US dollar made a solid comeback from over a one-month low touched on Monday amid a sharp spike in the US Treasury bond yields, bolstered by comments from Fed Governor Christopher Waller. Speaking at an event in Frankfurt, Waller backed a 50 bps rate hike for several meetings until inflation eases back toward the central bank’s goal. This, in turn, was seen as a key factor that acted as a tailwind for the USD/JPY pair.

That said, the worsening global economic outlook benefitted the safe-haven Japanese yen and capped the upside for the USD/JPY pair. Investors remain sceptical that central banks can hike interest rates to curb inflation without impacting economic growth. The worries were further fueled by the official Chinese PMIs, showing that business activity in both manufacturing and services sectors remained in contraction territory in May.

This, along with concerns that the global supply chain disruption would push consumer prices even higher, tempered investors' appetite for riskier assets. This was evident from a sea of red across the global equity markets, which, in turn, forced investors to take refuge in traditional safe-haven assets. The mixed fundamental backdrop warrants some caution for bullish traders and positioning for any further gains.

Market participants now look forward to the release of the Conference Board's US Consumer Confidence Index for some impetus later during the early North American session. This, along with the US bond yields, will influence the USD price dynamics. Traders will further take cues from the broader market risk sentiment to grab short-term opportunities around the USD/JPY pair.

Technical levels to watch

• Gold Price is struggling around the $1,850 area amid risk-off markets.
• Record high inflation rate in the Euro area re-ignites growth concerns.
• USD holds the bounce with yields, XAUUSD’s range play likely to extend.

Gold Price is adding to the previous losses while keeping its range around the $1,850 psychological level. The precious metal feels the heat from a broad US dollar rebound amid a sharp upturn in the Treasury yields. Markets remain in a risk-off mode, underpinning the dollar’s haven demand. The ongoing upsurge in oil prices and record-high inflation in the Euro area have re-ignited global growth worries, as central banks remain on a tightening spree. Against this backdrop, gold price is finding some comfort, limiting its move lower. Traders now look forward to the US Nonfarm payrolls release for a fresh direction in XAUUSD.

Also read: Gold Price Forecast: XAUUSD looks south amid firmer yields, 200-DMA at risk?

Gold Price: Key levels to watch

The Technical Confluences Detector shows that the Gold Price is gyrating around the $1,851 critical barrier, which is now acting as strong support. That price is the convergence of the Fibonacci 61.8% one-week, SMA50 four-hour and the pivot point one-day S1.

If that breaks then the next safety net appears at the pivot point one-day S2 at $1,848.

Further south, the pivot point one-month S1 at $1,846 will challenge the bullish commitments.

The last line of defense for gold bulls is seen at $1,841, the confluence of the SMA200 one-day, the previous week’s low and the pivot point one-week S3.

On the upside, bulls need a firm break above the $1,856 supply zone, where the SMA5 one-day, Fibonacci 23.6% one-day and the previous high four-hour collide.

The next bullish target is aligned at $1,859, the Fibonacci 38.2% one-day and one-week.

The Fibonacci 23.6% one-week at $1,863 will guard the additional upside, opening doors for a test of the previous week’s high of $1,870.

Here is how it looks on the tool

About Technical Confluences Detector

The TCD (Technical Confluences Detector) is a tool to locate and point out those price levels where there is a congestion of indicators, moving averages, Fibonacci levels, Pivot Points, etc.  If you are a short-term trader, you will find entry points for counter-trend strategies and hunt a few points at a time. If you are a medium-to-long-term trader, this tool will allow you to know in advance the price levels where a medium-to-long-term trend may stop and rest, where to unwind positions, or where to increase your position size.

• EUR/GBP continued with its struggle to make it through the 0.8525-0.8530 resistance zone.
• Resurgent USD demand weighed on the shared currency and exerted downward pressure.
• Hotter-than-expected Eurozone consumer inflation figures failed to impress bullish traders.

The EUR/GBP cross witnessed an intraday turnaround from the 0.8525-0.8530 supply zone on Tuesday and dropped to a fresh daily low during the first half of the European session. The cross remained on the defensive near the 0.8500 psychological mark and moved little following the release of preliminary Eurozone consumer inflation figures.

According to the data published by Eurostat, the annualized Eurozone Harmonised Index of Consumer Prices (HICP) jumped 8.1% in May as against expectations for a rise to 7.7% from 7.4% previous. The core figures arrived at 3.8% YoY in May, beating consensus estimates for a steady reading of 3.5% booked in April. This comes a day after Germany's annual inflation hit a record high level of 8.7% in May, making a compelling case for aggressive rate hikes by the European Central Bank.

The data, however, failed to impress the euro bulls amid resurgent US dollar demand. Apart from this, slightly less hawkish comments by Governing Council member Ignazio Visco, saying that rate hikes will have to be gradual given economic uncertainties, did little to lend any support to the EUR/GBP cross. That said, the downside seems cushioned, at least for the time being, amid the UK-EU impasse over the Northern Ireland protocol, which might continue to act as a headwind for the British pound.

Even from a technical perspective, the EUR/GBP cross has been oscillating in a familiar trading range over the past four trading sessions. This further makes it prudent to wait for strong follow-through selling before traders start positioning for any meaningful downside. On the flip side, sustained strength beyond the 0.8525-0.8530 region would set the stage for a move towards last week's swing high, around the 0.8585 zone, en-route the YTD peak, near the 0.8620 region touched on May 12.

Technical levels to watch

• EUR/JPY briefly revisits the 138.00 area on Tuesday.
• The 2-month support line near 134.85 holds the downside.

EUR/JPY briefly flirted with the 138.00 neighbourhood just to lose some traction soon afterwards on Tuesday.

The continuation of the bullish bias faces the next hurdle at the May high at 138.31 (May 9). The surpass of this level should open the door to a move to the 2022 peaks around 140.00 (April21).

In the meantime, while above the 2-month support line around 134.85, the short-term outlook for the cross should remain positive.

EUR/JPY daily chart

From late February to mid-March 2022, gold prices surged, mostly on ‘haven flows’ due to the war in Ukraine. In the following six weeks to mid-April, gold remained high, while US real rates shot up. However, gold has fallen back recently and reconnected to its main driver, real yields. Strategists at Société Générale note that real rates are a key driver of gold.

Real interest rates/gold relationship can break down when exceptional events occur

“The relationship between gold and market-based real rates is very strong over time but it suffered two short-lived dislocations early this year and post the onset of the Ukraine war. But although both dislocations proved temporary, other gold price drivers are currently bullish. To name just a few: The Ukraine war and other geopolitical risks, fears of inflation-induced recession, global supply chain weakness and flows into gold ETFs and moves by non-US-aligned central banks to ‘de-dollarise’ their reserves.”

“We would rather argue that the gold/real rates relationship has strengthened, as it can protect against multiple bullish factors and still push prices down significantly.” 

“Real yields as measured by nominal US Treasury yield minus US CPI have less influence, although they are not irrelevant.”

The annualized Eurozone Harmonised Index of Consumer Prices (HICP) soared by 8.1% in May vs. the previous reading of 7.4%, the latest data published by Eurostat showed on Friday. The consensus forecast was for a reading of 7.7%.

The core figures arrived at 3.8% YoY in May when compared to 3.5% expectations and 3.5% booked in April.

The Euro area figures are reported a day after Germany’s annual inflation for May hit a record high, arriving at 8.7% while beating expectations of 8.0% following a 7.8% increase reported in April.

The bloc’s HICP figures hold significance, as it helps investors assess the European Central Bank’s (ECB) monetary policy normalization path.

Key details (via Eurostat)

“Looking at the main components of euro area inflation, energy is expected to have the highest annual rate in May (39.2%, compared with 37.5% in April), followed by food, alcohol & tobacco (7.5%, compared with 6.3% in April), non-energy industrial goods (4.2%, compared with 3.8% in April) and services (3.5%, compared with 3.3% in April).”

EUR/USD reaction

EUR/USD seems unfazed by the upbeat Eurozone inflation figures. The spot is shedding 0.45% on the day, currently trading at near-daily lows of 1.0723.

The index reached a new all-time-high, making a compelling case for aggressive ECB rate hikes, as the price growth continued to broaden.

• A combination of factors prompted some selling around AUD/USD on Tuesday.
• Global growth concerns weighed on the risk-sensitive aussie amid stronger USD.
• The downside remains cushioned ahead of this week’s important macro releases.

The AUD/USD pair attracted some dip-buying near the 0.7160 area on Tuesday and inched back closer to a near four-week high touched earlier during the Asian session. The pair was last seen trading just a few pips below the 0.7200 mark, nearly unchanged for the day.

Hopes that the easing of COVID-19 restrictions in China would boost the global economy overshadowed the latest official Chinese PMIs, which showed contraction in both manufacturing and services sectors. The optimism was evident from a goodish intraday bounce in the US equity futures, which, in turn, was seen as a key factor that offered some support to the risk-sensitive aussie.

The Australian dollar was further supported by the Reserve Bank of Australia's hawkish signal that a bigger interest rate hike is still possible in June amid the upside risks to inflation. That said, resurgent US dollar demand held back traders from placing aggressive bullish bets around the AUD/USD pair and kept a lid on any meaningful upside, at least for the time being.

The US dollar made a solid comeback from over a one-month low touched on Monday amid a sharp spike in the US Treasury bond yields, bolstered by the hawkish comments from Fed Governor Christopher Waller. Speaking at an event in Frankfurt, Waller backed the case for a 50 bps rate hike for several meetings until inflation eases back toward the central bank’s goal.

Investors also seemed reluctant and preferred to wait on the sidelines ahead of this week's important macro releases, starting with the Conference Board's US Consumer Confidence Index on Tuesday. The focus would then shift to the quarterly Australian GDP report and the US ISM Manufacturing PMI on Wednesday. This will be followed by the ADP report and the closely watched monthly jobs report (NFP) from the US on Thursday and Friday, respectively.

Technical levels to watch

USD/JPY could now attempt to visit the 128.60 in the short-term horizon, 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’ yesterday were incorrect as it soared to 127.81 before extending its gains during early Asian hours. Solid upward momentum suggests USD could rise above 128.30. The next resistance at 128.60 is likely out of reach for now. On the downside, 127.40 is expected to be strong enough to hold any intraday pullback (minor support is at 127.70).”

Next 1-3 weeks: “Yesterday (30 May, spot at 127.15), we highlighted that ‘downward momentum has waned considerably and the chance for USD to decline to 126.00 has diminished’. That said, we did not quite expect the subsequent strong surge that cracked our ‘strong resistance’ level at 127.60. The breach of the ‘strong resistance’ level indicates that the weak phase in USD that started more than 2 weeks ago (see annotations in the chart below) has run its course. The current rebound has room to extend to 128.60. Only a break of the ‘strong support’ at 127.20 would indicate that USD is not ready to advance from here.”

GBP/USD has lost its traction but managed to hold above the 1.26 level. The pair needs to clear 1.2660 to remain bullish, FXSTreet’s Eren Sengezer reports.

Cable needs to flip 1.2660 into support to attract buyers

“The Conference Board's Consumer Confidence Index for May and the Housing Price Index data for March will be featured in the US economic docket. In case investors are reminded of the negative impact of inflation on consumer confidence, Wall Street's main indexes could come under bearish pressure and make it difficult for GBP/USD to gather bullish momentum.”

“In case cable breaks below 1.26 (psychological level, static level), the next immediate support aligns at 1.2570 (200-period SMA, 50-period SMA). If that latter support fails, this could be seen as a significant bearish development and open the door for additional losses toward 1.2540 (former resistance, static level).”

“The pair needs to settle above 1.2630 (ascending trend line) and clear 1.2660 (static level) to test 1.27 (static level, psychological level).”

The Norwegian krone has strengthened somewhat again, in tandem with improved market sentiment. In the opinion of economists at Nordea, markets will likely be choppy ahead, bad news for the NOK even if oil prices remain high.

Norges Bank reducing NOK selling should help on the margin

“Central banks, with the Fed in the lead, must continue to remove the loose monetary policy due to persistently high inflation. Hence, the turbulence in stock markets will likely remain until central banks bring inflation under control and rates peak. For the NOK, this means that there will be choppy ahead, even if oil prices remain high.”

“If risk sentiment remains good and oil prices high, we could see EUR/NOK at 9.75 again. But that’s a big if. From a technical perspective, a solid support level should be around 10.00, the 200-day moving average.”

“Norges Bank just announced that they intend to sell NOK1.5 bn in June on behalf of the government, down from NOK2 bn in May and April. Tthis points towards a marginally stronger NOK ahead since the combined NOK flows from Norges Bank and oil companies will turn positive again ahead.”

Swiss economic growth could be weaker than previously forecast – Reuters reports, citing comments from Switzerland's government economist.

The economist cites higher inflation and China lockdown risks for the economic downgrade.

Additional takeaways

These comments come after Switzerland's Q1 GDP rose by 0.5% QoQ in Q1 vs. +0.4% expected and 0.2% last.

Market reaction

USD/CHF was last seen trading at 0.9612, adding 0.42% on the day.

Gold shed all of its initial gains again on Monday. Today, Eurostat will release the preliminary Harmonised Indices of Consumer Prices (HICP) data. High inflation could prompt calls for sharper hikes from the European Central Bank (ECB), weighing on the yellow metal, economists at Commerzbank report.

Headwind for gold

“Gold is facing headwind from the firmer US dollar and significantly rising bond yields.”

“After German inflation surged unexpectedly steeply to 7.9% in May, the EU-wide rate of inflation is also likely to have risen further. In this environment, gold should really be in demand as a store of value. However, such a high inflation rate could also reignite the debate about whether the ECB should perhaps increase interest rates more quickly or sharply.” 

“Calls for a 50 basis point hike at the meeting in July could become louder, in which case gold might come under pressure.”

See – Eurozone HICP Preview: Forecasts from five major banks, inflation to hit new record

European Central Bank (ECB) Governing Council member Ignazio Visco said on Tuesday, “rate hikes will have to be gradual given economic uncertainties.”

Additional quotes

Market reaction

Ahead of the Eurozone preliminary inflation data, EUR/USD is trading listlessly around 1.0740. The pair loses 0.32% on the day.

• Unemployment Rate in Germany remained steady at 5% in May.
• EUR/USD stays in negative territory below 1.0750 on Tuesday.

The data published by Germany's Federal Labour Office showed on Tuesday that the seasonally adjusted Unemployment Rate in May stayed unchanged at 5%, matching the market expectation.

Further details of the publication revealed that the number of unemployed declined by 4,000 to 2.285 million, compared to analysts' estimate for a decrease of 16,000.

Market reaction

EUR/USD showed no immediate reaction to these data and was last seen losing 0.4% on the day at 1.0735.

• USD/CAD managed to defend the very important 200-DMA amid resurgent USD demand.
• Bullish crude oil prices underpinned the loonie and kept a lid on any meaningful upside.
• Traders now eye Canadian GDP and the US Consumer Confidence data for a fresh impetus.

The USD/CAD pair attracted some buying near the very important 200-day SMA on Tuesday and reversed a part of the overnight slide to its lowest level since April 22. The pair maintained its bid tone through the early European session and was last seen trading around the 1.2670-1.2675 region, just a few pips below the daily high.

The US dollar made a solid comeback from over a one-month low touched on Monday amid a sharp spike in the US Treasury bond yields, bolstered by comments from Fed Governor Christopher Waller. Speaking at an event in Frankfurt, Waller backed a 50 bps rate hike for several meetings until inflation eases back toward the central bank’s goal. Apart from this, a fresh wave of the risk-aversion trade boosted the greenback's safe-haven demand and extended some support to the USD/CAD pair.

The market sentiment remains fragile amid doubt that central banks can hike interest rates to curb inflation without impacting economic growth. The worries resurface following the release of official Chinese PMIs, which showed that business activity in both manufacturing and services sectors remained in contraction territory during May. This, along with concerns that the global supply chain disruption would push consumer prices even higher, tempered investors' appetite for riskier assets.

On the other hand, the commodity-linked loonie drew support from a fresh leg up in crude oil prices. In fact, the black liquid shot to its highest level since March 9 after the European Union agreed to slash oil imports from Russia. Apart from this, expectations of demand recovery in China fueled worries of a tighter market and boosted the commodity. This, in turn, was seen as the only factor that kept a lid on any meaningful upside for the USD/CAD pair, at least for the time being.

Market participants now look forward to the release of the monthly Canadian GDP, due later during the early North American session. From the US, the Conference Board's Consumer Confidence Index, along with the US bond yields and the broader market risk sentiment, might influence the USD. Traders will further take cues from oil price dynamics for some meaningful trading opportunities around the USD/CAD pair.

Technical levels to watch

Further upside momentum could lift NZD/USD to the 0.6600 region in the next weeks, noted FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang.

Key Quotes

24-hour view: “We highlighted yesterday that ‘strong upward momentum is likely to lead to further NZD strength but expect strong resistance at 0.6570’. NZD subsequently rose to 0.6560. While upward momentum has not improved by much, NZD could advance further even though a sustained rise above 0.6570 is unlikely. For today, the major resistance at 0.6600 is not expected to come into the picture. Support is at 0.6535 followed by 0.6520.”

Next 1-3 weeks: “There is not much to add to our update from yesterday (30 May, spot at 0.6530). As highlighted, the recent price actions suggest NZD could strengthen further to 0.6600. Overall, only a breach of 0.6490 (‘strong support’ level was at 0.6470 yesterday) would indicate that the NZD strength that started early last week (see annotations in the chart below) has run its course.”

EU members have finally agreed on a watered-down ban on Russian oil and refined product imports. What does this mean for oil prices? In the view of strategists at ING, the move is still relatively supportive for the market, thus, Brent Oil forecasts have been received higher.

Oil prices to trend higher through the course of the year

“A gradual ban on Russian oil means that the strength in the market shouldn’t be as abrupt as it could have been had we seen an immediate ban. Instead, we expect prices to trend higher through the course of the year.”

“We have revised higher our 2H22 ICE Brent forecast from USD109/bbl to USD122/bbl. In addition, we have increased our full-year 2023 forecast from USD93/bbl to USD99/bbl.”

“Clear upside risks to our 2023 forecasts include potential secondary sanctions on Russian oil and US sanctions against Iran staying in place over 2023.”

European Central Bank (ECB) Governing Council member and Bank of France head Francois Villeroy de Galhau making some comments on the monetary policy normalization ahead of the Eurozone inflation report due for release on Tuesday at 0900 GMT.

Key quotes

May inflation figures confirm our expectations for an increase and need for progressive monetary normalization.

Rising interest rates should support French banks profitability and increase their net margins.

Market reaction

At the time of writing, EUR/USD is trading at 1.0740, down 0.32% on the day.

• EUR/USD comes under pressure following recent tops.
• Germany labour market report, EMU Flash CPI next of note.
• US Consumer Confidence next on tap in the US docket.

Sellers seem to have regained the upper hand and now drag EUR/USD back to the 1.0730 region on turnaround Tuesday.

EUR/USD meets resistance just below 1.0800

Following three consecutive daily advances, EUR/USD now retreats to the 1.0730 after climbing to new monthly highs near 1.0790 at the beginning of the week.

The so far corrective move in the pair comes in tandem with the resumption of some buying interest in the greenback, as US markets slowly return to the normal activity following Monday’s Memorial Day holiday.

The ongoing decline in the pair also falls in line with the knee-jerk in the German 10y Bund yields, which retreat to the 1.04% region on Tuesday.

In the domestic calendar, the German labour market report is due seconded by the preliminary inflation figures in the broader Euroland for the month of May. Across the pond, results from the housing sector are due ahead of the Consumer Confidence print tracked by the Conference Board.

What to look for around EUR

EUR/USD’s bounce off 2022 lows near 1.0350 (May 13) has been so far underpinned by unusual hawkish ECB-speak leaning towards 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.

In addition, the renewed selling bias in the greenback has also collaborated with the multi-cent upside in the pair, as investors appear to have already pencilled in a couple of 50 bps rate hikes at the June and July gatherings.

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, elevated inflation and a decent pace of the economic recovery in the euro bloc are also supportive of an improvement in the mood around the euro.

Key events in the euro area this week: Germany Unemployment Change, Unemployment Rate, EMU Flash Inflation Rate (Tuesday) – Germany Retail Sales, Final Manufacturing PMI, EMU Final Manufacturing PMI, ECB Lagarde (Wednesday) – Germany Balance of Trade, Final Services PMI, EMU Retail Sales, Final Services PMI (Friday).

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 area. Impact of the war in Ukraine on the region’s growth prospects.

EUR/USD levels to watch

So far, spot is retreating 0.30% at 1.0741 and a breach of 1.0641 (low May 25) would target 1.0532 (low May 20) en route to 1.0348 (2022 low May 13). On the other hand, the next up barrier emerges at 1.0786 (monthly high May 30) followed by 1.0936 (weekly high April 21) and finally 1.0981 (100-day SMA).

MUFG’s short-term EUR/USD valuation model (STVM) has shot considerably higher than spot opening a large divergence. Economists at the bank expect the EUR/USD pair to extend its race higher.

EUR/USD short-term valuation model points to higher spot

“If risk conditions remain favourable the most likely scenario in our view is that EUR/USD will follow the lead of the STVM and continue to grind higher.” 

“Only a re-emergence of tighter financial conditions would scupper this scenario now over the short-term. That of course is plausible now given the renewed surge in crude oil prices.”

The Japanese yen rallied on the Bank of Japan (BoJ) governor’s “exit” talk. Nonetheless, global recession risk is more pertinent to JPY strength, in the view of economists at HSBC.

Risk appetite to be a near-term dominant FX driver

“On 26 May, the JPY strengthened further, with USD/JPY declining to intra-day lows, and this was buoyed by the mere mention of ‘exit’ by the BoJ Governor, Haruhiko Kuroda.”

“We expect risk appetite (rather than rates) to be the more dominant driver over the next few weeks, and given the pressures holding back risk appetite looks set to remain in play for now (such as concerns over slowing global growth and geopolitical uncertainties), it points to general weakness in ‘risk-on ’currencies.”

“With markets concerned about US growth, the JPY should be the new ‘go to’ safe-haven currency, a development likely to be welcomed by the Japanese government.”

The dollar appears to have found some support on the last day of May. The US Dollar Index (DXY) is rising 0.3% at 101.70 and economists at ING expect DXY to find its footing above the 101.00/50 region.

DXY to push back to early May highs later in the summer

“We expect the dollar later in the summer to push back to the highs seen in early May.”

“For today, we should probably brace for a sharp drop in US conference board consumer confidence for May – which may stress-test the short-run stability of the dollar.” 

“DXY should find support around the 101.00/101.50 area.”

EUR/GBP is displaying a lackluster performance in the early European session. Economists at ING expect the pair to continue trading in a 0.8450-0.8550 range for now.

Sterling bears queuing up

“There remains a lot of bearishness surrounding sterling. The argument goes that hiking rates in a softening economy is a sterling negative. And true, sterling has recently taken on the characteristics of a growth currency, being driven more by equities than rate differentials over recent months.”

“We are slightly negative on sterling – looking for EUR/GBP at 0.8600. But we think a lot of the weakness is a reflection of broad dollar strength and we are not looking for a sterling collapse.”

“EUR/GBP will probably continue trading in a 0.8450-0.8550 range for the time being – i.e. an environment of greater volatility but within defined ranges.”

The lira exchange rate has been already under pressure in recent weeks. As economists at Commerzbank note, comments from President Tayyip Erdogan and Finance Minister Nureddin Nebati are, once more, stoking this fire.

More unhelpful comments

“Erdogan reiterated his opposition to rate hikes labelling those who cite a link between the benchmark rate and inflation to be either illiterate or traitors. Erdogan hinted at administered price controls and wage hikes to raise people’s real incomes.”

“Nebati made additional comments reiterating that the government will take steps to remove ‘inflation inertia’ from the economy – which probably hints at price controls and other ad hoc interventions.” 

“Since the broader FX market sees little likelihood of such policies working at all, or being able to address high inflation or spiralling inflation expectations in Turkey, such remarks only further expose the lira to vulnerability.”

• A softer risk tone assisted the safe-haven gold to reverse modest intraday slide.
• Rebounding US bond yields underpinned the USD and capped gains for the metal.
• Investors now look forward to this week’s key US macro data for a fresh impetus.

Gold attracted some dip-buying near the $1,846 region on Tuesday and climbed back closer to the daily peak during the early European session. The overnight optimism led by the easing of COVID-19 lockdowns in China turned out to be short-lived amid doubts if central banks can hike interest rates to curb inflation without impacting economic growth. The worries resurface following the release of official Chinese PMIs, which showed contraction in both manufacturing and services sectors during May. This, along with concerns that the global supply chain disruption would continue to push consumer prices even higher, weighed on investors' sentiment and benefitted the safe-haven precious metal.

That said, resurgent US dollar demand kept a lid on any meaningful gains for the dollar-denominated gold. A sharp spike in the US Treasury bond yields assisted the USD to make a solid comeback from over a one-month low touched the previous day and acted as a headwind for the non-yielding yellow metal. Traders also seemed reluctant to place aggressive bets ahead of important US macro data, including the closely watched monthly jobs report (NFP), scheduled at the beginning of a new month. This makes it prudent to wait for strong follow-through selling before positioning for an extension of the recent bounce from a multi-month low, around the $1,787-$1,786 region touched on May 16.

This week's rather busy US economic docket kicks off with the release of the Conference Board's Consumer Confidence Index. This, along with the US bond yields, will influence the USD price dynamics and provide some impetus to gold prices. Apart from this, traders will take cues from the broader market risk sentiment to grab short-term opportunities around the XAUUSD.

Technical levels to watch

Here is what you need to know on Tuesday, May 31:

The greenback is staging a rebound against its rivals early Tuesday as US Treasury bond yields push higher following the three-day weekend in the US. Eurostat will release the preliminary Harmonised Indices of Consumer Prices (HICP) data, the European Central Bank's inflation gauge, for May during the European session. Later in the day, the US economic docket will feature the Housing Price Index for March, the Conference Board's Consumer Confidence data and the Federal Reserve Bank of Dallas' Texas Manufacturing Survey. Additionally, US President Joe Biden will meet with FOMC Chairman Jerome Powell to discuss the economy and inflation.

The benchmark 10-year US Treasury bond yield, which lost 1.5% last week, is already up more than 3% so far this week at 2.84%. The US Dollar Index is rising 0.3% at 101.70 in the European morning.

During the Asian trading hours, the data from China showed that the business activity in the manufacturing and service sectors continued to contract in May. On a positive note, the city of Shanghai is reportedly on track to fully resume normal life from June 1 as initially planned. Nevertheless, the market mood remains cautious with S&P Futures trading virtually unchanged on the day.

Meanwhile, the European Union has agreed to ban 90% of Russian oil imports by the end of 2022. Crude oil prices shot higher on this development and the barrel of West Texas Intermediate was trading at its highest level since early March at $119.20, rising 1.8% on a daily basis.

EUR/USD reversed its direction and retreated below 1.0750  after having touched its strongest level since late April at 1.0788 on Monday. HICP inflation in the euro area is expected to rise to 7.7% on a yearly basis in April. The Core HICP is forecast to remain unchanged at 3.5% in the same period.

GBP/USD closed the previous five trading in positive territory but lost its traction. At the time of press, the pair was down 0.5% on the day, trading slightly below 1.2600. The Bank of England will publish the Consumer Credit Change for April later in the day.

USD/CAD fell sharply as rising crude oil prices helped the commodity-sensitive loonie gather strength on Monday. The pair is struggling to gain traction and trades at fresh multi-week lows below 1.2700.

Gold continues to move sideways in a relatively narrow channel at around $1,850 early Tuesday. Rising US Treasury bond yields make it difficult for XAU/USD to build on last week's gains.

USD/JPY recovered to 128.00 supported by rising US yields. The data from Japan showed earlier in the day that the Consumer Confidence Index improved to 34.1 in May from 33 but this print had little to no impact on the pair's action.

Bitcoin broke above its two-week-old trading channel and climbed above $31,000 before going into a consolidation phase. Ethereum gained more than 10% on Monday but lost its bullish momentum near $2,000.

The Australian National Accounts are set to be released on Wednesday, June 1 at 01:30 GMT and will provide an estimate of economic activity for the March quarter. Here you can find the expectations as forecast by the economists and researchers of four major banks regarding the upcoming AU growth data. 

The Australian economy is seen expanding by 0.7% in the three months to March, on a quarterly basis, after rebounding by 3.4% in the final quarter of 2021. Meanwhile, the country’s GDP rate is seen dropping to 3.0% YoY in the reported period vs. a 4.2% sharp expansion witnessed in the previous quarter.

ANZ

“For Q1 GDP growth, the key partial indicators released on Tuesday have caused us to lift our expectation for +0.8% QoQ from our preliminary +0.6% forecast. Annual GDP growth is forecast to decline to 3.1% from 4.2% in Q4. This is a pretty solid result given the challenges of Omicron, as well as flooding and heavy rain through much of the quarter.”

Westpac

“For Q1, we anticipate anaemic growth of 0.2% with annual growth slowing to 2.5% from 4.2%. The Labour Force survey printed hours worked down 1.2%, pointing to downside risks.”

TDS

“Growth momentum probably slowed in Q1 (1.2%) as economic activity was interrupted by the Omicron wave and floods in Queensland and NSW. However, we think these shocks are temporary as domestic demand should be relatively resilient as reflected in the strong Q1 retail sales outturn. We expect the RBA to make a bolder policy move in June as the economy is on a strong footing.”

NAB

“We expect a soft 0.1% QoQ (2.4% YoY) GDP print for Q1 2022, with imports weighing on growth despite ongoing strength in consumption. Household consumption is expected to rise – though at a more modest rate than the strong Q4 outturn – with services demand picking up despite impacts from Omicron and flooding. However, both dwelling and business investments are likely to be flat with capacity constraints weighing. More importantly, we expect a significant detraction from GDP from net exports after a surge in imports in the quarter, although sharp price movements leave some uncertainty around volumes. A larger-than-expected impact could temporarily push GDP into negative territory, despite the sound domestic fundamentals. The soft quarterly GDP result is unlikely to alter the RBA’s plans to normalise monetary policy, with 25bp interest rate increases expected in June, July, August and November to take the cash rate to around 1.35% by year-end.”

• Platinum prices grind higher around one-week top after crossing 50-DMA.
• Descending trend line from mid-April lures buyers, monthly support line defends upside momentum.
• RSI (14) hints at gradual run-up towards a two-month-long resistance line.

Platinum (XPT/USD) justifies the upside break of the 50-DMA by renewing the weekly top around $968, close to $965 by the press time of early Tuesday morning in Europe.

In addition to the metal’s ability to cross the key moving average, the recently firmer RSI also keeps XPT/USD bulls hopeful.

That said, a downward sloping resistance line from April 19, close to $980, lures short-term buyers of the bullion.

Following that, a two-month-long descending trend line, close to the $997, quickly followed by the $1,000 threshold, will challenge the platinum bulls.

Meanwhile, pullback moves remain elusive until staying beyond the 50-DMA level surrounding $961.

Also keeping XPT/USD bears away is the monthly support line, close to $937 at the latest.

Overall, platinum prices are ready for short-term advances but a reversal of the bearish trend from early March needs validation from the $1,000 round figure.

Platinum: Daily chart

Trend: Further upside expected

We do not hear too often from Swiss National Bank (SNB) speakers, but Vice Chairman Fritz Zurburegg speaks today. Economists at ING expect the GBP/CHF to drop below 1.20 if Zurburegg takes a hawkish turn.

SNB's Zurburegg speaks on Tuesday

“We are very interested in the SNB given that an ultra-dovish central bank has been sounding more hawkish recently. And it seems that tighter policy in Switzerland means a stronger nominal currency.”

“Look out for today's event risk for the Swiss franc, and a pair like GBP/CHF – potentially breaking under 1.20 – could be the big story if this SNB speaker does take a hawkish turn.”

The Hungarian National Bank (MNB) is expected to hike its main policy interest rate by 50bp today. Forint’s underperformance of late is likely to extend following the central bank rate decision, economists at Commerzbank report.

MNB expected to hike rate by 50bp

“The underperformance of the forint suggests that the market is concerned about inflation projections proving unrealistic all over again, which means that MNB’s policy stance could quickly fall behind the curve.”

“The current inflation context does not offer MNB the luxury to signal a ‘routine’ phase of policy regardless of incoming data.

“The anticipated 50bp rate hike today will likely not support the forint specifically, and it will be up to the MPC to sound more hawkish in their remarks later on. As base-case, we expect the forint’s weak streak to extend further.”

Kamal Sharma, a London-based foreign-exchange strategist at Bank of America (BofA), offers a bearish outlook on the pound, predicting further declines during this year.

Key quotes

“Sterling's fall from grace has been epic given last year's euphoria and, in many ways, has caught the investor community by surprise."

Threadneedle Street is facing “unique” challenges including Brexit that are creating severe supply-side problems.”

 “This has resulted in a confusing communication strategy: hiking rates against a sharply slowing economy is never a good look for any currency."

“We sense something is changing in the UK with the BoE increasingly hard to decipher and less transparent; a failure to discuss and acknowledge that Brexit has been a significant headwind to the supply side and sense that the BoE is losing control over its mandate.”

Also read: Why Boris' scandals (and two other reasons) may boost GBP/USD toward 1.27, 1.2780

British Chancellor Rishi Sunak announced a GBP15bn support package last week. As a result, the market has raised its rate expectations for the Bank of England (BoE) slightly again. However, economists at Commerzbank remain cautious as regards sterling.

Expansive fiscal policy and tighter monetary policy?

“The market seems to be of the view that the spending package might cause interest rates in the UK to raise more. But of course, the BoE might have something to say on that too. Moreover, it will have to be seen first whether the fiscal policy measures are suited to preventing a stronger economic downturn.”

“We remain cautious as regards sterling and assume that the BoE will not tighten its monetary policy as much as the market expects and that high inflation levels will put pressure on sterling over the coming months.”

Inflation in the eurozone is likely to have risen further in May. In the data surprises on the upside, the EUR/USD could extend its advance, economists at Commerzbank report.

Setback in EUR/USD is quite possible if data surprises on the downside

“There is speculation amongst market participants about a larger rate step in July. If today’s inflation data were to surprise on the upside speculation of this nature is likely to be fuelled further. This might benefit EUR and allow it to extend its gains against USD.”

“If the data surprises on the downside a setback in EUR/USD is quite possible. With a view to the ECB meeting next Thursday a possible downside correction in EUR/USD is likely to be limited though.”

“Following all the hawkish comments over the past weeks it cannot be excluded that the ECB will sound hawkish at its meeting again. As a result, we urge caution ahead of the meeting.”

China's official PMIs for May came in better than expected. CNY will likely benefit from today's data but economists at TD Securities still expect USD/CNY to inch higher towards 6.80 by end-2022.

China PMIs bounce, but remain in contraction

“China's manufacturing and non-manufacturing PMIs remained in contraction in May but gained more than expected to 49.6 and 47.8, respectively.”

“CNY will likely benefit from today's data, giving further short-term support to the currency.”

“We expect further CNY depreciation vs USD and on a trade-weighted basis in the months ahead, forecasting USD/CNY at 6.80 and CFETS at 95.7 by end-2022 as a likely weakening in the current account position, and reduced inflows will weaken underlying support for the currency.”

• GBP/JPY takes offers to renew intraday low, extends pullback from a three-week high.
• Market sentiment dwindles, yields struggle to extend day-start rally.
• Yen pares early-day losses amid mostly firmer Japan data, anxiety ahead of Biden-Powell meet.
• Brexit, Russia and China are some additional subjects that weigh on prices.

GBP/JPY extends early Asia pullback from a three-week high towards refreshing the daily low as traders in London brace for Tuesday’s bell. That said, the cross-currency pair takes offers around 161.10 by the press time, snapping a two-day uptrend.

The pair refreshed its multi-day high earlier in Asia amid the market’s optimism surrounding concerns over the Fed’s next moves. However, anxiety ahead of the meeting between US President Joe Biden and Fed Chair Jerome Powell joins recently firmer data from Japan to weigh on the GBP/JPY prices.

US President Biden and Fed Chair Powell are up for a meeting on Tuesday and will discuss steps to tame the inflation, while also trimming the balance-sheet debt. This could help anchor the market as the latest concerns remained mostly mixed amid receding bets of the Fed’s aggressive rate hikes and optimism from Shanghai’s unlock.

It’s worth noting that Japan’s Consumer Confidence Index for May rose past 33.9 forecast to 34.1, versus 33.00 prior. Earlier in the day, the Asian major’s Unemployment Rate eased to 2.5% in April versus 2.6% expected and prior whereas the Retail Trade also rose to 2.9% YoY during the stated month, from 2.6% expected and revised down 0.7% prior. However, the preliminary reading of Industrial Production disappoints with -4.8% YoY figure compared to -2.5% market consensus and -1.7% previous readouts.

Elsewhere, the US 10-year Treasury yields stay mostly unchanged in the last few hours, after rising 9.3 basis points (bps) to near 2.84% at the latest. It’s worth noting that the bond yields dropped the most in six months during May as market players trim bets on the Fed’s aggressive rate hikes after recently downbeat US inflation and growth numbers.

The geopolitical fears emanating from Europe and mixed concerns over China’s rebound, considering the recently downbeat activity data, also weigh on the GBP/JPY prices. Furthermore, concerns surrounding the Northern Ireland Protocol (NIP), ire over UK PM Boris Johnson’s moves during covid-led lockdowns and the Bank of England’s (BOE) alleged slow action to tame inflation also play background music to tame GBP/JPY prices.

Looking forward, GBP/JPY pair traders should pay close attention to the risk catalysts amid a light calendar left for the UK and Japan. As a result, the Biden-Powell meet and headlines relating to Brexit, the Russia-Ukraine crisis and China will be important to track.

Technical analysis

GBP/JPY takes a U-turn from the 50-DMA hurdle, surrounding 161.70, towards a two-week-old rising support line, close to 159.50 by the press time.

Gold Price tested the bearish 21-Daily Moving Average (DMA) at $1,849. More downside in the offing? The yellow metal looks south amid firmer yields, FXStreet’s Dhwani Mehta reports.

200-DMA at risk?

“The sentiment around the bond market holds the key for placing fresh bets on gold price. The US rates are staging a solid rebound, with the benchmark 10-year yields up roughly 3.5% so far. Also, of note remains the preliminary inflation print from the Eurozone and the US CB Consumer Confidence data for fresh cues on the broader market sentiment.”

“Acceptance below the 21-DMA at $1,849 will trigger a fresh drop towards the horizontal 200-DMA at $1,840. Daily closing below the latter is needed to fade the recovery and turn the focus back on the May 18 low of $1,807.”

“Recapturing the daily highs of $1,857 is critical to take on the upside towards the previous day’s high of $1,864. Further up, the two-week highs at $1,870 will be next on the buyers’ radars, above which the mildly bullish 100-DMA at $1,888 will be challenged.”  

• EUR/GBP is struggling below 0.8525 as investors are eyeing the release of the Eurozone HICP.
• Eurozone HICP is seen at 7.7% against the prior print of 7.4%.
• The BOE is expected to announce a rate hike by 50 bps in its June monetary policy.

The EUR/GBP is displaying a lackluster performance in the early European session as investors are awaiting the release of the Europe Harmonized Index of Consumer Prices (HICP). On a broader note, the asset is consolidating in a 0.8511-0.8528 range after an upside move from May 27 low at 0.8481.

Investors should brace for higher Eurozone HICP numbers in relation to its estimates. As per the estimates, an annual inflation rate is seen at 7.7% against the prior print of 7.4%. One should attempt to consider HICP numbers country-wise in Europe as they are displaying a wider divergence in the estimated and printed figures. Spain’s HICP has landed at 8.5% against the forecast of 8.2% while Germany’s HICP has been recorded at 8.7%, much higher than the estimates of 8%.

Therefore, inflationary pressures from the eurozone are seen at elevated levels, which will definitely compel the European Central Bank (ECB) to feature a rate hike for the first time since the concept of helicopter money to tackle to Covid-19 related circumstances.

On the pound front, the inflation rate has climbed above 9%, which is sufficient to create havoc for the Bank of England (BOE). The troublesome activity of taming the soaring inflation for BOE policymakers may keep the currency in check. Odds are plenty which conveys that the market participants will listen to a rate hike of 50 basis points (bps) by the BOE.

In the view of FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang, GBP/USD could extend the upside further and revisit the 1.2700 area.

Key Quotes

24-hoour view: “We highlighted yesterday that ‘there is barely any improvement in upward momentum’ and we expected GBP to ‘trade sideways within a range of 1.2580/1.2665’. GBP subsequently traded within a narrower range than expected (1.2617/1.2660). The quiet price actions suggest further sideway-trading is likely, expected to be between 1.2585 and 1.2660.”

Next 1-3 weeks: “Our view from yesterday (30 May, spot at 1.2625) still stands. As highlighted, while upward momentum has not improved by much, the risk for GBP is on the upside towards 1.2700. Overall, only a break of 1.2560 (‘strong support’ level was at 1.2540 yesterday) would indicate that the upside risk has dissipated. Looking ahead, the next resistance above 1.2700 is a rather solid level at 1.2740.”

• DXY bounces off lows and revisits the 101.80 area.
• US yields trade on a mixed note as US markets return to normality.
• Housing data, Consumer Confidence next on tap in the docket.

The greenback, when tracked by the US Dollar Index (DXY), regains some composure and manages to rebound from Monday’s 5-week lows near 101.30.

US Dollar Index now looks to data

The index reverses three consecutive daily pullbacks and attempts a bounce to the vicinity of the 102.00 neighbourhood, where some resistance seems to have turned up so far.

While US markets return to normality following Monday’s Memorial Day holiday, yields trade on a mixed performance, with the short end of the curve struggling to get some upside traction and the belly and the long end advancing modestly.

Later in the NA session, the FHFA’s House Price Index is due seconded by the Consumer Confidence gauged by the Conference Board.

What to look for around USD

The dollar rebounds from recent multi-week lows as the risk rally seems to be taking a breather on Tuesday.

Renewed weakness in the dollar 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: House Price Index, CB Consumer Confidence (Tuesday) – MBA Mortgage Applications, Final Manufacturing PMI, ISM Manufacturing, Construction Spending, Fed Beige Book (Wednesday) – ADP Employment Change, Initial Claims, Factory Orders (Thursday) – Nonfarm Payrolls, Unemployment Rate, Final Services PMI, ISM Non-Manufacturing (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 advancing 0.27% at 101.63 and the breakout of 105.00 (2022 high May 13) would open the door to 105.63 (high December 11 2002) and finally 106.00 (round level). On the other hand, the next support emerges at 101.29 (monthly low May 30) seconded by 101.15 (55-day SMA) and then 99.81 (weekly low April 21).

• USD/RUB takes offers to renew intraday low, extends pullback from three-week top.
• Break of short-term support line, failures to stay beyond 100-SMA keep bears hopeful.
• Weekly horizontal support, 200-SMA offer extra filters to watch.

USD/RUB remains on the back foot for the second consecutive day, extending the previous day’s pullback from a multi-day high.

In doing so, the Russia ruble (RUB) pair justifies Monday’s downside break of a one-wee-old rising support line, now resistance around 66.50, as well as sustained trading below the 100-SMA, at 64.00 by the press time.

Given the absence of oversold RSI, coupled with the aforementioned trading pattern, the USD/RUB weakness is likely to prevail.

That said, the 61.00 and the 60.00 round figures may offer immediate supports to the pair bears.

However, a one-week-long horizontal support zone near 58.00, followed by the monthly low near 55.90, can challenge the USD/RUB downturn afterward.

On the contrary, a clear upside break of the support-turned-resistance level of 66.50 will need validation from the recent swing high surrounding 68.30, as well as the 200-SMA level of 69.91, to convince the pair buyers.

Overall, USD/RUB bears retake the driver’s seat after the last week’s corrective pullback.

USD/RUB: Four-hour chart

Trend: Further downside expected

FX option expiries for May 31 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

- EUR/USD: EUR amounts        

• 1.0590-00 8.31b
• 1.0625-30 1.57b
• 1.0645-50 1.3b
• 1.0725-30 490m
• 1.0740-50 650m
• 1.0760 854m
• 1.0775-80 590m
• 1.0800 1.12b
• 1.0880 1.12b

- GBP/USD: GBP amounts        

• 1.2450 878m
• 1.2500 258m
• 1.2520-25 615m
• 1.2545-50 3.82b
• 1.2645 2.29b
• 1.2680 835m
• 1.2710 303m

- USD/JPY: USD amounts                     

• 127.75-85 740m
• 129.65 250m

- AUD/USD: AUD amounts  

• 0.7000 615m
• 0.7090 261m
• 0.7120-25 660m
• 0.7150 238m

- USD/CAD: USD amounts       

• 1.2660-65 286m
• 1.2700 407m
• 1.2800 329m

- NZD/USD: NZD amounts

• 0.6475 426m
• 0.6515 233m
• 0.6600 797m

- EUR/GBP: EUR amounts

• 0.8475 270m
• 0.8500 551m
• 0.8525 205m
• 0.8565-75 570m
• 0.8650 244m

- EUR/JPY: EUR amounts

• 133.50 659m
• 135.24 240m

• GBP/USD pares the first daily loss in five around one-month high.
• Cautious sentiment ahead of the key data/events probe US dollar bulls.
• Biden hints at three-step plan to tame inflation, suggests reducing the federal deficit.
• Challenges for UK PM Johnson, BOE’s Bailey and Brexit woes test buyers.

GBP/USD struggles to overcome intraday losses around the monthly top heading into Tuesday’s London open. In doing so, the cable traders fade bounce off 1.2598 around 1.2615 by the press time.

The pair’s latest struggle could be linked to the traders’ anxious mood ahead of the meeting between US President Joe Biden and Fed Chair Jerome Powell. Also challenging the GBP/USD traders are mixed concerns over Brexit, UK PM Johnson’s hardships on the ‘partygate’ issue, as well as criticism of the Bank of England’s (BOE) late response to the inflation rally.

That said, the US Dollar Index (DXY) struggles to extend the recovery from the monthly low to around 101.70 as yields dwindle by the end of the first negative month in six. It’s worth noting that the bond yields dropped the most in six months during May as market players trim bets on the Fed’s aggressive rate hikes after recently downbeat US inflation and growth numbers.

Geopolitical fears emanating from the showdown over the Northern Ireland Protocol (NIP), ire over UK PM Boris Johnson’s moves during covid-led lockdowns and US President Joe Biden’s push for balance sheet reduction also probe the GBP/USD traders of late.

Against this backdrop, the US 10-year Treasury yields rise almost 10 pips from Friday’s New York session close to 2.84% whereas the S&P 500 Futures print mild gains around 4,165 at the latest.

To sum up, mixed concerns and a cautious mood may weigh GBP/USD prices ahead of the key Biden-Powell meeting. Should the policymakers renew fears of faster Fed rate hikes, the latest pullback of the pair can extend.

Technical analysis

The clear downside break of a 12-day-old support line, now resistance around 1.2630, keeps GBP/USD sellers hopeful to revisit the mid-May peak surrounding 1.2500. On the flip side, the 50-day EMA level surrounding 1.2720 restricts immediate upside.

• The oil bulls are underpinned by the EU after banning the majority of oil imports from Russia.
• Oil prices are set to kiss annual highs at $126.51.
• China’s reopening and summer season in the US and Europe will drive the oil demand.

West Texas Intermediate (WTI), futures on NYMEX, is marching higher on renewed supply worries. The black gold has refreshed its two-month high at $117.66 and is expected to print more gains further as the European Union (EU) has decided to embargo 90% of oil imports from Russia by the end of the Calendar year (CY) 2022. The EU has resolved the opposition of Hungary against a quick ban on oil from Moscow.

It looks like the EU route to punish the Kremlin for its inhuman activities in Ukraine has infused fresh blood into the oil bulls. An embargo on Russian oil by the EU in an already tight oil market has triggered the recession fears in Europe and oil shortening fears in the entire world. No one could deny the fact that the oil prices are exposed to hitting March high at $126.51.

On the demand front, the catalysts of China's re-opening and the summer season in the US are going to keep the demand for fossil fuels at elevated levels. The Chinese administration has announced that the lockdown measures in Shanghai have been withdrawn and materials, machines, and of course men could move now. Going forward, the administration will focus on restoring the extent of pre-lockdown economic activities, which will drive the oil prices.

Apart from that, oil prices will find more momentum as addressing the elevated demand for oil due to the arrival of summer in Europe and North America will drive the black gold higher.

• USD/JPY retreats from one-week high as market sentiment dwindles.
• Yields remain firm but US dollar struggles to extend recent recovery.
• Japan’s employment, retail numbers came in firmer for April but Industrial Production growth eased.
• Risk catalysts, Biden-Powell meeting will be crucial for short-term directions.

USD/JPY pares daily gains around the one-week top as traders turn cautious ahead of the key meeting between US President Joe Biden and Fed Chair Jerome Powell. That said, the yen pair drops back to 128.00, after refreshing the weekly high with 128.30, heading into Tuesday’s European session.

Having bounced off the monthly low, the US Dollar Index (DXY) struggled to extend the recovery to around 101.70. The greenback gauge’s sluggish moves could be linked to a pause in the US Treasury yields’ rally, as well as mixed concerns surrounding the Fed’s next moves as US President Biden recently signals some measures to battle inflation.

That said, the US 10-year Treasury yields stay mostly unchanged in the last few hours, up 9.3 basis points (bps) near 2.84% at the latest. It’s worth noting that the bond yields dropped the most in six months during May as market players trim bets on the Fed’s aggressive rate hikes after recently downbeat US inflation and growth numbers.

It’s worth noting that the geopolitical fears emanating from Europe and mixed concerns over China’s rebound, considering the recently downbeat activity data, also weigh on the USD/JPY prices.

Above all, anxiety ahead of the Biden-Powell meeting and the full market’s return seem to challenge the pair’s upside momentum. On the same line could be mostly upbeat prints of Japan’s key data, published earlier in Asia. That said, Japan’s Unemployment Rate eases to 2.5% in April versus 2.6% expected and prior whereas the Retail Trade also rose to 2.9% YoY during the stated month, from 2.6% expected and revised down 0.7% prior. However, the preliminary reading of Industrial Production disappoints with -4.8% YoY figure compared to -2.5% market consensus and -1.7% previous readouts.

Moving on, second-tier US activity numbers and Eurozone inflation may entertain USD/JPY traders but major attention will be given to how Powell-Biden talks manage to clarify the Fed and government’s next moves to tame inflation.

Technical analysis

USD/JPY remains on the way to challenging the 21-DMA level of 128.70 unless declining below a three-week-old previous resistance line, around 127.15 by the press time.

• An establishment above 38.2% Fibo retracement advocates a bullish reversal.
• The asset is advancing higher in a Rising Channel chart pattern.
• A bullish range shift by the RSI (14) adds to the upside filters.

The AUD/USD pair is displaying back and forth moves in a narrow range of 0.7176-0.7189 after a minor rebound from intraday’s low at 0.7162.  Earlier, the asset witnessed a steep fall after failing to sustain above the round-level resistance of 0.7200. Multiple failed attempts of overstepping Tuesday’s high at 0.7200 triggered exhaustion in the uptrend, which activated responsive sellers.

On a four-hour scale, the aussie bulls have driven the asset above 38.2% Fibonacci retracement (placed from May’s high and low at 0.7662 and 0.6829 respectively) at 0.7149. An establishment above 38.2% Fibo retracement bolsters a bullish reversal. The asset is advancing higher in a Rising Channel, which signals a continuation of the bullish momentum.

Considering the lower gap between the 50- and 200-period Exponential Moving Averages (EMAs), a golden cross near 0.7150 looks possible, which will strengthen the aussie bulls further.

Meanwhile, the Relative Strength Index (RSI) (14) has comfortably shifted into a bullish range of 60.00-80.00, which adds to the upside filters.

A minor correction towards the 38.2% Fibo retracement at 0.7150 will be an optimal buy, which will drive the asset towards Monday’s high at 0.7200. A breach of the latter will expose the asset for a further upside move to 50% Fibo retracement at 0.7250.

Alternatively, the greenback bulls could regain control if the asset drops below May 26 low at 0.7056. An occurrence of the same will drag the asset towards May 20 low at 0.7003, followed by May 15 low at 0.6948.

AUD/USD four-hour chart

FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang suggested EUR/USD could accelerate its gains on a close above the 1.0800 yardstick.

Key Quotes

24-hour view: “Our view for EUR to ‘consolidate and trade between 1.0690 and 1.0765’ yesterday was incorrect as it rose to a high of 1.0786 before closing on a firm note at 1.0777 (+0.47%). While upward momentum still appears to be lackluster, there is scope for EUR to test the major resistance at 1.0800. For today, the next resistance at 1.0840 is not expected to come under threat. Support is at 1.0745 but only a break of 1.0720 would indicate that the current upward pressure has eased.”

Next 1-3 weeks: “We highlighted yesterday that ‘he risk is still on the upside but in view of the lackluster upward momentum, it is left to be seen if EUR could extend its advance to 1.0800’. EUR subsequently rose to 1.0786 and the chance for EUR to break 1.0800 has increased, albeit by just a tad. That said, EUR to has to close above 1.0800 before further sustained advance is likely. The upside risk is intact as long as EUR does not move below 1.0695 (‘strong support’ level was at 1.0655 yesterday). Looking ahead, the next resistance above 1.0800 is at 1.0840.”

• USD/TRY struggles to extend Friday’s rebound, remains sidelined near weekly horizontal resistance.
• Receding bearish bias of MACD signals, upbeat RSI favors buyers to aim for three-week-old resistance.
• 50-SMA, short-term bullish channel test bears during the pullback.

USD/TRY bulls attack a one-week-old horizontal resistance around $16.40, trading around the yearly low marked the last week.

That said, the Turkish lira (TRY) pair remains on the bull’s radar due to Friday’s recovery moves, as well as a three-week-old bullish channel formation.

Also keeping USD/TRY buyers hopeful are the recently easing bearish MACD signals and firmer RSI (14), not to forget the quote’s ability to stay firmer beyond 50-SMA.

However, a clear upside break of the $16.40 hurdle becomes necessary for the pair bulls to aim for the upper line of a short-term rising channel, around $16.70 by the press time.

Following that, the $17.00 and December 2021 peak surrounding $18.35 will be in focus.

Meanwhile, pullback moves may initially aim for the 50-SMA level of $16.15 before challenging the bullish chart pattern’s support line, near $16.10 at the latest.

Should the quote drop below $16.10, the USD/TRY bears may aim for the monthly low near $14.70. Though, the previous week’s swing low near $15.68 can offer an intermediate halt during the fall.

USD/TRY: Four-hour chart

Trend: Further upside expected

• Asia-Pacific equities fade previous optimism amid mixed clues.
• Upbeat yields, German inflation and Eurogroup sanctions weigh on sentiment.
• Shanghai’s unlock plan, downbeat China data suggests more relief for traders.
• Eurozone inflation, Biden-Powell meeting will be important for immediate directions.

Asian traders fade the week-start positivity as bond-buying halts amid cautious sentiment ahead of the key data/events. Also challenging market sentiment are the Eurogroup sanctions on Russia and grim conditions in Donbas. It should, however, be noted that hopes of improvement in China’s economic conditions, backed by Shanghai’s unlock and hopes of more stimulus after witnessing the downside, seem to challenge the bears.

Amid these plays, MSCI’s index of Asia-Pacific shares ex-Japan rises 0.33% intraday but Japan’s Nikkei 225 remains directionless, recently easing, to around 27,350.

Further, Australia’s ASX 200 dropped half a percent as China’s official PMIs join downbeat Building Permits at home to weigh on stocks. However, New Zealand’s NZX 50 adds 0.30% intraday amid receding hopes of RBNZ’s heavy rate hikes moving further.

Stocks in China post around 1.0% daily gains as softer PMIs for May join gradual easing of the covid-led activity restrictions to allow the government to battle the receding growth fears. Hong Kong’s Hang Seng, South Korea’s KOSPI and Indonesia’s IDX Composite also track China to print mild gains. However, India’s BSE Sensex remains pressured ahead of the key January-March India GDP figures.

On a broader front, the US 10-year Treasury yields rise almost 10 pips from Friday’s New York session close to 2.84% whereas the S&P 500 Futures print mild gains around 4,165 at the latest.

Asia-Pacific markets are likely to track Wall Street with reservations as firmer oil prices test the bulls. That said, Eurozone inflation data, as well as a meeting between US President Joe Biden and Fed Chair Jerome Powell, become crucial to watch for immediate directions.

China's Cabinet issues a series of policies to stabilize the economy, Reuters reports, citing the Cabinet documents.  

Key takeaways

Market reaction

AUD/USD is unfazed by these above headlines, as it remains pressured below 0.7200. The pair is currently trading at 0.7178, down 0.22% on the day.

• EUR/USD fades bounce off intraday low during the first negative daily performance in four.
• US dollar rebounds from monthly low amid firmer yields, month-end consolidation, eyes Biden-Powell meet amid inflation chatters.
• Hawkish ECBSpeak highlights Eurogroup meeting, EU CPI for May as important catalysts.

EUR/USD fails to pick up bids as sellers flirt with the 1.0750-40 area, fading bounce off the daily low, ahead of Tuesday’s European session. That said, the firmer US dollar and the market’s anxiety ahead of the key Eurozone inflation data, as well as a meeting between US President Joe Biden and Fed Chair Jerome Powell, seem to have triggered the quote’s pullback from the monthly top.

US Dollar Index (DXY) consolidates the first monthly loss in five as it prints 0.30% daily gains around 101.65. In addition to the month-end positioning, the greenback gauge’s latest gains could also be linked to mixed sentiment and firmer US Treasury yields.

The market’s risk appetite wanes amid indecision over the Fed’s next move and geopolitical headlines. However, covid news and receding bets on the Fed’s aggressive rate hikes seem to favor the US stock futures.

Further, the Eurogroup’s agreement on fresh sanctions over Russian oil imports and comments from Ukrainian President Volodymyr Zelensky, suggesting an ‘extremely difficult’ situation in the Donbas region, per Reuters, weigh on EUR prices.

Additionally, comments from Fed Board of Governors member Christopher Waller also seem to underpin the US Treasury yields and the greenback’s recent upside. The policymaker said that he supports lifting interest rates by another 50 bps at the next several Fed meetings and that the policy rate should be above neutral by the end of the year to reduce demand, reported Reuters.

Amid these plays, the US 10-year Treasury yields rise almost 10 pips from Friday’s New York session close to 2.84% whereas the S&P 500 Futures print mild gains around 4,165 at the latest.

Given the cautious mood and the US dollar rebound, the EUR/USD prices are likely to remain depressed ahead of the bloc’s inflation data for May, per the Harmonised Index of Consumer Prices (HICP) gauge. That said, Eurozone HICP YoY is expected to refresh multi-year high with 7.7% figures versus 7.4% prior whereas the HICP-X F, E, A, T, also known as core inflation, bears the consensus of reprinting 3.5% YoY figures. Should the bloc’s inflation data manage to refresh its multi-year high, the hawkish ECB will get justification and can propel the pair. On the same line will be any push for rethinking the Fed’s faster rate hikes during the Biden-Powel meeting.

Technical analysis

EUR/USD bears attack 50-DMA support near 1.0740, a break of which will direct the sellers towards an upward sloping support line from May 13, close to 1.0685. Meanwhile, March’s low near 1.0810 restricts the immediate upside of the major currency pair.

China's Foreign Minister Wang Yi said in a statement on Tuesday, the relationship between China and the US cannot continue to deteriorate.

Wang spoke as he arrived in Tonga on a tour through the region where Beijing’s ambitions for wider security ties have caused concern among the US allies.  

Market reaction

AUD/USD was last seen trading down 0.11% on the day at 0.7187.

• USD/INR takes the bids to renew intraday high amid broad US dollar rebound.
• Firmer oil prices, strong yields drown INR ahead of India’s Jan-March GDP.
• Easing bets on Fed’s aggressive rate hikes, cautious mood ahead of Biden-Powell meet probe USD rebound.

USD/INR remains on the front foot around 77.65, refreshing intraday high, as firmer USD and oil prices weigh on Indian Rupee (INR) pair during Tuesday’s Asian session. It’s worth noting that the cautious sentiment ahead of the January-March India GDP and a meeting between US President Joe Biden and Fed Chair Jerome Powell also propel the quote of late.

The US Dollar Index (DXY) bounces off the monthly low to regain the 101.50 level, up 0.23% intraday at the latest, amid mixed sentiment and firmer US Treasury yields.

Although easing of the virus-led lockdowns joins receding bets on the Fed’s aggressive rate hikes to favor the US stock futures, as well as Asia-Pacific equities, geopolitical headlines join firmer yields to challenge optimists. That said, the Eurogroup agrees on fresh sanctions on Russia while Ukrainian President Volodymyr Zelensky said the situation remained ‘extremely difficult’ in the Donbas region, per Reuters.

Elsewhere, comments from Fed Board of Governors member Christopher Waller also seem to underpin the US Treasury yields and the greenback’s recent upside. The policymaker said that he supports lifting interest rates by another 50 bps at the next several Fed meetings and that the policy rate should be above neutral by the end of the year to reduce demand, reported Reuters.

It should be observed that a two-month high in oil prices, around $116.50 by the press time, also weighs on INR due to India’s record deficit and heavy reliance on energy imports.

Looking forward, India’s January-March GDP, expected 4.0% YoY versus 5.4% prior, appears an immediate catalyst for the USD/INR pair traders to watch. Following that, Chicago Purchasing Managers’ Index and Dallas Fed Manufacturing Business Index for May will decorate the daily calendar. Above all, the Biden-Powell talks and geopolitical headlines from the Eurogroup meeting will be crucial for the quote.

Technical analysis

Higher-low formation joins bullish RSI divergence to keep USD/INR buyers hopeful of breaking the immediate trading range between 77.30 and 77.80 to the upside.

• Gold price is oscillating in a broader range of $1,846.02-1,864.07 as investors await US NFP.
• A hawkish commentary from Fed Waller has underpinned the DXY.
• The precious metal is likely to remain lackluster amid the Symmetrical Triangle formation.

Gold price (XAU/USD has witnessed a sheer downside move after failing to sustain above the $1,860.00 in the Asian session. The precious metal tumbled sharply after the US dollar index (DXY) displayed a firmer response by the market participants to hawkish commentary from the Federal Reserve (Fed). However, the gold prices have sensed some significant bids below the round-level support of $1,850.00.

Fed Governor Christopher Waller has underpinned uncertainty in the FX domain after dictating an extreme hawkish commentary, which should be beyond the expectations of the investing community. Advocating a spree of interest rate hikes by 50 basis points (bps) by the Fed till if find a substantial reduction in the inflation rate. There is no denying the fact that the ongoing inflation mess in the US economy requires blood and sweat from the Fed and taming inflation is the need of the hour.

On the dollar front, the US dollar index (DXY) is oscillating around 101.60 as investors await the US Nonfarm Payrolls (NFP). Investors are expecting the release of the US NFP at 320k against the prior print of 428k.

Gold technical analysis

On an hourly scale, the precious metal has bounced back sharply after hitting the ascending trendline of the Symmetrical Triangle. The ascending triangle of the above-discussed chart pattern is placed from May 20 low at $1,832.41 while the descending trendline is plotted from May 24 high at $1,869.75. The gold prices are overlapping the 50-period Exponential Moving Average (EMA), which is trading at $1,854.45 on a broader picture.

Meanwhile, the Relative Strength Index (RSI) (14) has bounced back after hitting 40.00, which signals a responsive buying action.

Gold hourly chart

• GBP/USD is displaying downside signs as the Fed has turned extremely hawkish.
• Fed Waller is in favor of a spree of 50 bps interest rate hikes till the Fed fixes the inflation mess.
• The BOE is more likely to announce a rate hike by 50 bps in its June monetary policy.

The GBP/USD pair has witnessed a pullback from its intraday low of 1.2600. Earlier, the asset witnessed a steep fall after slipping below 1.2641 as the US dollar index (DXY) displayed a power-pack buying action in its opening trade.

Investors poured liquidity again into the greenback on hawkish commentary from Federal Reserve (Fed) Governor Christopher Waller. In his speech at Institute for Monetary and Financial Stability, the Fed policymaker dictated that the Fed should continue the spree of 50 basis points (bps) interest rate hikes in each of its monetary policy meetings till the time it finds a substantial reduction in the interest rate. The commentary has scared the investing community as more jumbo rate hike announcements by the Fed could accelerate the recession fears.

On the dollar front, the DXY is holding itself above 101.60 after hitting a high of 101.76. The asset is advancing higher amid uncertainty over the release of the US Nonfarm Payrolls (NFP), which are due on Friday. A preliminary estimate for the economic catalyst is 320k against the prior print of 428k.

On the pound front, mounting inflation pressures are impacting the real income of the households in the UK. The annual Consumer Price Index (CPI) figure has climbed above 9%. The inflation mess in the UK demands a quick efficient response from the Bank of England (BOE). According to the market estimates, an interest rate elevation by 50 bps should be on the cards.

Having witnessed a sustained fall in the covid numbers, Shanghai City Officials are ready to remove the virus-led activity restrictions, announced to take place on June 01. While conveying the news, the official mentioned, “City moving into normalized epidemic control phase, looks to fully resume normal life.”

More comments

It’s worth noting that COVID-19 numbers from Mainland China have been mixed of late as the virus-led deaths remain at zero but new local and confirmed cases have increased of late. “Mainland China reported 174 new coronavirus cases on May 30, of which 50 were symptomatic and 124 were asymptomatic, the National Health Commission said on Tuesday.  That compares with 184 new cases a day earlier, made up of 34 symptomatic and 150 asymptomatic infections, which China counts separately,” said Reuters.

Market reaction

The news helps to keep the markets positive, despite the latest US dollar rebound. While portraying the mood, the S&P 500 Futures rise 0.20% intraday whereas the US 10-year Treasury yields rise nine basis points (bps) to 2.83% at the latest.

Also read: USD/CNH traces downbeat China data, USD rebound above 6.6800

• USD/CNH bounces off one-week low to print the first daily gains in three.
• China’s official PMIs for May remain pressured despite recent unlock measures.
• Yields, EU headlines favor US dollar to pare recent losses around monthly low.
• Biden-Powell meeting, second-tier US data may entertain pair traders.

USD/CNH remains mildly bid while snapping a two-day downtrend, not to forget bouncing off a weekly low, as buyers cheer downbeat China PMI data and the US dollar rebound.

China’s official activity numbers marked another contraction for May as the headline NBS Manufacturing PMI matched 49.6 forecasts, versus 47.4 prior, while the Non-Manufacturing eased to 47.8, below 50.7 market consensus.

On the other hand, the US Dollar Index (DXY) bounces off a one-month low to regain the 101.50 level, up 0.23% intraday at the latest, amid mixed sentiment and firmer US Treasury yields.

Market sentiment sours as the Eurogroup agrees on fresh sanctions on Russia, as well as comments from Ukrainian President Volodymyr Zelensky. Reuters mentioned that Ukrainian President Zelenskiy said, shortly before the EU sanctions that the situation remained ‘extremely difficult’ in the Donbas region, where Russia has focus of its military effort after failing to capture Ukraine's capital, Kyiv, in March.

Also favoring the US dollar could be statements from Fed Board of Governors member Christopher Waller. The policymaker said that he supports lifting interest rates by another 50 bps at the next several Fed meetings and that the policy rate should be above neutral by the end of the year to reduce demand, reported Reuters. 

It’s worth noting that the downbeat data and an increase in the direct trading between the Chinese yuan and Russian ruble, per Bloomberg, also weighed on the US dollar previously. Also challenging the greenback were receding odds of the Fed’s aggressive rate hikes, especially after the latest Fed Meeting Minutes.

That said, USD/CNH traders may now pay attention to the risk catalysts for fresh impulse, which in turn highlight today’s meeting of US President Joe Biden and Fed Chairman Jerome Powell, as well as headlines from Europe and Russia. Also important to watch are the second-tier activity data from the US.

Technical analysis

Unless breaking the monthly support line, around 6.6600 by the press time, USD/CNH buyers remain hopeful of crossing the 21-DMA level surrounding 6.7250.

• NZD/USD takes offers to renew intraday low, snaps eight-day uptrend.
• China PMIs came in mixed, NZ housing, ANZ numbers also disappoint Kiwi buyers.
• Mixed sentiment, firmer yields underpin US dollar rebound ahead of second-tier US data.

NZD/USD bounces off intraday low but remains pressured around a three-week high as it consolidates the two-week-old upward trajectory during Tuesday’s Asian session. The kiwi pair’s latest pullback could be linked to the mixed economics from China and New Zealand, as well as a rebound in the US dollar.

That said, China’s official activity numbers marked contraction for May as the headline NBS Manufacturing PMI marched 49.6 forecasts, versus 47.4 expected, while the Non-Manufacturing eased to 47.8, below 50.7 market consensus.

On the other hand, New Zealand (NZ) Building Permits slumped -8.5% in April versus 0.4% expected and 6.2% upwardly revised prior. Further, ANZ Activity Outlook and ANZ Business Confidence also tumbled and weighed on the NZD/USD prices. That said, the ANZ Activity Outlook for May dropped to -4.7% versus 5.7% expected and 8.0% prior whereas Business Confidence plummeted to -55.6, from -42 prior and -33.2 market consensus.

In addition to the most downbeat data, the market’s mixed sentiment and the US dollar rebound also weigh on the NZD/USD prices. That said, risk appetite weakens during early Tuesday as bond buyers take a breather, underpinning a pullback in riskier assets like equities and commodities. Also challenging the previous risk-on mood were headlines from Europe, as well as month-end consolidation. While portraying the mood, S&P 500 Futures take a U-turn from a three-week top, flashed the previous day, to retest the 4,155 level. Further, the US 10-year Treasury yields rise 8.5 basis points (bps) to 2.835% by the press time.

Looking forward, NZD/USD traders should pay attention to how full markets react to the recent shift in sentiment, as well as data. Also important will be Chicago Purchasing Managers’ Index and Dallas Fed Manufacturing Business Index for May.

Technical analysis

NZD/USD pulls back from the 50-day EMA, around 0.6565 by the press time, but an upward sloping support line from mid-May, close to 0.6510, tests the pair sellers.

In an editorial story for Wall Street Journal (WSJ), US President Joe Biden outlined a three-part plan to fight inflation.

Key quotes

“I won’t meddle with the Fed, but I will tackle high prices while guiding the economy’s transition to stable and steady growth.”

“Summary of the three-part plan:

1. The Federal Reserve ... I agree with their assessment that fighting inflation is our top economic challenge right now.
2. I led the largest release from global oil reserves in history ... Congress could help right away by passing clean energy tax credits and investments that I have proposed ...We can also reduce the cost of everyday goods by fixing broken supply chains, improving infrastructure, and cracking down on the exorbitant fees that foreign ocean freight companies charge to move products.
3. We need to keep reducing the federal deficit, which will help ease price pressures.”

Ahead of a meeting with Fed Chief Jerome Powell on Tuesday, President Biden said the US central bank has a primary responsibility to control inflation and vowed not to seek "to influence its decisions inappropriately."

Market reaction

The US dollar index jumps towards 102.00, as risk sentiment deteriorates amid mixed Chinese data. The S&P 500 futures are down 0.42% so far.

• AUD/USD takes offers to refresh intraday low, snaps three-day uptrend around the highest levels since May 05.
• China’s official NBS Manufacturing PMI meet consensus, Non-Manufacturing PMI eased in May.
• Risk appetite remains firm but yields underpin USD rebound during full markets.
• Second-tier US data, risk catalysts eyed ahead of Wednesday’s Aussie GDP, Friday’s US NFP.

AUD/USD struggles to rebound from intraday low around 0.7160, snapping a three-day uptrend near the monthly top, as Aussie traders check activity numbers from China and housing data at home during early Tuesday. In doing so, the Aussie pair snaps a three-day run-up while easing from the highest levels since early May on a daily basis.

China’s official activity numbers marked contraction for May as the headline NBS Manufacturing PMI matched 49.6 forecasts, versus 47.4 expected, while the Non-Manufacturing eased to 47.8, below 50.7 market consensus.

Additionally, Australia’s Building Permits for April shrank to -2.4% compared to 2.0% expected growth and -18.5% in previous readings.

Other than the downbeat data from Australia’s biggest customer, as well as softer housing numbers at home, the market’s mixed sentiment and the US dollar rebound also allow the AUD/USD traders to consolidate recent gains.

Market optimism fades during early Tuesday as bond buyers take a breather, underpinning a pullback in riskier assets like equities and commodities. Also challenging the previous risk-on mood were headlines from Europe, as well as month-end consolidation. While portraying the mood, S&P 500 Futures take a U-turn from a three-week top, flashed the previous day, to retest the 4,155 level. Further, the US 10-year Treasury yields rise 8.5 basis points (bps) to 2.835% by the press time.

Given the US recovery and a shift in the market sentiment, not to forget downbeat data from China and Australia, AUD/USD prices are likely to witness further downside. However, risk catalysts and second-tier US activity numbers for May should be watched carefully for clear directions.

Technical analysis

AUD/USD pullback remains elusive until staying beyond a 13-day-old support line, near 0.7135 by the press time. Recovery moves, however, need to refresh the monthly high, around 0.7270 at the latest, to please buyers.

The China PMIs, Manufacturing & Services, have been released as follows:

NBS Manufacturing PMI(May) 

Rises: 49.6 VS 47.4 for April and vs. a 49.6 consensus.

Non-Manufacturing PMI(May) 

Rises: 47.8 VS 41.9 in April and vs. a 50.7 consensus.  

China Official Composite PMI (May)

• 48.4 vs. 42.7 prior. 

Both PMIs were expected to remain in contraction despite the partial easing in lockdown measures, although this will help reduce some negative sentiment in manufacturing.

''Weaker export trends, lacklustre demand for loans, and soft infrastructure spending suggest manufacturing will not move back to expansion quickly,'' analysts at TD Securities argued. ''Services recovery is likely to be even slower amid constrained consumer activity.''

AUD/USD update

AUD/USD is attempting to correct higher but the data is still in negative territory and the bulls are struggling. The pair is trading lower on the day near 0.7170. 

• AUD/USD Price Analysis: The bulls are up against a firmer US dollar in Tokyo

US dollar and AUD/USD charts, H1

Whatever relief the Aussiemight enjoy could be hindered by a stronger US dollar for the forthcoming trade. The DXY price has broken a key hourly resistance and should this continue to hold as support, AUD will struggle to break higher vs the greenback:

About the official Non-Manufacturing & Manufacturing PMIs

These data are released by China Federation of Logistics and Purchasing (CFLP), is based on a survey of about 1,200 companies covering 27 industries including construction, transport and telecommunications. It's the level of a diffusion index based on surveyed purchasing managers in the services industry and if it's above 50.0 indicates industry expansion, below indicates contraction.

The Manufacturing Purchasing Managers Index (PMI) studies business conditions in the Chinese manufacturing sector. Any reading above 50 signals expansion, while a reading under 50 shows contraction. As the Chinese economy has influence on the global economy, this economic indicator would have an impact on the Forex market.

• Global markets struggle to extend previous risk-on mood as traders consolidate recent moves.
• S&P 500 Futures ease from three-week top, US 10-year Treasury yields poke one-week high.
• Fed’s Waller, EU sanctions and month-end adjustments seem to test optimists.

Market optimism fades during early Tuesday as bond buyers take a breather, underpinning a pullback in riskier assets like equities and commodities. Also challenging the previous risk-on mood were headlines from Europe, as well as month-end consolidation.

While portraying the mood, S&P 500 Futures take a U-turn from a three-week top, flashed the previous day, to retest the 4,155 level. Further, the US 10-year Treasury yields rise 8.5 basis points (bps) to 2.835% by the press time.

It’s worth noting that the firmer US bond yields underpin the US Dollar Index's rebound from the monthly low, up 0.33% intraday near 101.70.

That said, the US Memorial Day holiday on Monday restricted the market moves but comments from Fed Board of Governors member Christopher Waller seem to have renewed the US dollar strength. The policymaker said that he supports lifting interest rates by another 50 bps at the next several Fed meetings and that the policy rate should be above neutral by the end of the year to reduce demand, reported Reuters. 

Also likely to have probed the earlier risk-on mood are the Eurogroup sanctions on Russia and comments from Ukrainian President Volodymyr Zelensky. Reuters mentioned that Ukrainian President Zelenskiy said, shortly before the EU sanctions that the situation remained ‘extremely difficult’ in the Donbas region, where Russia has focus of its military effort after failing to capture Ukraine's capital, Kyiv, in March.

On the contrary, China’s gradual unlock and receding bets on the Fed’s aggressive rate hikes, especially after the recently downbeat US inflation and growth numbers, seem to keep the market players hopeful ahead of Friday’s key US Nonfarm Payrolls (NFP) and ISM PMIs for May.

For intraday traders, Chicago Purchasing Managers’ Index and Dallas Fed Manufacturing Business Index for May will be important to watch.

• USD/CAD bulls move in as the US dollar drives higher on the end of month flows.
• US yields shoot higher, but the focus will turn to domestic data and the BoC.

At1.2676, USD/CAD is higher by 0.17% and has travelled from a low of 1.2652 to score a corrective high of 1.2681, reversing some of the greenback's weakness from the start of the week. The US dollar was out of favour on Monday and it was on course for its first monthly drop in five months as investors have scaled back bets that rising US rates will spur further gains.

However, in recent trade, the greenback has firmed on rising US yields and end of month flows. Looking forward, however, the week ahead is full of data that could provide clues on the outlook for global growth as well as US interest rates. At the top of the hour, we get Chinese Purchasing Managers' Index figures, then the focus will turn to the Nonfarm Payrolls data on Friday.

''Employment likely continued to advance firmly in May but at a more moderate pace after consecutive job gains at +428k in March and April,'' analysts at TD Securities said. ''Employment in the household survey likely rebounded after printing negative in April. We expect this to lead to a drop in the unemployment rate to a post-COVID low of 3.5%. We also look for wage growth to remain steady at 0.3% m/m (5.2% YoY).''

Meanwhile, domestically, the Canadian dollar climbed to its highest level in more than five-weeks against the greenback on Monday, as data showed Canada's current account surplus turning positive. Traders are also expecting that there will be an interest rate hike this week by the Bank of Canada.

In the data, Canada's current account surplus was C$5.0 billion in the first quarter, swinging from a revised C$137 million deficit in the fourth quarter. It was the widest surplus since the second quarter of 2008. 

Canadian GDP and BoC eyed

Looking forward to today in North America, traders will be keeping an eye out for the Gross Domestic Product data. The number could help guide expectations for the Bank of Canada policy outlook. Money markets expect the central bank to raise its benchmark rate by half a percentage point yet again on Wednesday.

 ''We look for the Bank to deliver another 50bp hike in June to bring the overnight rate to 1.50%,'' analysts at TD Securities said. ''With little uncertainty around the decision itself, the focus will shift to the policy statement where we expect a hawkish tone. The Bank will note that growth and inflation are both tracking above the April MPR, and repeat that rates will need to rise further.''

Meanwhile, The price of oil, one of Canada's major exports, was higher overnight as China eased COVID-19 restrictions and rose again in early Asian trade on Tuesday after European Union leaders said they had agreed to cut 90% of oil imports from Russia by the end of this year.

In recent trade today, the People’s Bank of China (PBOC) set the yuan (CNY) at 6.6607 vs. the US dollar and the last close of 6.6615.

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.

• EUR/USD has been dragged to near 1.0740 on extremely hawkish comments from Fed Waller.
• Fed Waller advocates a spree of 50 bps interest rate until the Fed finds a substantial cut in CPI.
• The eurozone HICP is expected to land sharply higher than the estimates.

The EUR/USD pair has witnessed an intense vertical fall in the Asian session after the US dollar index (DXY) jumped higher in its opening trade. The major has been dumped by the market participants and a low of 1.0741 has been recorded from an intraday high of 1.0780.

The US dollar index (DXY) has moved higher in its early trade after the hawkish comments from Federal Reserve (Fed) Governor Christopher Waller. Fed policymaker in his speech at Institute for Monetary and Financial Stability has advocated a spree of 50 basis points (bps) interest rate announcements by the Fed until it finds a substantial reduction in the inflation rate. No doubt, mounting price pressures are advocating for some quick rate hike announcements as an inflation figure of more than 8% is a hard nut to crack.

Meanwhile, rising inflationary pressures in the eurozone are imposing intense pressure on the policymakers of the European Central Bank (ECB). On Monday, the annual Consumer Price Index (CPI) in Spain jumped to 8.7% vs. 8.03% as expected. While the inflation figure in Germany has shot to 7.9%, significantly higher than the former figure of 7.4%. More than expected CPI figures in Germany and Spain have removed the obscurity over the eurozone inflation. As per the market estimates, the Europe HICP is seen at 7.7%. The CPI figures from Germany and Spain are indicating that investors should brace for a significantly higher figure.

• USD/CHF takes the bids to refresh intraday high, extends Friday’s rebound from monthly low.
• 50-DMA, 61.8% Fibonacci retracement level add to the downside filters, 10-DMA guards recovery moves.
• Swiss GDP, full markets eyed for fresh impulse, recovery remains elusive until staying below 0.9750.

USD/CHF pierces the 0.9600 threshold as it stretches the recovery from a one-month low following a bullish candlestick formation. That said, the Swiss currency (CHF) pair refreshed its intraday high around 0.9610 while posting the biggest daily gains in 13 days by the press time.

Not only Monday’s Doji candlestick but the 50-DMA level surrounding 0.9580 and a rebound in the RSI (14) also underpins the USD/CHF recovery.

However, 50% Fibonacci retracement of the March-May upside and the 10-DMA, respectively near 0.9630 and 0.9660, limit the short-term rebound of the USD/CHF pair.

Also acting as an upside hurdle is the area surrounding 0.9650 comprising the multiple levels marked since early May.

Meanwhile, pullback moves may initially aim for the 50-DMA level near 0.9580 before trying to reject the Doji-impressed bullish bias, by renewing the monthly low under 0.9545.

In doing so, the 61.8% Fibonacci retracement level of 0.9525 and the 0.9500 round figure may gain the market’s attention ahead of the 100-DMA, at 0.9410 by the press time.

Also read: USD/CHF rebounds from 0.9560 ahead of Swiss GDP, US NFP in focus

USD/CHF: Daily chart

Trend: Bullish

• AUD/USD bulls facing pressure as the US dollar firms. 
• The Tokyo flows are moving into a cheaper US dollar. 

As per the pre-open analysis at the start of this week, AUD/USD Price Analysis: Bulls move into a critical area on H4 charts, eye a run to the 0.7250/60s the bulls have been trying to stay with the course as illustrated, but Tokyo flows are buying the greenback:

DXY H1 chart

AUD/USD pre-open and NY analysis

It was explained that the price had been respecting the support structures ''in its pursuit of the price imbalance between recent highs and the May 4 highs at 0.7266. The price would be expected to mitigate this area of imbalance with relative ease.''

New York trade:

AUD/USD live market 

Progress was being made from support but flows in Tokyo are bucking the trend.

From a lower time frame perspective, the hourly chart, the support is coming under pressure at the time of writing: 

If the support fails to hold, the upside bias, for the near term will be jeopardised. 

• Gold takes offers to renew daily low as DXY bounces off monthly low.
• US dollar tracks recovery in yields ahead of Biden-Powell meet.
• Market sentiment remains firmer amid easing bets on Fed’s aggressive rate hikes, China’s unlock.
• Gold Price Forecast: Where can it go from here?

Gold Price (XAU/USD) extends the week-start pullback from the monthly resistance line during Tuesday’s mid-Asian session. In doing so, the precious metal drops to $1,850, refreshing intraday low, by the press time.

The commodity’s latest weakness could be linked to the US dollar’s rebound from a one-month low as full markets return to the table. That said, the US Dollar Index (DXY) snaps a three-day downtrend around a five-week low, picking up bids to 101.56 at the latest, as bond yields pare recent losses.

The US 10-year Treasury yields begin the week’s trading with nearly six basis points (bps) of an upside by crossing the 2.8% hurdle. Even so, “Bonds in almost every corner of the $63 trillion global debt market are bouncing back as investors begin to see value once again in fixed-income asset,” said Bloomberg. The reason for the latest bond selling could be linked to the market’s consolidation during the month-end moves.

It should be noted that the market sentiment remains firmer as S&P 500 Futures rise 0.50% intraday at the latest, which in turn probes the US dollar rebound. However, traders need validation of the latest risk-on mood and hence the recent fall in gold prices seems illusionary.

Looking forward, headlines from the Eurogroup meeting, Chicago Purchasing Managers’ Index and Dallas Fed Manufacturing Business Index for May could direct gold traders.

Technical analysis

Gold prices extend pullback from the monthly resistance line, around $1,861 by the press time, as sellers aim to retest the 200-DMA support near $1,840.

Given the steady RSI and bullish MACD signals, the gold price may print another rebound from the stated key moving average, failing to do so could direct the XAU/USD towards the $1,800 threshold.

However, the yearly horizontal support zone near $1,787-85 appears a tough nut to crack for gold sellers afterward.

On the contrary, buyers need to cross the monthly resistance line near $1,861 on a daily closing basis to retake control.

Even so, 61.8% Fibonacci retracement (Fibo.) of December 2021 to March 2022 upside, near $1,875, could test the bulls.

Overall, gold prices are likely to witness further selling but the downside appears limited.

Gold: Daily chart

Trend: Further weakness expected