CFD Markets News and Forecasts — 19-05-2023

• WTI bulls move in for the kill from support.
• The $72s are on the bulls radar.

WTI is trying to correct but remains down on the day as the black gold consolidates into the weekend at around $71.85.

From a point of view from analysts at TD Securities, ´´the positioning set-up in energy markets remains extremely supportive of the medium-term outlook, given that money manager participation in crude markets is at least at a decade low.´´

The analysts argued that there are substantial capital inflows moving into the sector as fundamentals begin to tighten in the second half of this year, particularly given that demand data continues to beat expectations.

´´Over the near-term, lower liquidity continues to whipsaw trend followers, with poor sentiment keeping a lid on prices while physical markets continue to work through the inventory overhang.´´

WTI technical analysis

The bullish correction is firm and pressures potential resistance:ñ

Analysts at Rabobank see the EUR/USD pair moving to the downside over the next months. They have a six-month forecast for EUR/USD at 1.06. 

Key quotes:

“Despite its safe haven characteristics, the USD failed to gain traction last month on the US regional banking woes. This was a result of the market perceiving this to be a specific US event with little contagion risk to Europe or elsewhere. That said, on the back of sticky inflation pressures it is our view that Fed rates will be higher for longer than the market currently expects.”

“We also see risk of higher for longer rates from a number of other G10 central banks. This can only serve to enhance the risk of other financial related crisis in the coming months, which could trigger further safe haven USD demand. We retain our 6-month forecast of EUR/USD1.06”
 

Here is what you need to know for next week: 

The US Dollar Index  (DXY) rose for the second consecutive week despite improving market sentiment. The debt ceiling drama is set to continue as the deadline approaches, and although there are hopes for a deal, it has not been reached yet. The banking sector remains in the spotlight, particularly after Treasury Secretary Yellen's comments on Friday. Next week, the market will get a glimpse of the performance of the global economy with the preliminary May PMI that will likely weigh on sentiment. 

Treasury yields rose sharply during the week, reaching monthly highs. Market participants pared back their bets on Federal Reserve (Fed) rate cuts. On Wednesday, the Fed will release the minutes of its latest Federal Open Market Committee (FOMC) meeting. The key report in the US will be on Friday with the Core Personal Consumption Expenditures Price Index. This inflation indicator will be crucial ahead of the next Fed meeting and critical for markets.

EUR/USD closed the week hovering around the 20-week Simple Moving Average (SMA) near 1.0800. The short-term bias is to the downside, and the price dropped below key daily SMAs. Hawkish talk from European Central Bank (ECB) officials failed to support the Euro.

Analysts at Rabobaknk wrote: 

GBP/USD ended the week hovering around 1.2450, the same level it had a week ago. The pair continues to move with a bearish bias. Next week, the UK will report on inflation with the annual rate of the Consumer Price Index (CPI) expected to rise from 1.0% to 1.4%, adding more pressure to the Bank of England.

The Japanese yen was among the biggest losers despite Friday's recovery. Rising government bond yields in the US and Europe, and improving market sentiment boosted USD/JPY above 138.00, a level not seen since November 2022. Inflation in Japan rebounded unexpectedly in April, as measured by the National CPI. More inflation data is due with the Tokyo CPI on Friday.

AUD/USD finished the week flat after testing 0.6600 following Reserve Bank of Australia (RBA) minutes and employment numbers. The Aussie lagged, with AUD/NZD posting the lowest close since December.

NZD/USD erased last week's losses and climbed towards 0.6300, rising back above the 20-week SMA. The kiwi was among the top performers of the week. On Wednesday, the Reserve Bank of New Zealand (RBNZ) will announce its decision on monetary policy, with a 25 basis points rate hike expected.

TD Securities analysts commented: 

USD/CAD continues to move sideways between 1.33 and 1.36 and is about to post another weekly close near the 20-week SMA at 1.3500. The Loonie outperformed on the back of higher-than-expected Canadian inflation data. Although the market does not expect a rate hike from the Bank of Canada, rate cuts by year-end have been priced out.

Gold dropped significantly but ended far from the lows, offering hope for the bulls. XAU/USD found support at $1,950 and rebounded toward $1,980 after Powell's comments on Friday. Silver posted modest weekly losses, finding support at the 20-week SMA.

• USD/CAD corrects into key support and bulls move in.
• USD/CAD bulls eye a bullish continuation towards 1.3550.

As per the last analysis whereby we had, USD/CAD bulls moving in to test above 1.3500, the market has moved in on the area and bulls remain in control as the following illustrates:

USD/CAD prior analysis

The bulls have moved in at a 50% mean reversion mark with 1.3600 eyed. 

USD/CAD update

The W-formation is a reversion pattern whereby the current rally will be monitored for deceleration on the lower time frames for a bearish structure. However, the bulls remain front side of the bullish trendline:

USD/CAD H4 chart

In being front side of the bullish trend, we could draw a thesis that there can be a bullish continuation towards 1.3550.

• USD/JPY trades with losses, ending its five-day gain amid a falling US Dollar and risk-averse mood.
• A daily close below 138.17 could drive the pair further down, with 138.00 as the primary support.
• USD/JPY needs to retake the 138.00 level to regain upward momentum, with resistances at 138.17 and 139.00.

USD/JPY forms a bearish-engulfing candlestick pattern, snapping five days of gains, down almost 0.60%, after hitting a weekly high of 138.74. Risk-off and a weaker US Dollar (USD), weighed on the USD/JPY pair. At the time of writing, the USD/JPY is trading at 137.90, below its opening price.

USD/JPY Price Analysis: Technical outlook

The USD/JPY remains upward biased, but a bearish candlestick formation could open the door for further losses. The Relative Strength Index (RSI) indicator remains in bullish territory but aims lower, which could put a lid on the USD/JPY fall. However, if USD/JPY achieves a daily close below the December 15 daily low of 138.17, that would exert downward pressure on the pair.

In that outcome, the USD/JPY first support would be 138.00. A breach of the latter will expose the May 18 daily low of 137.28, followed by the May 17 swing low at 136.30.

The USD/JPY must claim the 138.00 figure for a bullish resumption. Once done, the next resistance would be the December 15 high of 138.17, followed by the 139.00 figure. A rally above the latter will expose the November 30 high at 139.89, before challenging the 140.00 figure.

USD/JPY Price Action – Daily chart

• Gold climbs 1.12%, trading at $1979.90, as the US Dollar’s strength subsides, investors eyeing the $1980 resistance level.
• Remarks from Fed Chair Jerome Powell and US Treasury Secretary Janet Yellen shook the market, resulting in a significant uptick in XAU/USD.
• XAU/USD is still on track for a 1.90% weekly loss after robust US Retail Sales, Industrial Production, and falling unemployment claim hint at possible Fed action.

Gold price climbed more than 1% on Friday, trimming some losses sustained during the week as the Fed’s hawkish rhetoric bolstered the greenback, which posted gains of 0.37%, per the US Dollar Index (DXY). At the time of writing, XAU/USD is trading at $1979.90, up daily 1.12%.

XAU/USD soars over 1% as Treasury Secretary’s remarks spark risk-off Impulse, US Dollar slips

XAU/USD bottomed at around $1954.14 as the Federal Reserve (Fed) Chair Jerome Powell delivered remarks at a conference on Friday. Fed Chair Jerome Powell indicated that inflation currently exceeds the target level and stresses the Fed’s unwavering commitment to guide inflation back towards the 2% target, asserting that “failure would cause greater harm.”. Furthermore, Powell noted the strength of the banking system and suggested that tighter banking credit conditions may prevent a potential rise in rates.

At the same time, a news headline that said that CNN reported that US Treasury Secretary Janet Yellen told bank CEOs on Thursday that more merges may be necessary after a series of bank failures spurred a risk=off impulse; hence, XAU/USD soared sharply.

Discussions about the US debt ceiling paused as the US House of Representatives leader Kevin McCarthy said. In contrast, the White House commented that a deal remains possible.

In the meantime, the US Dollar Index (DXY), a gauge of the buck’s performance against a basket of six peers, slides 0.30%, down at 103.017, what appears to be traders booking profits ahead of the weekend.

Nevertheless, raising US Treasury bond yields cut short the XAU/USD rally. The US 10-year benchmark note rate yields two and a half basis points at 3.673%.

Even though XAU/USD is cutting some of its weekly losses, it is on its course to lose 1.90% in the week after solid US Retail Sales, Industrial Production, and falling unemployment claims warrant further action by the Fed.

XAU/USD Price Analysis: Technical outlook

After three days of consecutive bearish candlesticks, the XAU/USD is forming a bullish engulfing candle pattern and is about to reclaim the 50-day Exponential Moving Average (EMA) at $1977.38. Given the backdrop, the XAU/USD could resume its uptrend, but the Relative Strength Index (RSI) indicator at bearish territory can put a lid on XAU/USD’s gains.

The XAU/USD must achieve a daily close above $1980 for a bullish resumption. Upside risks lie at the 20-day EMA at $1999, followed by the May 16 high of $2018.28. On the other hand, the XAU/USD first support would be the May 18 swing low of $1951.87, followed by the 100-day EMA at $1931.

• GBP/USD bulls eye a continuation toward 1.2500.
• Meanwhile, a correction could be on the cards.

As per the prior analysis, GBP/USD Price Analysis: Bulls are lurking in demand area, the price has moved into key resistance and this leaves the outlook for next week´s initial balance weighted to the downside as the following illustrates:

GBP/USD prior analysis

GBP/USD live updates

So long as the trend line support holds up, with the break of structure to the upside, the bulls have eyes on the 1.2500 area.

• EUR/USD bounces back from weekly lows, trading at 1.0818 following Jerome Powell’s comments about a potential pause in the Fed’s tightening cycle.
• Progress in US debt ceiling talks sparks optimism, with House Speaker McCarthy suggesting a deal might be reached over the weekend.
• In the Eurozone, the Producer Price Index rises month-on-month, while ECB officials express concern over service inflation, advocating for higher rates.

EUR/USD rebounds from its weekly lows after piercing the 100-day EMA, reclaiming the 1.0800 figure following US Federal Reserve Jerome Powell’s remarks, in which he opened the door for a pause on the Federal Reserve tightening cycle. In addition, a risk-on impulse dented an upbeat market sentiment, weighed in the US Dollar. At the time of writing, the EUR/USD is trading at 1.0818 after hitting a low of 1.0759.

Investor optimism grows as US debt ceiling discussions progress, European Central Bank eyes inflation concerns

US equities are registering solid gains. Fed Chair Jerome Powell indicated that inflation currently exceeds the target level and stresses the Fed’s unwavering commitment to guide inflation back towards the 2% target, asserting that “failure would cause greater harm.”. Furthermore, Powell noted the strength of the banking system and suggested that tighter banking credit conditions may prevent a potential rise in rates.

A sparse US economic calendar left investors reflecting on recent data. Strong Retail Sales and Industrial Production sparked demand for the greenback. This, coupled with declining unemployment claims, has prompted investors to reconsider the Federal Reserve’s (Fed) anticipated three rate cuts by the end of the year. As a result, the probability of a rate hike in June has risen from 15% to 40.4% within a week.

Regarding the US debt ceiling discussions, US House Speaker McCarthy and Senate Majority Leader Schumer are preparing to schedule votes in the upcoming days. McCarthy voiced optimism about the current discussions potentially yielding a deal by this weekend, stating, “I can see now where a deal can come together.”

On the Eurozone front, Germany’s Producer Price Index (PPI) jumped 0.3% MoM, above the prior month’s reading of -1.4%. Annually based, the PPI rose by 4.1%, decelerating sharply from March’s 6.7%. The data support European Central Bank (ECB) speakers, which have been crossing newswires.

Earlier in the day, statements from Fed officials made headlines. Fed Williams mentioned that the natural interest rate remains low despite the pandemic. Conversely, Michelle Bowman chose not to provide any comments regarding monetary policy.

On the European Central Bank front, Vice President Luis de Guindos noted that “inflation in services is the most worrying for the ECB,” warranting elevated rates. On Friday, ECB’s President Christine Lagarde added that the central bank must keep “sustainable higher” rates to combat inflation.

EUR/USD Technical Analysis

Federal Reserve Chairman Jerome Powell said on Friday that the recent banking crisis, which led to tighter credit standards, has eased the pressure to hike interest rates. "Our policy rate may not need to rise as much as it would have otherwise," Powell added.

Regarding market expectations, Powell expressed that markets are pricing in a different rate path than the one projected by the Fed. "The risks of doing too much versus doing too little are becoming more balanced," said Powell.

Market Reaction:

The US dollar tumbled during Powell's remarks as market participants eased rate hike expectations for the June FOMC meeting and increased bets of rate cuts by year-end. The US Dollar Index tumbled to 103.00, EUR/USD jumped to 1.0820 and USD/JPY plummeted to 138.60 to 137.40.

• NZD/USD recovered to a weekly high of 0.6290, buoyed by a favorable climate in US debt ceiling discussions and a weakening US Dollar.
• Federal Reserve Chairman Jerome Powell’s statements about returning inflation to the 2% objective hint at a possibly delayed rate hike, affecting market dynamics.
• NZ Finance Minister’s remarks dampen inflation concerns ahead of the upcoming RBNZ monetary policy meeting, expected to result in a 25 bps rate hike.

NZD/USD recovers some ground and hits a new weekly high of 0.6290 amidst an upbeat market sentiment sponsored by improvement in US debt ceiling talks and a softer US Dollar (USD). That helped the New Zealand Dollar (NZD) to offset some of its weekly losses, reclaiming its recovery from the 200-day EMA. At the time of writing, the NZD/USD is trading at 0.6277.

Federal Reserve rate hike possibilities influence market mood as NZD recovers ground

Wall Street portrays solid gains, except for the Nasdaq 100. A light US economic calendar left traders adrift to recent data revealed by both parties included. On one side, solid Retail Sales and Industrial Production in the United States (US) increased the appetite for the greenback. That, alongside falling unemployment claims, pressured investors to scale back three rate cuts by the Federal Reserve (Fed) towards the year’s end; instead, odds for a rate hike in June rose to 40.4%, from a 15% a week ago.

Fed speakers crossed news wires earlier in the day, with Fed Williams saying that the natural rate of interest is still low despite the pandemic, while Michelle Bowman omitted to comment regards to monetary policy.

As of writing, the Fed Chair Jerome Powell is crossing newswires. He said that inflation is far above the objective and emphasized the Fed is strongly committed to returning inflation to the 2% objective, adding “failure would cause greater harm.” Powell added that the banking system is strong, and rates may not rise as otherwise due to tightening banking credit conditions.

Regarding the US debt ceiling discussions, US House Speaker McCarthy and Senate Majority Leader Schumer are reportedly making plans to hold votes on it in the coming days, with McCarthy saying that current talks may yield a deal as soon as this weekend, adding, “I can see now where a deal can come together.”

Aside from this, on the New Zealand (NZ) front, the NZ Finance Minister, Robertsson, denied that the budget would cause a jump in inflation. He said, “It might sound like a lot of money, but across the government’s budget, it isn’t sufficient to argue that interest rates need to rise.” That comes ahead of the Reserve Bank of New Zealand’s (RBNZ) monetary policy meeting next week, which is widely expected to be a 25 bps rate hike to 5.50%, with odds for a larger increase at 35%.

NZD/USD Technical Levels

Treasury Secretary Janet Yellen told bank CEOs that more bank mergers may be necessary, CNN reported. The comments triggered risk aversion and weighed on the US Dollar. 

“Sources tell CNN that bank mergers were discussed during Yellen’s meeting with bank CEOs”, the network reported. 

Market reaction

The US Dollar extended losses across the board, with the DXY falling 0.40%. USD/JPY lost more than 50 pips, falling to 137.50 and XAU/USD jumped from $1,960 to $1,975. 
 

Federal Reserve Chairman Jerome Powell said on Friday that inflation is far above the objective and that high inflation poses significant hardships.

Powell emphasized the central bank's strong commitment to returning inflation to its 2% goal during the Thomas Laubach Research Conference, adding that "price stability is the foundation of a strong economy."

Market reaction

So far, Powell’s remarks have no impact on markets. The US Dollar is pulling back after rising sharply on Thursday. The DXY is hovering around 103.40, down 0.10% for the day.

Follow Powell speech Live

Gold remains 8.2% higher since the start of this year, and economists at UBS think it is likely to break its all-time high later this year with multiple mid- to longer-term drivers.

Central bank demand should remain robust

“Central banks are on track to buy around 700 metric tons of Gold this year, much higher than the average since 2010 of below 500 metric tons. We think this trend of central bank buying is likely to continue amid heightened geopolitical risks and elevated inflation.”

Broad US Dollar weakness supports Gold

“The direction of a weakening USD is clear, we believe the reduction in US yield carry will continue to weigh on the greenback. Gold has historically performed well when the US Dollar softens due to their strong negative correlation, and we see another round of USD weakness over the next 6-12 months.”

Rising US recession risks may prompt safe-haven flows

“Recent data coming out of the US showed the country’s growth is slowing. Tighter credit conditions, evidenced by the Fed’s latest Senior Loan Officer Opinion Survey, are also likely to weigh on growth and corporate profits. Based on data since 1980, Gold’s relative performance versus the S&P 500 improved significantly during US recessions.”

ING’s year-end target for USD/JPY now sits at 120.

137/140 should be best levels for a while

“USD/JPY continues to frustrate dollar bears such as ourselves. Neither has the risk environment deteriorated enough nor has US disinflation been strong enough to send USD/JPY sharply lower. However, the US credit crunch makes a recession there more likely, and we have a conviction call that USD/JPY will be trading a lot lower by the end of the year.”

“137/140 may be the best levels for the next two to three years.”

Source: Refinitiv, Macrobond, ING

• Prices of the barrel of WTI prints new weekly highs.
• Weak dollar, generalized optimism boost the commodity.
• Baker Hughes will report on US oil rig count later on Friday.

The broad-based optimism in the risk complex lends extra wings to prices of the WTI to the area of weekly peaks north of the $73.00 mark per barrel.

WTI boosted by debt ceiling hopes

In fact, WTI briefly surpassed the $73.00 barrier following increasing hopes the US policy makers could strike a deal on the debt ceiling issue in the next few days, while the renewed weakness surrounding the US dollar also collaborated with the upside bias in the commodity.

That said, prices of the American benchmark for the sweet light crude oil are en route to close the first week with gains after four consecutive pullbacks.

Later in the NA session, Baker Hughes will report on the US usual drilling activity during the week ended on May 19.

WTI significant levels

At the moment the barrel of WTI is up 0.61% at $72.35 and faces the next resistance at $73.83 (weekly high May 10) seconded by $76.92 (high April 28) and finally $79.14 (weekly high April 24). On the other hand, the breach of $63.97 (monthly low May 3) would open the door to $64.41 (2023 low March 20) and then $61.76 (monthly low August 23 2021).

Economists at UBS expect EUR/USD to advance nicely throughout the rest of the year and reach 1.16 by end-2023.

ECB faces more immediate pressure on inflation than the Fed

“European Central Bank policymaker Peter Kazimir last week predicted that the central bank may need to keep raising rates for longer than anticipated due in part to recent readings on core inflation, wage pressures, and profit margins.”

“In our view, the ECB faces more immediate pressure on inflation than the Fed. While our base case is for the Fed to pause at its June meeting, we see ECB hikes as likely in both June and July.”

“We see EUR/USD moving higher this year, targeting 1.16 by year-end.”

• AUD/USD catches aggressive bids on Friday and draws support from a modest USD weakness.
• The risk-on impulse undermines the safe-haven buck and benefits the risk-sensitive Aussie.
• A further rise in the US bond yields limits the USD losses ahead of Fed Chair Powell’s speech.

The AUD/USD pair gains strong positive traction on the last day of the week and moves away from a nearly three-week low, around the 0.6600 round-figure mark touched on Thursday. The pair stick to its intraday gains through the early North American session and is currently placed around the 0.6655-0.6660 region, just a few pips below the daily high.

A positive risk tone prompts some profit-taking around the safe-haven US Dollar (USD), especially after the recent bullish run to a nearly two-month high, and turns out to be a key factor benefitting the risk-sensitive Aussie. The latest optimism over the potential of lifting the US debt ceiling boosts investors' confidence and remains supportive of a further rise in the equity markets. The USD downtick could further be attributed to some repositioning trade ahead of Federal Reserve (Fed) Chair Jerome Powell's speech, due later during the US session.

The recent hawkish remarks by several Fed officials fueled speculations that the US central bank will keep interest rates higher for longer. Moreover, the current market pricing indicates a smaller chance of another 25 bps lift-off at the next FOMC policy meeting in June. Hence, Powell's comments will be closely scrutinized for clues about the future rate-hike path, which will play a key role in influencing the near-term USD price dynamics and help traders to determine the next leg of a directional move for the AUD/USD pair.

In the meantime, worrying signs about global economic growth, particularly in China, could act as a headwind for the Australian Dollar. In fact, data released from China this week showed that the world's second-largest economy underperformed in April. Apart from this, bets that the Reserve Bank of Australia (RBA) will refrain from hiking in June, bolstered by Thursday's dismal domestic employment details, could further contribute to capping the upside for the AUD/USD pair and warrants some caution for aggressive bullish traders.

Technical levels to watch

• EUR/USD attempts a mild bounce after testing lows around 1.0760.
• There is a temporary hurdle at the 55-day SMA near 1.0870.

EUR/USD rebounds from new 2-month lows in the 1.0760/55 band and manages to briefly surpass the 1.0800 hurdle at the end of the week.

While initially supported by the 1.0760 region, occasional bullish attempts could see the pair confront the temporary hurdle at the 55-day SMA at 1.0865 ahead of the more significant 1.1000 mark.

Extra losses are not ruled out in the current context, although a sustained retracement to the March bottom of 1.0516 (March 15) is not favoured for the time being.

Looking at the longer run, the constructive view remains unchanged while above the 200-day SMA, today at 1.0465.

EUR/USD daily chart

What is the outlook for the Dollar/Euro exchange rate? Economists at Natixis expect the shared currency to weaken in the medium term.

A continued depreciation of the Euro against the Dollar is likely

“Once the period when the Dollar/Euro exchange rate is dominated by interest rate movements has come to an end, we believe that a period of steady depreciation of the Euro against the Dollar will start. This is because, when looking at non-resident capital flows to the US and the Eurozone, it is clear that the US is more attractive in terms of sovereign and corporate or bank bonds and direct investment.”

“The greater attractiveness of the United States for non-residents should logically lead to a trend depreciation of the Euro against the Dollar in the medium term.”

• GBP/USD stages a goodish recovery from over a three-week low amid a modest USD pullback.
• Hawkish Fed expectations and the US debt ceiling optimism should help limit the USD losses.
• Traders also seem reluctant to place fresh directional bets ahead of Fed Chair Powell’s speech.

The GBP/USD pair shows some resilience below the 50-day Simple Moving Average (SMA) on Friday and stages a solid bounce from sub-1.2400 levels, or over a three-week low touched the previous day. The pair, however, retreats a few pips from the daily high touched during the early North American session and currently trades around the 1.2435-1.2445 region, up nearly 0.25% for the day.

The risk-on impulse - as depicted by a generally positive tone around the equity markets - prompts some profit-taking around the safe-haven US Dollar (USD), especially after the recent runup to a nearly two-month high. This, in turn, is seen as a key factor lending support to the GBP/USD pair, though the upside potential seems limited. Firming expectations that the Federal Reserve (Fed) will keep interest rates higher for longer, along with the latest optimism over the US debt ceiling deal, continue to push the US Treasury bond yields higher and favour the USD bulls.

In fact, a slew of Fed officials this week expressed concerns that inflation in the United States (US) was not cooling fast enough and forced investors to scale back their bets for interest rate cuts later this year. In fact, the current market pricing indicates a small chance of another 25 bps lift-off at the next FOMC policy meeting in June. Furthermore, top US congressional Republican Kevin McCarthy said on Thursday that negotiations are at a better place than last week and expected a bill to raise the government's $31.4 trillion debt ceiling on the House floor next week.

The aforementioned fundamental backdrop might hold back traders from placing aggressive bearish bets around the Greenback. Apart from this, expectations that fewer rate increases by the Bank of England (BoE) will be needed in the coming months to bring down inflation further contributes to capping gains for the GBP/USD pair. Investors also prefer to wait on the sidelines ahead of Fed Chair Jerome Powell's speech, which might provide clues about future rate hikes. This will drive the near-term USD price dynamics and provide a fresh directional impetus to the major.

Technical levels to watch

• DXY’s strong upside meets resistance near 103.60 on Friday.
• The key 200-day SMA emerges as the next hurdle near 105.80.

The solid weekly performance of DXY seems to have encountered a firm obstacle around multi-week highs near 103.60 so far on Friday.

Further upside seems like the most probable scenario for the index so far. Against that, a convincing move past 103.60 could pave the way for a potential challenge of the key 200-day SMA, today at 105.78 just ahead of the 2023 peak at 105.88 (March 8).

Looking at the broader picture, while below the 200-day SMA the outlook for the index is expected to remain negative.

DXY daily chart

The Mexican Peso is now pulling away as the best-performing EM FX currency of 2023. Economists at ING expect USD/MXN to test the low of 2017 at 17.45.

Peso stands to be the prime beneficiary of 'nearshoring' trends

“Remittances back to Mexico remain high at $5bn per month, but this year’s hot topic will remain ‘nearshoring’ and the promise of large FDI inflows into Mexico.”

“Pressure is building for a USD/MXN to break below the 17.45 low of 2017 – and only long MXN positioning stands in the way.”

Economist at UOB Group Lee Sue Ann reviews the latest labour market report in Australia.

Key Takeaways

“Australia’s seasonally adjusted unemployment rate rose to 3.7% in Apr, from an almost 50-year low of 3.5% in Mar. Seasonally adjusted employment fell by around 4,300 people, compared to an estimate for a 25,000 gain, and the number of unemployed increased by 18,000 people. This is the first time this year that unemployment climbed.”

“Meanwhile, seasonally adjusted wage price index rose 0.8% in 1Q23, similar to 4Q22. The latest reading was a tad below expectations for 0.9% q/q growth. Annual wage growth came in at 3.7% for 1Q23, up from a revised 3.4% y/y gain in 4Q22 (3.3% y/y previously).”

“Overall, year-on-year pay gains were within the range consistent with the Reserve Bank of Australia (RBA)’s inflation target. This alongside today’s employment data, reinforce our view of the RBA holding its cash rate at 3.85%. There is, however, some risk to our view, and that the RBA may raise the cash rate one more time this year.”

For the time being, USD/BRL should trade around current levels. Longer term, however, economists at Commerzbank see BRL depreciation risks returning.

Attractive real interest rate supports the Real

“The USD/BRL exchange rate has already reached our target of 4.95 and should remain around this level for the time being, supported by the attractive real interest rate.”

“In the longer term, we are concerned that the government could increase its influence on monetary policy which could lead to a renewed weakening of the Real.”

Source: Commerzbank Research

• USD/CAD meets with a fresh supply on Friday and is weighed down by a combination of factors.
• Rising Crude Oil prices underpin the Loonie and exert some pressure amid a modest USD downtick.
• The pair reacts little to the Canadian macro data as the focus remains on Fed Chair Powell’s speech.

The USD/CAD pair continues with its struggle to make it through the 100-day Simple Moving Average (SMA) and attracts fresh selling on the last day of the week. Spot prices trade near the lower end of the daily range, around the 1.3480-1.3475 area, down just over 0.15% during the early North American session and move little following the release of the Canadian macro data.

Statistics Canada reported that Retail Sales declined by 1.4% MoM in March, matching consensus estimates and well below the 0.2% decline recorded in the previous month. Retail Sales ex-Autos, however, dropped less than expected, by 0.4% in the same previous as compared to the 0.7% fall in February. This, along with a goodish pickup in Crude Oil prices, continues to underpin the commodity-linked Loonie and exerts some downward pressure on the USD/CAD pair amid a modest US Dollar (USD) weakness.

In fact, the USD Index (DXY), which tracks the Greenback against a basket of currencies, pulls back from a nearly two-month high touched the previous day and is pressured by a positive risk tone. The latest optimism over the potential of lifting the US debt ceiling helps ease fears about an unprecedented default by the world's largest economy and boosts investors' confidence. This is evident from a further rise in the equity markets, which tends to drive flows away from the perceived safe-haven assets, including the buck.

That said, the recent hawkish comments by several Federal Reserve (Fed) officials, which forced investors to scale back their bets for interest rate cuts later this year, should limit the downside for the USD. In fact, the current market pricing indicates a small chance of another 25 bps lift-off at the next FOMC meeting in June. Hence, market participants will take cues from Fed Chair Jerome Powell's speech for fresh clues about the future rate-hike path, which should drive the USD and provide a fresh impetus to the USD/CAD pair.

Technical levels to watch

• Retail Sales in Canada fell in line with expectations.
• Preliminary data points to a 0.2% increase in April.
• USD/CAD stays in a minor range around 1.3480.

The data published by Statistics Canada showed on Friday that Retail Sales declined in March by 1.4% on a monthly basis following February's 0.2% decrease. This reading came as expected. 

Further details of the publication revealed that Retail Sales ex-Autos fell by 0.3% in the same period, less than the 0.8% decline expected. 

Key takeaways from the report:

Market reaction

This report doesn't seem to be having an impact on the Canadian Dollar's valuation. As of writing, USD/CAD continued to trade around 1.3475, down 20 pips for the day. 
 

• The weekly rally in EUR/JPY remains unabated so far.
• Further north of 150.00 emerges the YTD high at 151.61.

EUR/JPY maintains the bullish bias for yet another session and approaches the 150.00 barrier at the end of the week.

If the cross clears the key round level at 150.00, it could then embark on a probable move to the 2023 top at 151.61 (May 2).

So far, further upside looks favoured while the cross trades above the 200-day SMA, today at 143.29.

EUR/JPY daily chart

• Oil price rises amid optimism a deal on the debt ceiling will be reached, averting a financial crisis and securing future demand. 
• The US Dollar dips as safe-haven demand dries up on easing debt-ceiling worries, Oil is mainly priced in USD. 
• Downside for the US Dollar is likely to be contained amidst heightened inflation expectations. 
• Oil price is in a technical downtrend, favoring shorts, although there are signs a bottom may be forming.  

Oil price trades over a percentage point higher on Friday as a mixture of optimism about the debt ceiling and the start of the US driving season suggests future demand will remain resilient. The US Dollar Index (DXY) is down a quarter of a percentage point at the time of writing, lending a backdraught to Crude prices, which are predominantly priced and traded in US Dollars.

WTI Crude Oil is currently trading in the mid $72s and Brent Crude Oil in the mid $76s. 

Oil news and market movers 

• US President Joe Biden gave his clearest assurance yet that he would do whatever it takes to secure a deal to raise the US debt ceiling, averting a financial crisis and securing future demand for Oil. "We're going to come together because there's no alternative," he said before talks with House Speaker Kevin Mccarthy on Thursday. 
• The start of the US driving season is around the corner, with demand for gasoline expected to pick up for that.  
• Data from the Joint Organizations Data Initiative (JODI) showed a surge in global demand for Oil in March on Thursday, further supporting Oil prices.
• The JODI report showed a surge in global demand of 3 million barrels per day (bpd) in March. 
• The US Dollar comes under pressure as debt-ceiling fears ease, reducing safe-haven demand. 
• The Greenback’s downside is curtailed, however, by expectations that continued inhibited borrowing and growth will lead to higher inflation and higher interest rates which will, if they materialize, support the USD. 

Crude Oil Technical Analysis: Downtrend showing signs of ending

WTI Oil is in a long-term downtrend, making lower lows. Given the old adage that the trend is your friend, this favors short positions over long positions. It is trading below all the major daily   Simple Moving Averages (SMA) and all the weekly SMAs except the 200-week at $66.89. 

WTI US Oil: Daily Chart

A break below the year-to-date (YTD) lows of $64.31 would be required to reignite and reconfirm the downtrend, with the next target at around $62.00 where trough lows from 2021 will come into play, followed by support at $57.50.

Despite the dominant downtrend, there are signs that it might be reaching an end. There is mild bullish convergence between price and the Relative Strength Index (RSI) at the March and May 2023 lows, with price making a lower low in May that is not matched by a lower low in RSI. This is a sign bearish pressure is easing. 

The long hammer Japanese candlestick pattern that formed at the May 4 (and year-to-date) lows is a further sign this may have been a key strategic bottom. 

Oil price bulls, however, would need to break above the $76.85 lower high of April 28 to bring the dominant bear trend into doubt.

Further upside in USD/CNH is expected to face a strong hurdle at 7.0960 in the near term, comment Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at UOB Group.

Key Quotes

24-hour view: “While our view for USD to strengthen yesterday was correct, we were of the view that ‘the major resistance at 7.0500 is still unlikely to come into view for now’. The anticipated USD strength exceeded our expectations as it soared to 7.0607 before pulling back to close at 7.0515 (+0.58%). Today, USD could continue to rise but the next major resistance at 7.0960 is likely out of reach. Support is at 7.0400, followed by 7.0250.”

Next 1-3 weeks: “Yesterday (18 May, spot at 7.0150), we reaffirmed our positive USD view and indicated that ‘the next level to watch is at 7.055’. That said, we did not quite expect USD to surpass 7.0500 so quickly (USD soared to 7.0607 in NY trade). While we continue to expect USD to strengthen, it remains to be seen if it can break above the next major resistance at 7.0960. All in all, only a break of 7.0000 (‘strong support’ level previously at 6.9750) would indicate the USD strength that started last Friday has eased."

Gold is facing its biggest weekly loss since early February. However, strategists at Commerzbank see only limited further downside potential.

Hopes of imminent agreement in the dispute over the raising of the US debt ceiling

“The Gold price has slid to a six-week low amid good US economic and robust labour market indicators. After all, these have again dampened hopes of any rapid rate cuts.” 

“What is more, the still smouldering US debt dispute hardly appears to be lending any support any more due to growing hopes that a compromise will be found in time. However, we see any further downside potential for the Gold price as being limited because the US Fed is likely to have concluded its rate hike cycle.”

The Bank of Japan could dither, but policy normalisation is coming, and the Yen is still badly undervalued, Kit Juckes, Chief Global FX Strategist at Société Générale, reports.

USD/JPY may remain bumpy

“We expect the BoJ to raise the top of its 10-year JGB range by 50 bps to 1% at the June 16 meeting, and that alone could see USD/JPY close to 130.”

“USD/JPY may remain bumpy, and market participants may continue to trade options than spot (as they clearly do today). But we remain confident that we’ve seen the peak in longer-dated Treasury yields, the Treasury-JGB spread, and USD/JPY.” 

“It also seems that Japan’s inflation is doing good things for the equity market, which can in turn suck in foreign capital and that provides some support for the Yen, as well as an additional nudge to the BoJ to stop dithering.”

EUR/SEK has moved lower over the last weeks. Economists at Danske Bank remain bearish SEK over the medium term.

Negative stance on the SEK

“Relative monetary policy is in the driver’s seat and we deem it slightly supportive for EUR/SEK in a 3-6M perspective. In addition, the bleak growth outlook globally and for Sweden, in particular, is adding to SEK headwinds and remains a factor why we expect EUR/SEK to move higher over the 12M horizon.”

“We expect EUR/SEK to move towards 11.50 over the coming year.”

Economists at MUFG Bank discuss the EUR/USD outlook.

Further Dollar gains over the short-term are likely

“With inflation set to fall further over the coming months, the prospects for Eurozone households remain much better. So we see no reason for a sustained deterioration in sentiment to warrant a more pronounced retracement of the EUR/USD move higher.”

“Our EUR/USD year-end target of 1.1500-1.1600 is based on the Fed’s tightening cycle having ended this month and then the Fed cutting by year-end.” 

“Dallas Fed President Logan was very clear yesterday that the data to justify a pause in June wasn’t evident yet so certainly if the US rates market continues to price a greater probability of a June hike, then further Dollar gains over the short-term are likely. So the potential for EUR/USD downside is certainly more from the Dollar side than the Euro.”

Extra gains in USD/JPY now target the 139.60 region according to Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at UOB Group.

Key Quotes

24-hour view: “We highlighted yesterday that USD ‘could break above the month-to-date high near 137.80 but in view of the severely overbought conditions, it might not be able to maintain a foothold above this level’ We added, ‘the next major resistance at 139.00 is unlikely to come under threat’. The pace of the advance exceeded our expectations even though USD did not challenge 109.00 (high has been 138.74). Upward momentum appears to be slowing and USD is unlikely to advance much further. Today, it is more likely to trade between 137.80 and 138.80.”

Next 1-3 weeks: “Yesterday (18 May, spot at 137.45), we indicated that ‘conditions are severely overbought but USD could break 137.80; the next level to focus on above this level is 139.00’. In NY trade, USD soared to a high of 138.74. While we continue to expect USD to strengthen further, overbought short-term conditions could lead to a couple of days of consolidation before USD resumes its rally, albeit likely at a slower pace. Looking ahead, the next resistance above 139.00 is at 139.60. The USD strength is intact as long as it stays above 136.80 (‘strong support’ level previously at 136.00).”

• Gold price stages a goodish recovery from its lowest level since April touched the previous day.
• A modest USD pullback from a nearly two-month high is seen lending support to the XAU/USD.
• Hawkish Fed expectations and US debt ceiling optimism should help limit losses for the USD.
• Traders now look forward to Fed Chair Jerome Powell’s speech for a fresh directional impetus.

Gold price gains some positive traction on Friday and snaps a three-day losing streak to the $1,950 area, or the lowest level since early April touched the previous day. The XAU/USD sticks to its modest intraday gains through the first half of the European session and currently trades around the $1,965-$1,966 region, up over 0.40% for the day.

Modest US Dollar downtick lends support to Gold price

The US Dollar (USD) edges lower on the last day of the week as bulls opt to take some profits off the table following the recent runup to a nearly two-month high. This, in turn, is seen as a key factor benefitting the US Dollar-denominated Gold price, though any meaningful upside still seems elusive. The modest USD downtick is more likely to remain cushioned amid expectations that the Federal Reserve (Fed) will keep interest rates higher for longer. In fact, Dallas Fed President Lorie Logan said on Thursday that the economic data points so far don’t justify skipping a rate increase at the next policy meeting in June. Moreover, several Fed officials this week expressed concerns that inflation in the United States (US) was not cooling fast enough. This, in turn, forces investors to scale back their bets for interest rate cuts later this year.

A combination of factors should cap gains for XAU/USD

Apart from this, the latest optimism that a deal to lift the US debt ceiling could be reached this week keeps the US Treasury bond yields elevated, which favours the USD bulls and might cap gains for the non-yielding Gold price. It is worth recalling that top US congressional Republican Kevin McCarthy said on Thursday that negotiations are at a better place and expect a bill to raise the government's $31.4 trillion debt ceiling on the House floor next week. This helps ease fears about a default by the world's largest economy and boosts investors' confidence, which is evident from a generally positive tone around the equity markets. The risk-on mood could further contribute to keeping a lid on any meaningful upside for the safe-haven XAU/USD, warranting some caution for bullish traders and positioning for a further intraday appreciating move.

Focus remains on Fed Chair Jerome Powell’s appearance

Traders might also prefer to wait on the sidelines ahead of Fed Chair Jerome Powell's speech later during the US session, which might provide fresh cues about the future rate hike path and provide a fresh directional impetus to Gold price. The CME Group's FedWatch Tool indicates that markets are pricing a greater chance of a pause in the Fed's rate-hiking cycle at the next Federal Open Market Committee (FOMC) policy meeting in June. Hence, a hawkish tilt will lift bets for another 25 basis points (bps) lift-off next month, which should be enough to provide a fresh lift to the Greenback and weigh heavily on Gold price. Nevertheless, the XAU/USD remains on track to register its biggest weekly drop in three-and-half-months.

Gold price technical outlook

From a technical perspective, the overnight swing low, around the $1,950 region, now seems to protect the immediate downside. Some follow-through selling will expose the 100-day Simple Moving Average (SMA), currently pegged near the $1,928 zone, below which Gold price could slide further towards testing the $1,900 round-figure mark.

On the flip side, the ongoing recovery move-up is more likely to attract fresh sellers near the $1,970-$1,980 strong horizontal support breakpoint. This, in turn, should cap the Gold price near the $2,000 psychological mark. Some follow-through buying, however, might lift the XAU/USD towards the next relevant hurdle near the $2,011-$2,012 region. The latter should act as a pivotal point, which if cleared decisively might trigger some near-term short-covering move. 

Key levels to watch

Economists at ING expect the GBP/USD pair to advance nicely toward the 1.33 mark by the end of the year.

Sterling’s correlation with risk assets declines

“GBP/USD should be heading higher this year. 1.33 is our target for year-end.”

“Interestingly, Sterling’s correlation with risk assets has fallen a lot this year – a factor probably helping Sterling at the moment. Yet we see a less hawkish BoE coming through, limiting GBP gains.”

Source: Refinitiv, Macrobond, ING

See: Hardly any appreciation potential for Sterling – Commerzbank

Economists at Société Générale analyze EUR/USD’s technical outlook.

An initial bounce is not ruled out

“The EUR/USD pair is now at potential support of 1.0730/1.0710 representing the 23.6% retracement from last year. An initial bounce is not ruled out however the high formed earlier this week at 1.0910 is likely to cap.” 

“Failure to defend 1.0730/1.0710 can extend the decline towards 1.0650 and perhaps even towards the March low of 1.0510.”

See – EUR/USD: Next real support level will probably be at 1.0700 – ING

• EUR/USD bounces off lows near 1.00760 on risk-on mood.
• ECB’s Economic Bulletin reiterated that price pressures remain strong.
• Investors’ attention will be on Powell and further Fedspeak.

After bottoming out in the area of new 2-month lows near 1.0760, EUR/USD manages to pick up pace and approach the key barrier at 1.0800 the figure at the end of the week.

EUR/USD looks to retake 1.0800

The improved sentiment in the risk-linked galaxy underpins the pair’s recovery to the vicinity of the 1.0800 hurdle on Friday amidst profit taking in the greenback and a broad-based optimism among market participants.

Indeed, rising hopes that US policy makers could clinch a deal over the debt ceiling issue in the next few days continue to prop up the appetite for the riskier assets and lend much-needed oxygen to the pair.

Nothing to write home about from President L. Lagarde’s earlier comments, after shed acknowledged the bank is “heading towards more delicate decisions going forward”. Still around the ECB, the bank’s Economic Bulleting noted that price pressures remain strong while wage pressures have strengthened.

In the domestic calendar, Producer Prices in Germany rose 0.3% MoM and 4.1% in the year to April, both prints coming in above estimates. In the US, NY Fed J. Williams (permanent voter, centrist) and FOMC Governor M. Bowman (permanent voter, centrist) are due to speak along with a panel discussion with the participation of Chair J. Powell and ex-Fed B. Bernanke.

What to look for around EUR

EUR/USD manages to reclaim some ground lost in the last three sessions and now attempts to retake the 1.0800 region on Friday.

The movement of the euro's value is expected to closely mirror the behaviour of the US Dollar and will likely be impacted by any differences in approach between the Fed and the ECB with regards to their plans for adjusting interest rates.

Moving forward, hawkish ECB-speak continue to favour further rate hikes, although this view appears in contrast to some loss of momentum in economic fundamentals in the region.

Key events in the euro area this week: ECB C. Lagarde (Friday).

Eminent issues on the back boiler: Continuation of the ECB hiking cycle in June and July (September?). Impact of the Russia-Ukraine war on the growth prospects and inflation outlook in the region. Risks of inflation becoming entrenched.

EUR/USD levels to watch

So far, the pair is gaining 0.27% at 1.0798 and the breakout of 1.0866 (55-day SMA) would target 1.1095 (2023 high April 26) en route to 1.1100 (round level). On the flip side, immediate contention comes at 1.0759 (monthly low May 19) seconded by 1.0712 (low March 24) and finally 1.0516 (low March 15).

The Dollar has continued to build bullish momentum. Economists at ING see an ideal mix for the Dollar – for now.

It is hard to buck the Dollar's bullish momentum now

“A US debt ceiling deal is inching closer, and while the rebound in equities has been somewhat contained, pressure on bonds remains substantial.”

“Contributing to that were hawkish comments by Fed's Logan and lower-than-expected jobless claims, which translated into another round of Fed hawkish repricing.”

“It’s an ideal mix for the Dollar – for now.”

• GBP/USD attracts some buying on Friday amid a modest USD pullback from a two-month high.
• A positive risk tone turns out to be a key factor that prompts some profit-taking around the USD.
• Hawkish Fed expectations and US debt ceiling optimism to limit USD losses ahead of Fed’s Powell.

The GBP/USD pair shows some resilience below the 50-day Simple Moving Average (SMA) and stages a modest recovery from sub-1.2400 levels, or over a three-week low touched the previous day. Spot prices trade with a mildly positive bias, around the 1.2425-1.2430 region, through the first half of the European session, albeit lacks bullish conviction.

The risk-on impulse - as depicted by a further rise in the global equity markets - prompts some profit-taking around the safe-haven US Dollar (USD), which, in turn, is seen as a key factor lending support to the GBP/USD pair. However, expectations that the Federal Reserve (Fed) will keep interest rates higher for longer, along with the latest optimism over the potential of lifting the US debt ceiling, could help limit the downside for the USD. This, in turn, holds back traders from placing aggressive bullish bets 
around the major and caps gains.

In fact, Dallas Fed President Lorie Logan said on Thursday that the economic data points so far don’t justify skipping a rate increase at the next policy meeting in June. This comes on the back of the recent hawkish comments by several Fed officials and forces investors to scale back their bet for rate cuts later this year. Furthermore, top US congressional Republican Kevin McCarthy noted that negotiations are at a better place than last week and expected a bill to raise the government's $31.4 trillion debt ceiling on the House floor next week.  

The British Pound (GBP), on the other hand, continues to be undermined by expectations that fewer rate increases by the Bank of England (BoE) will be needed in the coming months to bring down inflation. The bets were lifted by rather unimpressive UK jobs data released on Tuesday and less hawkish remarks by BoE Governor Andrew Bailey on Wednesday. This further contributes to keeping a lid on the GBP/USD pair in the absence of any relevant market-moving economic data due for release on Friday, either from the UK or the US.

Traders might also prefer to wait on the sidelines ahead of Fed Chair Jerome Powell's speech later during the US session, which will be scrutinized for clues about the next policy move. This, in turn, will play a key role in influencing the near-term USD price dynamics and provide some meaningful impetus to the GBP/USD pair. Nevertheless, spot prices remain on track to end in the red for the second straight week and the aforementioned fundamental backdrop suggests that the path of least resistance is to the downside.

Technical levels to watch

Economists at Société Générale analyze AUD/USD’s technical outlook. They expect the pair to suffer further losses on a break below the 0.6560 mark.

The 0.6780/0.6850 area is a crucial resistance zone

“The AUD/USD pair has evolved within a Head and Shoulders formation denoting potential downside.”

“A break below the neckline at 0.6560 can result in extended down move.”

“Right shoulder at 0.6780/0.6850 is crucial resistance zone.”

“Supports: 0.6560, 0.6525, 0.6450 Resistances: 0.6690, 0.6780, 0.6850.”

See: AUD/USD set to hit the 0.73 mark in Q4 – ING

Economists at the Bank of America expect the USD/JPY pair to remain elevated for the rest of the year before falling in 2024.

Carry factor to weigh against the JPY

“We maintain a bearish view on the Yen against the USD for the remainder of 2023, expecting the carry factor to weigh against the JPY as long as the Fed maintains its hawkish guidance and keeps the federal funds rate at the current level.”

“We anticipate a more substantial Yen rally to take place in 2024, given our prediction that the first Fed rate cut will happen in Q1 2024. Our forecast is for the USD/JPY to rise to 140 by the end of 2023, before falling to 125 by the end of 2024.”

“We warn that our bearish Yen view for this year could be at risk if the Fed cuts rates earlier than expected or if the Bank of Japan enters a proper rate hiking cycle in 2023.”

European Central Bank (ECB) President Christine Lagarde said on Friday, “ECB will be courageous to take the decisions needed to bring inflation back to 2%.”

“We are heading towards more delicate decisions going forward,” she added.

Meanwhile, the central bank’s monthly Economic Bulletin revealed that “wage pressures have strengthened further as employees recoup some of the purchasing power they have lost as a result of high inflation.”

Market reaction

EUR/USD bulls are recovering ground, eyeing a sustained move above 1.0800 on Lagarde’s comments. The pair is trading at 1.0790, up 0.19% on the day.

EUR/USD broke below the key 1.0800 level. It is risky to pick a bottom, according to economists at ING.

Squeezing still in progress

We must remember that EUR/USD was the biggest G10 long positions entering the US debt-ceiling chaos, and since the latest development turned out to be positive for the Dollar, we are probably seeing a substantial long-squeeze in the pair.” 

“There is considerable room for a hawkish repricing in Fed rate expectations, so it’s risky to pick a bottom in EUR/USD. The next real support level will probably be at 1.0700.”

• USD/JPY pulls back from a fresh YTD peak set on Thursday amid a modest USD downtick.
• Hawkish Fed expectations and optimism over the US debt ceiling favour the USD bulls.
• The Fed-BoJ policy divergence supports prospects for the emergence of some dip-buying.

The USD/JPY pair comes under some selling pressure on Friday and for now, seems to have snapped a six-day winning streak to its highest level since November 2022, around the 138.75 region touched the previous day. Spot prices extend the steady intraday descent through the early part of the European session and drop to the 138.00 mark, or a fresh daily low in the last hour.

The US Dollar (USD) bulls opt to take some profits off the table following the recent runup to a nearly two-month high, which, in turn, is seen as a key factor dragging the USD/JPY lower. The downside for the USD, however, remains cushioned amid firming expectations that the Federal Reserve (Fed) will keep interest rates higher for longer. In fact, Dallas Fed President Lorie Logan said on Thursday that the economic data points so far don’t justify skipping a rate increase at the next policy meeting in June. This comes on the back of the recent hawkish comments by several Fed officials and forces investors to scale back their bet for rate cuts later this year.

Adding to this, the latest optimism over the potential of lifting the US debt ceiling keeps the US Treasury bond yields elevated. It is worth mentioning that top US congressional Republican Kevin McCarthy noted that negotiations are at a better place than last week and expected a bill to raise the government's $31.4 trillion debt ceiling on the House floor next week.  This, in turn, favours the USD bulls and supports prospects for the emergence of some dip-buying around the USD/JPY pair. Apart from this, the Bank of Japan's (BoJ) dovish stance, along with a positive risk tone, could undermine the safe-haven Japanese Yen (JPY) and limit losses for the major.

The BoJ Governor Kazuo Ueda offered his take on the hot Japanese National Core CPI report released this Friday and said that 
inflation is likely to slow back below the 2% target level in the middle of the current fiscal year. Ueda added that tightening monetary policy in response to this would hurt the economy and that the BoJ will continue easing with yield curve control. This warrants some caution before placing aggressive bearish bets around the USD/JPY pair and positioning for any further intraday depreciating move.

Traders might also prefer to wait on the sidelines ahead of Fed Chair Jerome Powell's appearance later during the US session. Investors will look for clues about the US central bank's next policy move, which will play a key role in influencing the near-term USD price dynamics and provide a fresh directional impetus to the USD/JPY pair. Apart from this, the US debt-limit negotiations might further contribute to producing short-term trading opportunities. Nevertheless, spot prices remain on track to register strong weekly gains.

Technical levels to watch

Is the USD-strength justified? Ulrich Leuchtmann, Head of FX and Commodity Research at Commerzbank, remains skeptical.

Trite hawkishness

“The environment for US monetary policy is likely to change very profoundly. At present, we are looking back at three-quarters of quite impressive US growth, the US labor market remains very tight and the stress in the US financial system seems to be over. In that context hawkish comments by FOMC members are trite.”

“The real test of the US central bankers’ attitude is yet to come, it will come when the real-economic data gets considerably worse. And because we doubt that the Fed will remain hawkish in an adverse environment, I remain skeptical regarding the current USD strength.”

Economists at ING target AUD/USD at 0.73 in the fourth quarter.

Room to recover beyond the short-term

“Markets are seeing very little chance of another hike by the summer, so we think there is some mis-pricing in the AUD curve. At the same time, the implications for AUD are not huge, given that external factors remain firmly in the driver’s seat.”

“China’s growth story is still a decent underlying narrative, but iron ore prices have dropped lately and risk sentiment has been unsupportive. AUD/USD upside in the medium-term should largely follow the broad USD decline: we target 0.73 in 4Q23.”

Gold price levelled-off from its recent high due to a stronger US Dollar and rising yields. Strong labour data and sticky inflation mean further rate tightening cannot be ruled out, economists at ANZ Bank report.

Further tightening looks possible

“Renewed strength in the US dollar saw the Gold price give up recent gains. Historically low unemployment and high inflation suggest further rate tightening cannot be ruled out. This is despite yield curve inversion signalling an impending recession, which could eventually lead to either a pause in rate increases or even cuts.”

“Investor allocations to Gold slowed in April but remained positive. Central banks added more Gold to their reserves, and physical demand looks strong despite record prices.”

• Silver stages a goodish rebound from over a one-and-half-month low touched on Thursday.
• The technical setup favours bears and warrants caution before positioning for further gains.
• A sustained strength beyond the $25.30-40 region is needed to negate the negative outlook.

Silver manages to defend the 100-day Simple Moving Average (SMA) and regains positive traction on Friday, reversing a major part of the previous day's slide to the lowest level since March 30. The white metal maintains its bid tone through the early part of the European session and is currently placed around the $23.70-$23.75 region, up over 1% for the day.

The technical setup, however, warrants some caution before positioning for any further appreciating move. Against the backdrop of the recent breakdown through the $24.60-$24.50 horizontal support, which coincided with the 23.6% Fibonacci retracement level of the March-May rally, the overnight slide below the 38.2% Fibo. level favours bearish traders. Moreover, oscillators on the daily chart are holding deep in the negative territory and are still far from being in the oversold zone.

Hence, any subsequent move up is more likely to attract fresh sellers near the $25.00 psychological mark. This, in turn, could cap the XAU/USD near the $25.30-$25.40 supply zone. That said, a sustained strength beyond might trigger a short-covering rally and allow bulls to make a fresh attempt to conquer the $26.00 round-figure mark. The momentum could get extended further towards challenging the YTD peak, around the $26.10-$26.15 region touched earlier this month.

On the flip side, the 100-day SMA, currently pegged near the $23.35 area, now seems to protect the immediate downside, below which the XAG/USD could accelerate the fall towards 50% Fibo. level, around the $23.00 round-figure mark. The downward trajectory could eventually drag the commodity towards the $22.65-$22.60 intermediate support en route to the $22.30-$22.25 region, or the 61.8% Fibo. level.

Silver daily chart

Key levels to watch

FX option expiries for May 19 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

- EUR/USD: EUR amounts        

• 1.0750 758m
• 1.0825 401m
• 1.0850 974m
• 1.0900 842m
• 1.0950 460m

- GBP/USD: GBP amounts     

• 1.2290 483m
• 1.2500 481m

- USD/JPY: USD amounts                     

• 136.00 600m
• 138.00 484m
• 139.00 375m

- USD/CHF: USD amounts        

• 0.9000 565m

- AUD/USD: AUD amounts

• 0.6650 616m

- USD/CAD: USD amounts       

• 1.3425 510m
• 1.3500 1.4b

EUR/JPY reversed sharply from its recent break above 150. Economists at ING expect the pair to decline toward 140 later this year. 

Late cycle woes favour EUR/JPY downside

“The tail-end of a business cycle is typically a difficult time for risk assets and 2023 should prove no exception. Looming recessions in both the US and the Eurozone will weigh heavily on global growth prospects and should demand some under-performance in this pro-cyclical EUR/JPY cross rate.”

“Despite still wide differentials between the eurozone and Japan, we favour a break to 140 later this year and 135 next year.”

Bank of Japan (BoJ) Governor Kazuo Ueda is out with his thoughts following the hot Japanese inflation data, released earlier this Friday.

Key quotes

“Japan inflation likely to slow back below 2% in the middle of the current fiscal year.”

“Then likely to rebound thereafter through uncertainty regarding outlook is very high.”

“Current inflation rise is due to external, cost-push factors; not demand strengthening.”

“Tightening monetary policy in response to this would hurt the economy.”

“Inflation expectations must heighten for inflation to hit 2% sustainably.”

“The BoJ will continue easing with yield curve control.”

“We will add to easing if needed wihtout hesitation.”

“The cost of shifting policy prematurely and nipping positive bud toward achieving price target is extremely high.”

“The cost of waiting to ensure inflation is sustainably at 2% is smaller than shifting policy prematurely.”

“Appropriate to take time in determining when to modify easy monetary policy.”

“BoJ’s experience with QQE showed it will take to shift public perceptions that prices and wages won't rise much.”

“My view is that BoJ’s QE adopted in 2001 has had limited effect in stimulating the economy.”

Market reaction

Despite the dovish comments from the BoJ Chief, USD/JPY is keeping its heavy tone intact near 138.00. The pair is shedding 0.44% on the day at 138.06, as of writing.

The Yuan breached the 7 mark against the Dollar after the disappointing April data. Economists at Commerzbank expect further CNY depreciation.

Pressure on the Yuan may persist

“Pressure on the Yuan may persist and the risk is significant as weak private sector confidence could derail China’s economic recovery. The widening in the negative yield spreads between China and the US and the prospect for further monetary easing in China will also weigh on the CNY.”

“It will be interesting to see how the PBoC will react in the coming days. We don’t think the central bank will act decisively to defend the currency for now. Instead, we expect the PBoC to allow the Yuan to depreciate. But we think it may step in with larger tweaks to the daily fixing or other policy actions if there are abrupt moves in CNY, aiming to avoid the build-up of one-sided depreciation expectations.”

• AUD/USD gains some positive traction amid a modest USD pullback from a two-month high.
• A positive risk tone prompts some USD profit-taking and benefits the risk-sensitive Aussie.
• Hawkish Fed expectations and the US debt ceiling optimism could help limit the USD losses.
• Investors look forward to Fed Chair Jerome Powell’s speech for some meaningful impetus.

The AUD/USD pair attracts fresh buyers on Friday and reverses a major part of the overnight slide to the 0.6600 neighbourhood, or a nearly three-week low. The pair sticks to modest intraday gains through the early European session and is currently placed near the top end of its daily range, around mid-0.6600s.

The US Dollar (USD) pulls back from its highest level since March 20 and turns out to be a key factor lending support to the AUD/USD pair. A generally positive tone around the equity markets prompts some profit-taking around the safe-haven buck and benefits the risk-sensitive Aussie. The downside for the USD, however, seems limited amid growing acceptance that the Federal Reserve (Fed) will keep interest rates higher for longer and the latest optimism over the potential lifting of the US debt ceiling

In fact, Dallas Fed President Lorie Logan said on Thursday that the economic data points so far don’t justify skipping a rate increase at the next policy meeting in June. This comes on the back of the recent hawkish comments by several Fed officials and forces investors to scale back their bet for rate cuts later this year. Furthermore, top US congressional Republican Kevin McCarthy noted that negotiations are at a better place than last week and expected a bill to raise the government's $31.4 trillion debt ceiling on the House floor next week.

This, in turn, keeps the US Treasury bond yields elevated, which, along with Thursday's better-than-expected US macro data, should continue to act as a tailwind for the USD. Apart from this, worrying signs about global economic growth, particularly in China, should further benefit the Greenback's relative safe-haven status. In fact, data from China this week showed that the world's second-largest economy underperformed in April. This, in turn, warrants caution before placing aggressive bullish bets around the AUD/USD pair.

Traders might also prefer to wait on the sidelines ahead of Fed Chair Jerome Powell's speech later during the US session, which will be closely scrutinized for fresh clues about the US central bank's next policy move. This, in turn, will play a key role in influencing the near-term USD price dynamics and provide a fresh directional impetus to the AUD/USD pair. Nevertheless, the aforementioned fundamental backdrop suggests that the path of least resistance for spot prices is to the downside and any subsequent move up might get sold into.

Technical levels to watch

• Natural Gas price retreats from the highest levels in five weeks, pares the biggest daily jump in seven months.
• Overbought RSI, 4.5-month-old horizontal area challenge XNG/USD bulls.
• 100-DMA, April’s top can restrict pullback moves, Natural Gas buyers remain hopeful beyond $2.50.

Natural Gas (XNG/USD) price remains mildly offered near $2.71 as it pares the biggest daily gains since October 2022 amid early Friday in Europe. In doing so, the energy instrument eases from a five-week high amid the overbought RSI (14) conditions.

However, the XNG/USD’s ability to stay beyond the 100-DMA support, around $2.64 by the press time, keeps the buyers hopeful.

Even if the Natural Gas price drops below $2.64 DMA support, April’s top surrounding $2.57 and multiple levels marked since March, close to $2.50, could challenge the commodity bears before giving them control. It should be noted that a two-week-old ascending support line near $2.51 acts as an extra filter towards the south.

In that case, a quick fall towards the early May’s swing high of near $2.39 can’t be ruled out.

On the flip side, a nearly four-month-old horizontal resistance area surrounding $2.75-80 appears a tough nut to crack for Natural Gas buyers.

Though, a daily closing beyond $2.80 won’t hesitate to prod the March month high of $3.08. That said, the $3.00 psychological magnet may act as an intermediate halt between $2.80 and $3.08.

Overall, the Natural Gas price remains on the bull’s radar despite the latest retreat.

Natural Gas Price: Daily chart

Trend: Further upside expected

Here is what you need to know on Friday, May 19:

Risk remains tepid at the start of the European session, as the Asian equities traded mixed, failing to benefit from the Wall Street rally. The US Dollar consolidates weekly gains near two-month highs, tracking the sluggish performance in the US Treasury yields across the curve.

The optimism around a potential US debt ceiling deal was faded by a Reuters report that cited, “the small but powerful Republican faction warned this week that they could try to block any agreement to raise the $31.4 trillion debt ceiling from passing the House of Representatives if the accord does not contain ‘robust’ federal spending cuts.”

Additionally, fresh US-Sino tensions over Taiwan are keeping traders cautious. US Trade Representative's (USTR) office announced late Thursday, “the US and Taiwan reached agreement on the first part of their ‘21st Century’ trade initiative, covering customs and border procedures, regulatory practices, and small business.” The US-Taiwan agreement clouds the outlook for a visit to the US next week by a Chinese commerce official.

The US stock futures, however, are adding 0.15% on the day, as markets continue to remain hopeful over a debt ceiling deal by Sunday when Biden and McCarthy resume talks.

Despite a risk-on market profile, the US Dollar extended its three-day upsurge on Thursday, courtesy of the hawkish comments from US Federal Reserve (Fed) policymakers and rising bets of a 25 basis points (bps) rate hike in June. Markets are now pricing a 36% probability of a 25 bps June rate hike vs. a mere 10% chance seen at the start of this week.

Dallas Fed President Lorie Logan said that data at this time does not support skipping an interest rate hike in the June meeting. Fed Governor Philip Jefferson noted that inflation remains too high whereas St Louis Fed President James Bullard advocated higher rates once again, suggesting that they are insurance against inflation.

Looking ahead, markets stay focussed on headlines concerning the US debt ceiling and speeches by central banks’ officials, in the absence of top-tier economic data releases on both sides of the Atlantic. Fed Chair Jereme Powell’s speech will hog the limelight while the end-of-the-week flows will likely remain in play.

EUR/USD is picking up fresh bids to resume the rebound toward 1.0800 early Europe, as the US Dollar corrects in tandem with the US Treasury bond yields. Eurostoxx futures are up 0.05%, at the moment. Citing sources, Bloomberg reported that the European Central Bank (ECB) is said to step up scrutiny of bank liquidity and may raise requirements.

GBP/USD is recapturing 1.2400, having briefly dipped below the latter. Bank of England (BoE) policymaker Jonathan Haskel is due to give a speech on how to measure productivity at the Economic Statistics Centre of Excellence Conference on economic measurement 2023 ‘New directions in the measurement of productivity: Integrating concepts and data at 09:45 GMT.

USD/JPY is seeing a sharp correction toward 138.00, as the Yen is recovering ground after inflation in Japan accelerated again in April, with the core Consumer Price Index rising 3.4% from a year earlier. Core-core CPI, which strips away energy and fresh food prices, climbed 4.1%, reaching the highest since September 1981.

AUD/USD is holding its recovery gains near 0.6650, shrugging off resurfacing US-Sino tensions. The US and Taiwan reached an agreement on the first part of their ‘21st Century’ trade initiative, covering customs and border procedures, regulatory practices, and small business. The US-Taiwan agreement clouds the outlook for a visit to the US next week by a Chinese commerce official, somewhat weighing on investors’ sentiment.

USD/CAD is trading under pressure below 1.3500 amid a pullback in the US Dollar and higher WTI prices.

Gold price is attempting a dead cat bounce to test $1,970, looking to recapture the critical 50-Daily Moving Average (DMA) support-turned-resistance at $1,985.

Cryptocurrencies are trading listlessly, with Bitcoin sidelined below $27,000 while Ethereum is challenging the $1,800 mark.

EUR/SEK is approaching the April highs. Near-term vulnerabilities remain elevated, and ING’s baseline scenario for a SEK recovery in the second half of the year faces rising risks.

Riksbank has made the SEK’s path to recovery even narrower

“In the near term, EUR/SEK may well break through the 11.43 April highs and test the 11.50/11.60 area unless the FX market shifts more decisively in favour of high-beta currencies. Even in that scenario, we think EUR/SEK should still find support around 11.20/11.25 given the Riksbank’s unfavourable narrative for SEK.”

“In the longer run, we still think that a stabilisation in risk appetite, and a rotation from the dollar to favour European currencies in the second half of the year can help a gradual decline to the 11.00 area in EUR/SEK. But the Riksbank has likely made the path for the SEK recovery an even narrower one.”

Considering advanced prints from CME Group for natural gas futures markets, open interest rose for the second consecutive session on Thursday, now by around 16.5K contracts. In the same direction, volume went up by more than 237K contracts, the largest single-day build since early February.

Natural Gas now targets the March top around $3.00

Prices of the natural gas rose sharply on Thursday and trespassed the 2.50% region amidst rising open interest and volume, which leaves the door open to the continuation of the weekly rebound in the very near term. Against that, the commodity could now embark on a potential move to the March high around the $3.00 mark per MMBtu (March 3).

Since 1983, there have been many calls for Hong Kong to change its HKD peg. Economists at ANZ Bank analyze HKD amid de-dollarisation.

HKD is like a ‘stablecoin’

“The decline in the HKD aggregate balance is unlikely to cause market panic. Once the HIBOR-LIBOR gap narrows, HKD outflow pressures will be alleviated. The HKD peg to the USD is defended via changes in the cost of carry.”

“Pegging HKD to the RMB does not add value to China’s development as there is already a CNH market. Instead, HKD is a reserve currency candidate backed by solid financial infrastructure and freely convertible exchange rate regime.”

“The HKD peg is akin to a ‘stable coin’ as its value is tied to a reference asset. Blockchain technology and the tokenisation of government bonds will increase the security qualities and make it more attractive to investors who seek diversification from the conventional dollarised regime in the digital era.”

• USD/CHF clings to mild losses as bulls take a breather at five-week high.
• Market’s anxiety ahead of key risk events underpins Swiss Franc demand.
• Fed’s Powell need to defend hawkish bias to favor US Dollar bulls.
• US President Biden has tough challenge of extending debt limit.

USD/CHF takes offers to refresh the intraday low near 0.9040 as it retreats from a five-week high heading into Friday’s European session.

In doing so, the Swiss Franc (CHF) pair prints the first daily loss in four as the US Dollar struggles to defend the latest run-up amid mixed concerns about the US policymaker’s optimism of getting the debt limit passed ahead of its expiry. Also weighing on USD/CHF pair could be the fresh fears surrounding the US-China ties, as well as anxiety prior to the speech from Federal Reserve Chairman Jerome Powell.

US Dollar Index (DXY) consolidates weekly gains at the highest levels in two-months, down 0.12% intraday near 103.40 by the press time, amid the headlines suggesting the US House Freedom Caucus’s capacity to block any agreement to raise the $31.4 trillion debt ceiling. Further, geopolitical fears emanating from the US-Taiwan trade deal ahead of planned meetings between China's Commerce Minister Wang Wentao and USTR Tai and US Commerce Secretary Gina Raimondo, also exert downside pressure on the USD/CHF price.

It should, however, be noted that a slump in the market’s bets on the US Federal Reserve (Fed) rate cut in 2023, as well as an increase in the odds of a 0.25% rate hike in June, joined firmer US data and hawkish Fed talks to previously propel the DXY. Additionally favoring the greenback bulls, as well as fueling the USD/CHF prices, were concerns that the US policymakers will be able to overcome the default fears.

Against this backdrop, S&P500 Futures struggle to refresh the yearly top as it prints mild gains near 4,220 after rising to the highest levels since August 2022 the previous day. On the same line, stocks in the Asia-Pacific region trade mixed whereas the US 10-year and two-year Treasury bond yields snap the five-day uptrend by easing to 3.63% and 4.23% in that order.

Looking forward, Fed Chair Jerome Powell’s speech will be the key to forecasting the USD/CHF moves amid recently hawkish Fed bias. Following that, US President Joe Biden’s press conference, likely on late Sunday, about the debt ceiling extension should be eyed carefully as any negative surprise won’t hesitate to reverse the US Dollar’s latest run-up.

Technical analysis

Despite the latest retreat, the USD/CHF pair remains above the 50-DMA support of 0.9035, which in turn enables it to aim for an April 10 swing high of near 0.9115.

There seems to be scope for AUD/USD to weaken to the 0.6575 region in the short-term horizon, comment Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at UOB Group.

Key Quotes

24-hour view: “Our view for AUD to consolidate yesterday was incorrect as it broke below the major support at 0.6630, dropped to a low of 0.6605 before rebounding. Downward pressure has eased somewhat but AUD could drop towards the 0.6600 level again before a more sustained recovery is likely. The next support at 0.6575 is unlikely to come under threat. Resistance is at 0.6645, followed by 0.6465.”

Next 1-3 weeks: “We have held the same view since Monday (15 May, spot at 0.6650) wherein ‘while the bias for AUD is tilted to the downside, it has to break and stay below 0.6630 before a sustained decline to 0.6575 is likely’. Yesterday (18 May), AUD dropped to a low of 0.6605. Downward momentum has not improved much but we see a chance for AUD to drop to 0.6575. Overall, only a break of 0.6685 (‘strong resistance’ level previously at 0.6705) would indicate that AUD is not ready to head lower to 0.6575.”

CME Group’s flash data for crude oil futures markets noted traders added nearly 9K contracts to their open interest positions on Thursday, reversing at the same time six consecutive daily pullbacks. Volume, on the other hand, dropped sharply by around 244.8K contracts, partially reversing the previous daily build.

WTI points to some range bound so far

Thursday’s negative price action in WTI was accompanied by rising open interest and declining volume. Against that, the commodity appears poised to keep the weekly consolidative mood in the very near term at least. So far, the $70.00 mark per barrel seems quite a decent contention area.

• Gold price has shown a recovery move after gauging support below $1,960.00 as the USD index is losing upside momentum.
• Investors are expecting neutral policy guidance from Fed’s Powell.
• Gold price has witnessed an immense sell-off after a breakdown of the Double Top chart pattern, which indicates a bearish reversal.

Gold price (XAU/USD) has shown a recovery move after gauging support below $1,960.00 in the early European session. Consideration of a reversal by the precious metal would be too early as optimism over US debt-ceiling issues still persists. Apart from that, the speech from Federal Reserve (Fed) chair Jerome Powell is also improving the appeal for the US Dollar.

S&P500 futures have carry-forwarded gains to Europe added in Asia, portraying a higher risk-appetite of market participants. The US Dollar Index (DXY) is displaying a sideways performance in a narrow range below 103.60. The USD index has shifted to the sidelines ahead of the Fed Powell.

The street is eyeing guidance on interest rates for June monetary policy meeting. Investors are expecting neutral policy guidance as United States inflation is consistently declining, labor market conditions have eased some heat, and small-scale firms are suffering with tight working capital due to stiff credit conditions by the US regional banks.

Investors are optimistic that the US debt-ceiling will get raised even if the bipartisan between the White House and Republican leaders fails as US President Joe Biden would exercise his 14th Amendment right.

Gold technical analysis

Gold price has witnessed an immense sell-off after a breakdown of the Double Top chart pattern formed on a four-hour scale, which indicates a bearish reversal. The Double Top pattern activated after the Gold price exploded the crucial support plotted from April 19 low at $1,969.26. Potential support is placed from March 15 high at $1,937.39.

The 10-period Exponential Moving Average (EMA) at $1,969.25 has restricted the upside for the Gold bulls.

Also, the Relative Strength Index (RSI) (14) has shifted into the bearish range of 20.00-40.00, signaling sheer weakness ahead.

Gold four-hour chart

• The index advances further and flirts with tops near 103.60.
• Optimism around a potential debt ceiling deal remains in place.
• Fedspeak, Chief Powell take centre stage across the pond on Friday.

The greenback, when tracked by the USD Index (DXY), maintains the bid bias well and sound in the 103.60 region at the end of the week.

USD Index now looks at Fed speakers, Powell

The index navigates its fourth consecutive sessions with gains on Friday, although it seems to have met some decent resistance around the 103.60/65 band, an area last visited back in mid-March.

In the meantime, investors’ focus of attention remains on the potential bipartisan deal around the debt ceiling issue, which could materialize at some point in the next few days according to latest news.

Furthermore, recent strong results from US fundamentals – particularly the weekly labour data – lent oxygen to the idea that the Fed might raise rates in June instead of pausing its tightening cycle. On this, Dallas Fed L. Logan said on Thursday that recent data does not justify an impasse, while CME Group’s FedWatch Tool sees the probability of another 25 bps rate hike at around 37% from nearly 15% a week ago.

Absent releases in the US data space, market participants are expected to closely follow comments from NY Fed J. Williams (permanent voter, centrist) and FOMC Governor M. Bowman (permanent voter, centrist). In addition, Chair J. Powell will participate in a discussion panel with former Fed Chief B. Bernanke.

What to look for around USD

The index looks to extend further the weekly improvement to multi-week highs well past the 103.00 hurdle on Friday.

The index manages well to leave behind the recent multi-week consolidation theme, setting aside at the same time initial weakness following the recent indication that the Fed will probably pause its normalization process in the near future. That said, the future direction of monetary policy will be determined by the performance of key fundamentals (employment and prices mainly).

Favouring a pause by the Fed appears the persevering disinflation – despite consumer prices remain well above the target – incipient cracks in the labour market, the loss of momentum in the economy and persevering uncertainty surrounding the US banking sector.

Key events in the US this week: Fed J. Powel (Friday).

Eminent issues on the back boiler: Persistent debate over a soft/hard landing of the US economy. Terminal Interest rate near the peak vs. speculation of rate cuts in late 20223. Fed’s pivot. Geopolitical effervescence vs. Russia and China. US-China trade conflict.

USD Index relevant levels

Now, the index is up 0.02% at 103.53 and the break above 103.62 (monthly high May 18) could open the door to 105.78 (200-day SMA) and then 105.88 (2023 high March 8). On the downside, the next support emerges at 101.01 (weekly low April 26) prior to 100.78 (2023 low April 14) and finally 100.00 (psychological level).

• EUR/USD bears attack two-month-old horizontal support amid the oversold RSI conditions.
• 13-day-old previous support line, bearish MACD signals challenge corrective bounce of Euro pair.
• Yearly lows will be in danger on 1.0730 break while recovery remains elusive below 1.0900.

EUR/USD remains depressed at the lowest levels in two months, down for the fourth consecutive day, as Euro bears poke short-term key support surrounding 1.0750 heading into Friday’s European session.

Apart from the multiple supports marked since March 13, the oversold conditions of the RSI (14) line also challenge the Euro pair, not to forget the bullish sentiment surrounding the US Dollar.

It’s worth noting, however, that the bearish MACD signals and the previous support line from May 02, close to 1.0795 by the press time, quickly followed by the 1.0800 round figure, challenges the Euro’s corrective bounce, if any.

Also acting as an upside filter is the 50% Fibonacci retracement of March-May upside, near 1.0805, as well as the late April swing low of around 1.0910.

In a case where the EUR/USD remains firmer past 1.0910, the odds of witnessing a run-up toward the 1.1000 round figure and then to the monthly high near 1.1095 can’t be ruled out.

On the flip side, a daily closing beneath the aforementioned broad horizontal support zone of around 1.0760-30, will be detrimental for the EUR/USD pair price as it can make it vulnerable to testing the mid-March low surrounding 1.0515.

During the anticipated fall, the 1.0700 and 1.0600 round figures may check the Euro bears.

EUR/USD: Four-hour chart

Trend: Further downside expected

Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at UOB Group suggest GBP/USD could weaken further and revisit the mid-1.2300s in the near term.

Key Quotes

24-hour view: “Our view for GBP to consolidate yesterday was incorrect as it plummeted to 1.2392 before recovering slightly to end the day at 1.2409 (0.63%). Today, as long as it stays below 1.2460 (minor resistance is at 1.2440), it could break the major support at 1.2390. In view of the oversold conditions, the next major support at 1.2350 is unlikely to come into view today.”

Next 1-3 weeks: “One week ago, 12 May, when GBP was trading at 1.2515, we indicated that ‘GBP strength has ended and the downside risk is building quickly’. We added, ‘If GBP breaks below 1.2445, it could trigger a rapid decline to 1.2390’. While GBP took out 1.2445, the anticipated ‘rapid decline’ did not materialize. On Monday (15 May, spot at 1.2455), we highlighted that GBP ‘is likely to weaken further to 1.2390 but oversold short-term conditions could slow the pace of any further decline’. Yesterday (18 May), GBP dropped to within a couple of pips of 1.2390 (low of 1.2392). GBP is likely to weaken further; a clear break of 1.2390 will suggest it could drop to 1.2350, as low as 1.2300. On the upside, a breach of 1.2500 (‘strong resistance’ level previously at 1.2560) would indicate that GBP is not weakening further.”

• Asian stocks have shown significant strength amid optimism over US debt-ceiling raise.
• The Bank of Japan is anticipated to remain ultra-dovish despite an acceleration in inflationary figures.
• China is looking to expand trade facilitation measures and strengthen bilateral investment treaties with Central Asian countries.

Markets in the Asian domain are showing immense strength amid optimism over US debt-ceiling raise issues. S&P500 futures have carry-forwarded their strength in Asia. US equities recorded back-to-back bullish settlements as investors are confident that the US Treasury won't’ default either by a bipartisan between the White House and Republican leaders or the exercise of the 14^th Amendment right by US President Joe Biden.

At the press time, Japan’s Nikkei jumped 0.73%, SZSE Component gained 0.51%, Hang Seng plunged 1.21% and Nifty50 dropped 0.31%.

Japanese stocks have driven Asian markets higher as the Bank of Japan (BoJ) is anticipated to remain ultra-dovish despite an acceleration in inflationary figures. National headline Consumer Price Index (CPI) jumped to 3.5% from the prior release of 3.2% while the street was anticipating a deceleration to 2.5%. Core CPI that doesn’t include food and energy prices accelerated to 4.1% vs. the consensus of 3.4% and the former release of 3.8%.

Resilience in Japan’s economy signaled by robust Gross Domestic Product (GDP) expansion and solid corporate earnings have infused fresh blood into Nikkei.

Chinese equities are expected to remain on tenterhooks ahead of the interest rate decision by the People’s Bank of China (PBoC), which is scheduled for next week. The PBoC is expected to remain expansionary as the Chinese economy is on track to recovery after a long period of lockdown due to pandemic controls.

Meanwhile, China’s President Xi Jinping said on Friday, “The country will expand trade facilitation measures and strengthen bilateral investment treaties with Central Asian countries.” He further added Central Asia has the basis, conditions, and ability to become an important hub for Eurasian connectivity.

Open interest in gold futures markets shrank for the third session in a row on Wednesday, this time by around 104.K contracts according to preliminary readings from CME Group. Volume, instead, kept the erratic performance well in place and this time went up by more than 17K contracts.

Gold meets support near $1950

Gold prices retreated for the third session in a row on Thursday. The daily downtick came on the back of shrinking open interest, which is suggestive that a deeper decline appears out of favour for the time being. So far, the yellow metal appears to have met some initial contention around the $1950 region per ounce troy.

• WTI crude oil remains firmer inside one-week-old symmetrical triangle, eyes the first weekly gain in five.
• Firmer RSI (14) line, not overbought, joins sustained trading beyond 200-EMA to defend energy bulls.
• Oil sellers remain off the table beyond $70.70, multiple hurdle to challenge bears afterward.

WTI crude oil picks up bids to print 0.50% intraday gains near $72.50 as it appears well-set to snap a four-week downtrend amid early Friday. In doing so, the black gold rises inside a one-week-old symmetrical triangle.

Given the quote’s successful trading past an upward-sloping trend line from the last Wednesday, near $71.95 by the press time, as well as the capacity to stay beyond the 200-hour Exponential Moving Average (EMA), around $71.80 at the latest, Oil price is likely to remain firmer.

In that case, the stated triangle’s top line surrounding $73.20 becomes a crucial hurdle to watch as a break of which could quickly propel the WTI crude oil price toward the May 10 swing high near $73.80.

It’s worth noting that April’s low near $73.85-90 acts as an extra filter towards the north before directing the Oil buyers to the monthly high of $76.60.

Meanwhile, the aforementioned immediate support line and the 200-EMA, respectively near $71.95 and $71.80, restrict the short-term downside of the WTI crude oil.

Following that, the stated triangle’s bottom line, around $70.70, precedes a fortnight-old horizontal support of near $69.40-30 to challenge the energy bears.

Should the WTI price remains bearish past $69.30, the odds of witnessing a fall toward the monthly low near $64.30 can’t be ruled out.

WTI crude oil price: Hourly chart

Trend: Limited upside expected

In the view of Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at UOB Group, further weakness could drag EUR/USD back to the 1.0700 region in the near term.

Key Quotes

24-hour view: “Yesterday, we highlighted that EUR could test the major support at 1.0800 before stabilizing. We indicated, ‘The next support at 1.0750 is unlikely to come under threat’. Our view for a lower EUR was correct even though we did not quite expect it to drop so sharply (and quickly) towards 1.0750 (low has been 1.0761). While clearly oversold, the EUR weakness has not stabilized. Today, EUR could break below 1.0750 but is unlikely to be able to reach the next major support at 1.0700. Resistance is at 1.0800; a break of 1.0820 would indicate the weakness in EUR has stabilized.”

Next 1-3 weeks: “We have held a negative EUR view since the middle of last week. As EUR declines, in our latest narrative from yesterday (18 May, spot at 1.0835), we indicated that ‘the risk for EUR remains on the downside’ and ‘it has to break clearly below 1.0800 before further decline to 1.0750 is likely’. Our view was not wrong even though we didn’t quite expect it to approach 1.0750 so quickly (NY low of 1.0761). The current strong downward momentum will likely ‘override’ the severely oversold conditions. To look at it another way, a break below 1.0750 will not be surprising and will shift the focus to 1.0700. On the upside, a breach of 1.0860 (‘strong resistance’ level was at 1.0900 yesterday) indicates that the weakness in EUR has stabilized.”

• USD/MXN has shown recovery from 17.70 amid strength in the USD Index.
• Fed Powell is expected to deliver interest rate guidance for June’s monetary policy meeting.
• Banxico decided to keep the interest rate policy steady after 15 consecutive interest rate hikes in the past two years.

The USD/MXN pair has shown a decent recovery after a minor correction to near 17.70 in the Asian session. The asset is expected to extend its upside further as the US Dollar Index (DXY) is gathering strength for shifting comfortably above the critical resistance of 103.60.

S&P500 futures added decent gains in Tokyo, continuing their two-day winning streak as investors are optimistic over approval of higher US debt-ceiling limit as a US Treasury default, which could impact United States leadership positions and credibility, is not an option. Investors are not worried anymore as if negotiations for US borrowing cap limit raise fail, US President Joe Biden could exercise his 14^th Amendment right in which nations’ debt will be paid regardless of debt-ceiling raise approval by Republican leaders.

The USD Index has gained traction ahead of the speech from Federal Reserve (Fed) chair Jerome Powell. Fed Powell is expected to deliver interest rate guidance for June’s monetary policy meeting. The Fed is widely expected to keep interest rates steady as fears of a recession are deepening amid tight credit conditions by US regional banks.

Small firms are struggling to meet their working capital requirements as US banks have tightened rules for disbursing loans to avoid the build-up of Non-Performing Assets (NPAs).

On the Mexican Peso front, the Bank of Mexico (Banxico) maintained the status quo and kept interest rates steady at 11.25% on Thursday. Banxico decided to keep the interest rate policy steady after 15 consecutive interest rate hikes in the past two years.

• USD/CAD sticks to mild losses amid sluggish markets ahead of key events.
• US Dollar struggles to cheer hawkish Fed bets ahead of Powell’s speech.
• WTI crude oil braces for the first weekly gain in five around $72.50 amid market’s cautious optimism.
• US-China fears, concerns about US debt ceiling prod Loonie pair buyers even as Fed versus BoC divergence regains attention.

USD/CAD flirts with the 1.3500 round figure as bulls and bears jostle with the recent easing in the US Dollar versus the WTI crude oil’s rebound amid early Friday morning in Europe. In doing so, the Loonie pair justifies the market’s cautious mood ahead of the key events.

That said, the US Dollar Index (DXY) seesaws at the highest levels in two months amid the headlines suggesting the US House Freedom Caucus’s capacity to block any agreement to raise the $31.4 trillion debt ceiling. The same amplifies the US default woes and prods the DXY buyers of late. Also challenging the optimists is the US-Taiwan trade deal ahead of planned meetings between China's Commerce Minister Wang Wentao and USTR Tai and US Commerce Secretary Gina Raimondo.

On the other hand, the WTI crude oil braces for the first weekly gain in five as it grinds higher to $72.50 at the latest. It’s worth noting that the DXY eyes the second weekly gains but fails to weigh on the energy price amid hopes of more commodity demand due to hopes of no US default, as well as expectations of further easing in China.

Elsewhere, a slump in the market’s bets on the US Federal Reserve (Fed) rate cut in 2023, as well as an increase in the odds of a 0.25% rate hike in June, joined firmer US data and hawkish Fed talks to previously propel the DXY. Additionally favoring the greenback bulls, as well as fueling the USD/CAD, were concerns that the US policymakers will be able to overcome the default fears.

Amid these plays, S&P500 Futures struggle to refresh the yearly top as it prints mild gains near 4,220 after rising to the highest levels since August 2022 the previous day. On the same line, stocks in the Asia-Pacific region trade mixed whereas the US 10-year and two-year Treasury bond yields hesitate in extending the five-day uptrend at the monthly tops.

Moving on, Canada’s March month Retail Sales, expected -1.4% MoM versus -0.2% prior, will precede Fed Chair Jerome Powell’s speech to direct intraday moves of the USD/CAD. However, major attention will be given to US President Joe Biden’s press conference, likely on late Sunday, about the debt ceiling extension.

Technical analysis

USD/CAD remains vulnerable to further downside as the 100-DMA and a two-month-old resistance line restrict short-term upside of the Loonie pair near 1.3510 and 1.3565 in that order.

• USD/INR clings to mild gains around the highest levels in two months, retreats of late.
• Broad US Dollar strength weighs on Indian Rupee despite latest pullback in greenback.
• Upbeat Oil price, cautious mood also prods USD/INR bulls at multi-day peak.
• Fed Chair Powell’s speech, US President Biden’s announcements on debt ceiling extension eyed for clear directions.

USD/INR seesaws around 82.75-80 as it prints minor gains amid early Friday in Europe, after refreshing an eight-week high to 82.85 the previous day. In doing so, the Indian Rupee (INR) pair justifies the market’s cautious mood ahead of top-tier events amid mixed clues at home.

While portraying the mood, S&P500 Futures struggle to refresh the yearly top as it prints mild gains near 4,220 after rising to the highest levels since August 2022 the previous day. On the same line, stocks in the Asia-Pacific region trade mixed whereas the US 10-year and two-year Treasury bond yields hesitate in extending the five-day uptrend at the monthly tops.

Among the key risk-negative catalysts are the fears of the US-China tension and the recent concerns that the US debt ceiling extension may witness heavy barriers. That said, headlines suggesting the US House Freedom Caucus’s capacity to block any agreement to raise the $31.4 trillion debt ceiling prod the US Dollar Index (DXY) bulls around a two-month high.

Also challenging the USD/INR buyers is the US-Taiwan trade deal ahead of planned meetings between China's Commerce Minister Wang Wentao and USTR Tai and US Commerce Secretary Gina Raimondo.

It’s worth noting that the recently firmer prices of the WTI crude oil, up 0.65% intraday near $72.50 by the press time, join the fears of Reserve Bank of India’s (RBI) inaction, versus the hawkish hopes from the Federal Reserve (Fed) to keep the USD/INR buyers hopeful.

The concerns surrounding the RBI’s inaction gained momentum after India reported downbeat inflation data. On the other hand, a slump in the market’s bets on the US Federal Reserve (Fed) rate cut in 2023, as well as an increase in the odds of a 0.25% rate hike in June, joined firmer US data and hawkish Fed talks to propel the DXY.

Moving ahead, Federal Reserve (Fed) Chairman Jerome Powell’s speech and US President Joe Biden’s press conference, likely on late Sunday, about debt ceiling extension will be key to watch for clear directions.

Technical analysis

A seven-month-old descending resistance line, currently around 82.85, appears a tough nut to crack for the USD/INR bulls, especially amid the nearly overbought RSI (14) line.

• GBP/USD looks vulnerable above the immediate support of 1.2390 as the USD index is eyeing more upside.
• Fed’s Powell is expected to deliver interest rate guidance for June’s monetary policy meeting.
• GBP/USD has delivered a breakdown of the Head and Shoulder chart pattern.

The GBP/USD pair has displayed exhaustion in the downside momentum after slipping below the round-level support of 1.2400. The Cable is making efforts for a recovery, however, the solid US Dollar’s appeal is in traction.

S&P500 futures are holding significant gains in Asia, portraying an upbeat market mood.  The US Dollar Index (DXY) is gathering strength for shifting its auction above 103.60 ahead of the speech from Federal Reserve (Fed) chair Jerome Powell speech. Fed’s Powell is expected to deliver interest rate guidance for June’s monetary policy meeting.

GBP/USD has delivered a breakdown of the Head and Shoulder chart pattern formed on a four-hour scale. The breakdown of the H&S chart pattern indicates a bearish reversal. The neckline of the H&S pattern was plotted from April 27 low at 1.2436. Earlier, the Pound Sterling lost its charm after dropping below the upward-sloping trendline plotted from April 03 low at 1.2275.

The 20-period Exponential Moving Average (EMA) at 1.2462 is acting as a barricade for the Pound Sterling bulls.

Also, the Relative Strength Index (RSI) (14) has shifted into the bearish range of 20.00-40.00, signaling sheer weakness ahead.

Should the asset decline below the immediate support of 1.2390, US Dollar bulls will get strengthened further and will drag the Cable toward April 10 low at 1.2344 followed by April 03 low at 1.2275.

On the flip side, a recovery move above May 09 high at 1.2640 will drive the major toward the round-level resistance at 1.2700 and 26 April 2022 high at 1.2772.

GBP/USD four-hour chart

China’s President Xi Jinping said on Friday, “the country will expand trade facilitation measures and strengthen bilateral investment treaties with Central Asian countries.”

Additional quotes

• USD/CNH retreats from yearly top past 7.0500 as China’s Xi promotes stable Central Asia, Fed’s Powell eyed

• EUR/USD has shown some recovery from 1.0760 as the USD Index is struggling in extending its recovery.
• The street is anticipating that the Federal Reserve will pause the policy-tightening process as US inflation is consistently softening.
• European Central Bank President Christine Lagarde has already confirmed more than one interest rate hike is appropriate.
• EUR/USD is declining towards the 61.8% Fibonacci retracement at 1.0738.

EUR/USD has witnessed some buying interest after printing a fresh intraday low at 1.0760 in the Asian session. The major currency pair is still on tenterhooks as the US Dollar Index (DXY) has not delivered a reversal move yet. The USD Index has regained traction ahead of the speech from Federal Reserve (Fed) chair Jerome Powell.

S&P500 futures have added significant gains in the Asian session. US equities witnessed stellar buying interest in the past two trading sessions, portraying upbeat market sentiment. Investors were pumping money into stocks amid rising expectations that the US debt-ceiling raise will get approved by the weekend.

The US Dollar Index is facing pressure in extending its recovery above the immediate resistance of 103.60. The optimism over the US borrowing cap raise is consistently supporting the US Treasury yields. The yields offered on 10-year US government bonds are sustaining above 3.65%.

Democrats urge US Biden to exercise 14^th Amendment to avoid bipartisan

Speak Joseph McCarthy agreed to raise the US debt-ceiling limit against a compromise for spending initiatives to reduce the further budget deficit. US President Joe Biden and other leaders admitted the increase in US borrowing cap limit and spending initiatives a disaster and agreed to a bipartisan. However, other Democratic leaders have urged US President Joe Biden to exercise his 14^th Amendment right in which the President has the authority to pass a green note to pay the nation’s debts regardless of the debt limit Congress, if negotiations didn’t work out.

In response to that, US Biden believes that this could prompt legal action and a constitutional crisis, as reported by CNN.

Further negotiations for a US debt-ceiling raise between White House and Republican leaders are scheduled for the weekend, which will be keenly watched.

Federal Reserve Powell’s speech in focus

Before US debt-ceiling negotiations, investors have shifted their focus towards the speech from Federal Reserve Powell, which will provide cues about further monetary policy action for June. The street is anticipating that the Federal Reserve will pause the policy-tightening process as United States inflation is consistently softening, labor market conditions are releasing some heat, and retail demand is stable. According to a poll by Reuters, Federal Reserve’s interest rate at 5.00-5.25% will stay stable by the end of 2023.

More rates by European Central Bank are in pipleline

Inflationary pressures in Eurozone have rebounded in April to 7.0% from the former release of 6.9%. The recent fall in food prices has been offset by higher energy and services prices, which have renewed fears of more interest rate hikes by the European Central Bank (ECB). Investors should note that European Central Bank President Christine Lagarde has already confirmed more than one interest rate hike is appropriate.

Economists at TD Securities have materially upgraded their inflation forecast for the euro area through 2023. They now expect headline inflation to be 3.6% YoY in 23Q4 (ECB: 2.8%) and core inflation to be 4.3% that quarter (we had previously been below 4%).” Also, they suggested that the European Central Bank will continue hiking into the summer, reaching a terminal rate of 4.00% by September.”

EUR/USD technical outlook

EUR/USD is declining towards the 61.8% Fibonacci retracement (placed from March 15 low at 1.0516 to April 26 high at 1.1095) at 1.0738 on a four-hour scale. The shared currency pair is auctioning in the Falling Channel char pattern in which each pullback is considered a selling opportunity by the market participants.

The 20-period Exponential Moving Average (EMA) at 1.0828 is restricting upside for the shared currency bulls.

The Relative Strength Index (RSI) (14) is oscillating in the bearish range of 20.00-40.00, indicating more weakness ahead.

• USD/CNH marks yearly peak reversal while poking three-day uptrend.
• China President Xi endures friendship with Central Asian leaders, advocates for stable, wealthy region.
• US Dollar struggles to defend latest gains amid fresh challenges for debt ceiling deal, likely US-China tension.
• Cautious mood ahead of Fed Chair Powell’s speech also tease USD/CNH bears.

USD/CNH remains mildly bid at the highest levels in 2023 despite recent retreating from 7.0750 to 7.0500 amid early Friday morning in Europe. In doing so, the offshore Chinese Yuan (CNH) pair cheers the US Dollar’s retreat, as well as upbeat headlines from China, not to forget expectations of the People’s Bank of China’s (PBOC) intervention.

That said, China President Xi Jinping eyes stronger ties with Central Asian nations amid the Group of Seven (G7) nations’ dislike for  the Asian major’s links with Russia. “Central Asian heads of state converged in China's historic city of Xian on Thursday for one-on-ones with Chinese leader Xi Jinping to seal pledges of "enduring" friendship, paving the way for a summit expected to result in a regional pact with Beijing,” per Reuters.

On the other hand, the US Dollar Index (DXY) seesaws at the highest levels in two months amid the headlines suggesting the US House Freedom Caucus’s capacity to block any agreement to raise the $31.4 trillion debt ceiling. The same amplifies the US default woes. Also challenging the optimists is the US-Taiwan trade deal ahead of planned meetings between China's Commerce Minister Wang Wentao and USTR Tai and US Commerce Secretary Gina Raimondo.

It should be noted that a slump in the market’s bets on the US Federal Reserve (Fed) rate cut in 2023, as well as an increase in the odds of a 0.25% rate hike in June, joined firmer US data and hawkish Fed talks to previously propel the DXY. Additionally favoring the greenback bulls, as well as fueling the USD/CNH, were concerns that the US policymakers will be able to overcome the default fears.

The same propelled the offshore Chinese Yuan pair to the multiday- high and raised fears of the PBOC intervention, which in turn could be linked to the pair’s latest retreat.

Against this backdrop, , S&P500 Futures struggle to refresh the yearly top as it prints mild gains near 4,220 after rising to the highest levels since August 2022 the previous day. That said, the US 10-year and two-year Treasury bond yields also hesitate in extending the five-day uptrend at the monthly tops surrounding 3.64% and 4.25% in that order.

Looking forward, Federal Reserve (Fed) Chairman Jerome Powell’s speech and US debt ceiling negotiations will be the key for the traders to watch as US President Joe Biden said to have the decision to avoid a default by Sunday.

Technical analysis

A successful break of a five-month-old descending resistance line, now support around 6.9800, keeps the USD/CNH bulls hopeful.

• AUD/USD fails to extend the corrective bounce off multi-day low inside ascending trend channel.
• Short-term falling resistance line prods recovery moves.
• Below-50 levels of RSI suggests bottom picking inside bullish chart formation.

AUD/USD stays defensive near 0.6630 despite picking up bids during early Friday as it jostles with a one-week-old descending resistance line within a rising trend channel established since March.

It’s worth noting that the Aussie pair dropped to the lowest levels in three weeks the previous day amid broad US Dollar strength but the greenback’s retreat ahead of the top-tier events triggered the AUD/USD rebound from the lower line of a 2.5-month-old bullish channel.

Also read: AUD/USD bounces off three-week low towards 0.6650 as US Dollar retreats on mixed clues, Fed’s Powell eyed

Adding strength to the corrective bounce could be the below-50 levels of the RSI (14) line.

However, a clear upside break of a seven-day-long descending resistance line, around 0.6635 by the press time, becomes necessary to recall the AUD/USD buyers.

Even so, the weekly high of around 0.6710 and convergence of the 100-DMA and 38.2% Fibonacci retracement of the pair’s run-up from October 2022 to February 2023, near 0.6785, can challenge the AUD/USD bulls.

Alternatively, a daily closing below the stated channel’s bottom line, close to the 0.6600 round figure, could quickly fetch the Aussie bears to the 61.8% Fibonacci retracement level of near 0.6550.

AUD/USD: Daily chart

Trend: Gradual downside expected

• Gold price remains depressed near seven-week low after breaking the key support confluence, now resistance.
• Concerns surrounding US debt ceiling extension, Fed propel US Dollar and please XAU/USD bears.
• No immediate decision on US default, Fed’s inability to justify hawkish bets can trigger Gold price recovery.

Gold price (XAU/USD) struggles for clear directions as bears take a breather at the lowest levels since early April after a three-day downtrend. The metal’s latest pause in further declines could be linked to the headlines suggesting the US House Freedom Caucus’s capacity to block any agreement to raise the $31.4 trillion debt ceiling. Also challenging the optimists is the US-Taiwan trade deal ahead of planned meetings between China's Commerce Minister Wang Wentao and USTR Tai and US Commerce Secretary Gina Raimondo, which in turn can propel the Sino-American tension and prods the XAU/USD bears.

Previously, a slump in the market’s bets on the US Federal Reserve (Fed) rate cut in 2023, as well as an increase in the odds of a 0.25% rate hike in June, joined firmer US data and hawkish Fed talks to propel the US Dollar Index (DXY) and weigh on the Gold price.

Moving on, Federal Reserve (Fed) Chairman Jerome Powell’s speech and US debt ceiling negotiations will be the key for the traders to watch as US President Joe Biden said to have the decision to avoid a default by Sunday.

Also read: Gold Price Forecast: XAU/USD stays bearish as US debt ceiling talks, Fed Chair Powell’s speech loom

Gold Price: Key levels to watch

As per our Technical Confluence Indicator, the Gold price defends the previous day’s downside break of the $1,975 support confluence despite the latest inaction around the multi-day low. It should be noted that the stated key support, now resistance, comprises the Pivot Point one week S2 and the Fibonacci 61.8% on the daily timeframe (TF).

Apart from the $1,975 hurdle, multiple hurdles near $1,965 and $1,960 also challenge the Gold price recovery. That said, Fibonacci 38.2% on daily TF highlights the $1,965 as one of the important resistance while Fibonacci 23.6% on daily timeframe (TF) constitutes $1,960 as support-turned-resistance.

In a case where the Gold price manages to cross the $1,975 hurdle, Pivot Point one day R1 surrounding $1,981 can act as an additional upside filter before giving control to the XAU/USD buyers.

Meanwhile, a convergence of the previous monthly low and the lower band of the Bollinger on four-hour (4H) highlights $1,950 as an immediate key support for the Gold bears to watch.

Following that, a joint of the Pivot Point one day S1, one week S3 and one month S1 flashes lights on the $1,945 as a tough nut to crack for the XAU/USD sellers.

Overall, the Gold price remains bearish unless crossing $1,980.

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.

• USD/JPY snaps six-day uptrend at the highest levels since November 2022, struggles to defend Yen buyers of late.
• Short-term support lines, previous resistance from March challenge pair sellers.
• Pair buyers may witness bumpy road unless crossing 140.00.

USD/JPY prints the first daily loss in seven days around 138.50 even as bears struggle during early Friday amid the market’s indecision. In doing so, the Yen pair prods a four-day-old ascending support line, as well as short-term ascending trend lines, to challenge the Yen pair sellers.

That said, the USD/JPY pair’s latest retreat could be linked to the overbought RSI (14) line, as well as the cautious mood ahead of Federal Reserve (Fed) Chairman Jerome Powell’s speech and US debt ceiling negotiations. However, bullish MACD signals keep the Yen pair firmer at the highest levels since November 2022.

With this, the USD/JPY remains on the bull’s radar but the four-day ascending trend line and a one-week-old rising support line, respectively near 138.15 and 137.15, restrict short-term pullback of the pair.

Following that, a quick drop toward the 200-SMA level of 134.50 can’t be ruled out. However, the previous weekly top surrounding 135.50 may offer an additional filter towards the south of 137.15.

Meanwhile, the USD/JPY pair’s fresh recovery can aim for the latest peak of 138.75, a break of which could propel the quote towards refreshing the yearly high near 139.00.

Though, late November 2022’s top near 139.90 and the 140.00 round figure could challenge the Yen pair buyers before giving them full authority.

USD/JPY: Four-hour chart

Trend: Bullish

The Bank of Japan´s governor Kazuo Ueda has stated that he hopes that the US debt ceiling solution comes soon.

He added that a US default would have serious consequences for the global economy and that the BoJ will aim to maintain market stability, and will respond flexibly while keeping an eye on the economy, pricing, and financial events.

USD/JPY update

The W-formation on the daily chart is a reversion pattern that sees the bears eyeing the rising trendline support.

• The USD/CAD bulls will be looking to guard the support area near the 50% mean reversion mark with 1.3600 eyed. 
• CAD is pressured from all sides while US Dollar catches a bid. 

USD/CAD is edging higher in Asia as the US Dollar firms. At the time of writing, USD/CAD is trading at 1.3511 and has traveled between a low of 1.3486 and a high of 1.3512. 

The Loonie has been under pressure with a drop in oil prices as well while, at the same time, the Bank of Canada Governor Tiff Macklem stopped short of endorsing the market's recent move to price in another interest rate hike by the central bank.

Reuters reported that Macklem suggested April's inflation increase - the first in 10 months - was an anomaly and said consumer prices would continue to come down, in comments following the release of the BoC's financial system report.

Meanwhile, futures are pricing in a roughly 60% chance of the central bank resuming interest rate hikes by July, down from 80% before Macklem spoke.

Elsewhere, the optimism over debt ceiling talks in Washington has raised expectations of higher-for-longer interest rates. This has led to the US Dollar firming to a near a six-month peak against the yen on Friday on the back of rising US Treasury yields.

Reuters reported that President Joe Biden and top US congressional Republican Kevin McCarthy earlier this week underscored their determination to strike a deal soon to raise the government's $31.4 trillion debt ceiling, with hopes of finalizing a deal after Biden returns from the Group of Seven meeting in Japan on Sunday.

USD/CAD technical analysis

The bulls will be looking to guard the support area near the 50% mean reversion mark with 1.3600 eyed. 

• Market sentiment turns cautious amid fresh challenges to sentiment.
• Fears of no immediate US debt ceiling deal, US-China tension prod previous risk-on mood.
• S&P500 Futures print mild gains at the highest levels since August 2022, US Treasury bond yields retreat from multi-day top.
• Fed Chair Powell’s speech, US President Biden’s conference eyed for clear directions.

Risk profile fades the previous optimism on early Friday as markets approach the week’s key events. Also challenging the sentiment could be the risk-negative headlines from the US House of Representatives and surrounding the US-Taiwan trade deal. However, the hopes of avoiding US default and recently positive US data, tame the pessimism.

Amid these plays, S&P500 Futures struggle to refresh the yearly top as it prints mild gains near 4,220 after rising to the highest levels since August 2022 the previous day. That said, the US 10-year and two-year Treasury bond yields also hesitate in extending the five-day uptrend at the monthly tops surrounding 3.64% and 4.25% in that order.

On Thursday, the market’s optimism surrounding the US debt ceiling extension joined with upbeat US data to allow Wall Street and the US Dollar Index (DXY) to remain firmer. The same, however, exerted downside pressure on the top-tier commodities and Antipodeans before the latest consolidation.

The market’s latest shift could be linked to headlines suggesting the US House Freedom Caucus’s capacity to block any agreement to raise the $31.4 trillion debt ceiling from passing the House of Representatives, per Reuters. Also challenging the optimists is the US-Taiwan trade deal ahead of planned meetings between China's Commerce Minister Wang Wentao and USTR Tai and US Commerce Secretary Gina Raimondo, which in turn can propel the Sino-American tension and prods the US Dollar advances.

Previously, the US Dollar Index (DXY) rallied to the highest levels since early March after the market’s bets on the US Federal Reserve (Fed) rate cut in 2023 dropped while the odds of a 0.25% rate hike in June increased amid firmer US data and hawkish Fed talks.

Talking about the data, US Initial Jobless Claims for the week ended on May 12 dropped to 242K on Thursday, versus 254K expected and 264K prior whereas the Philadelphia Fed Manufacturing Survey gauge for May improved to -10.4 from -31.3 prior, versus -19.8 market forecasts. Further, US Existing Home Sales for April eased to 4.28M versus analysts’ estimations of 4.3M and 4.44M prior. It’s worth noting that the US Retail Sales and Industrial Production for April printed upbeat figures earlier in the week and inspired the Fed hawks to defend their “higher for longer rates” bias.

That said, Dallas Federal Reserve President Lorie Logan said on Thursday, as reported by CNBC, that data at this time does not support skipping an interest rate hike at the next meeting in June. On the same line, Fed Governor Philip Jefferson said on Thursday that inflation remains too high whereas St Louis Fed President James Bullard reiterated his support for higher rates.

Moving forward, Federal Reserve (Fed) Chairman Jerome Powell’s speech and US debt ceiling negotiations will be the key for the traders to watch as US President Joe Biden said to have the decision to avoid a default by Sunday. Also important will be China’s reaction to the US-Taiwan trade deal.

Also read: Forex Today: Not even risk appetite slows the Dollar

• NZD/USD has sensed selling interest above 0.6240 as the focus has shifted to Fed Powell’s speech.
• The overall market mood is still upbeat as chances for US Treasury default have trimmed dramatically.
• The RBNZ is expected to hike interest rates by a final quarter point to 5.50% next week.

The NZD/USD pair has sensed selling pressure above 0.6240 in the Tokyo session. The Kiwi asset has attracted significant offers as the US Dollar Index (DXY) has rebounded firmly ahead of the speech from Federal Reserve (Fed) chair Jerome Powell.

The US Dollar Index has shown a decent recovery after a corrective move to near 103.43. More upside in the USD Index seems favored as investors are significantly optimistic for US debt-ceiling limit raise.

S&P500 futures have trimmed some gains in the Asian session. The overall market mood is still upbeat as chances for US Treasury default have trimmed dramatically. US President Joe Biden agreed to the US borrowing cap limit raise by compromising President’s spending initiatives.

Other US congressional leaders have shown frustration for US President Joe Biden on his willingness to involve in a bipartisan deal to increase the US borrowing cap limit as lower spending initiative in the budget would create tougher work requirements for food aid recipients, as reported by Reuters.

On the Kiwi front, upbeat Trade Balance data infused some strength in the New Zealand Dollar. Monthly Trade Balance (in NZ terms) has reported a trade surplus by $427M vs. a trade deficit of -$1,586M. However, the annual trade deficit has landed at -$16.8M, remaining close to the former release.

Going forward, investors will keep an eye on the interest rate decision by the Reserve Bank of New Zealand (RBNZ). According to a Reuters poll, RBNZ Governor Adrian Orr will hike interest rates by a final quarter point on Wednesday and then end its most aggressive tightening cycle since adopting the cash rate in 1999. Also, the RBNZ would keep its Official Cash Rate steady at 5.50% (after a quarter point hike on May 24) till the year end.

In recent trade today, the People’s Bank of China (PBOC) set the yuan at 7.0356 versus the previous close of 7.0370 and estimate at 7.0392.

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.

• Silver price licks its wounds within bearish chart pattern at the lowest levels in seven weeks.
• MACD, RSI (14) suggests further short-covering of XAG/USD inside weekly falling channel.
• Silver price recovery remains elusive below 200-SMA; $23.25 appears short-term key support.

Silver price (XAU/USD) pares weekly losses around $23.50 as it retreats from intraday high but stays inside a weekly descending trend channel amid early Friday. In doing so, the bright metal fades bounce off the lowest levels in seven weeks marked the previous day.

It’s worth noting that the oversold conditions of the RSI (14) and recently bullish signals from the MACD indicator favor the XAG/USD buyers.

However, an upside break of the stated channel’s top line, close to $23.70 at the latest, becomes necessary for the Silver Bulls to enter. Even so, the weekly top of $24.10 may act as an extra filter towards the north.

Should the quote remains firmer past $24.10, the 200-SMA and previous support line from early April, respectively near $24.95 and $25.20, will be in the spotlight as they hold the gate for the XAG/USD bull’s conviction.

On the contrary, a convergence of the aforementioned falling channel from Monday and the 61.8% Fibonacci retracement level of the pair’s April-May upside, around $23.25, put a floor under the Silver price.

Following that, multiple lows marked during late March around $22.85-80 may prod the XAG/USD bears before giving them control.

Silver price: Four-hour chart

Trend: Limited recovery expected

• USD/CHF is displaying a sideways auction around 0.9050 as the USD Index has shown some correction.
• Optimism over US debt-ceiling issues has fueled strength in American stocks.
• USD/CHF is in a Mark-up phase after delivering a breakout of the Wyckoff Accumulation pattern.

The USD/CHF pair is showing a balanced auction profile around 0.9050 in the Asian session. The Swiss Franc asset has faced pressure in its upside journey around 0.9060 as the US Dollar Index (DXY) has shown some correction after meeting tough barricades above 103.60.

S&P500 futures have loaded some gains in early Asia. US equities are maintaining strength even after two-day consecutive strong performances, portraying a cheerful market mood. Optimism over US debt-ceiling issues has fueled strength in American stocks. The 10-year US Treasury yields are holding themselves above 3.65%.

USD/CHF has delivered a breakout of the Wyckoff Accumulation pattern formed on a four-hour scale. The Swiss franc asset is in a mark-up phase which displays wider bullish ticks and heavy volume. Upward-sloping 20-period Exponential Moving Average (EMA) at 0.9000 is providing support to the US Dollar bulls.

Going forward, a decisive break above May 18 high at 0.9063 will drive the asset toward the round-level resistance of 0.9100 followed by March 28 low at 0.9137.

In an alternate scenario, a downside move below May 16 low at 0.8929 will drag the asset toward April 14 low at 0.8867. A slippage below April 14 low will further drag the asset toward the Spring formation around May 04 low at 0.8820.

USD/CHF four-hour chart

• GBP/USD consolidates weekly losses after refreshing multi-day low.
• BoE Officials struggle to defend hawkish plays amid challenges to economy.
• Upbeat US data, increasing bets for Fed rate hike favor US Dollar amid hopes of no US default.
• Challenges to previous optimism, anxiety ahead of top-tier catalysts allow Cable pair to lick its wounds.

GBP/USD licks its wounds near 1.2410 as it benefits from the market’s consolidation ahead of the key events. That said, the Pound Sterling dropped to the lowest levels in three weeks the previous day amid broad US Dollar strength. Also weighing on the Cable pair was the Bank of England (BoE) Officials’ inability to defend the hawkish moves amid fears of tighter monetary policy’s negative economic impacts.

On Thursday, top-tier BoE officials faced questions by the UK parliament's Treasury Select Committee (TSC) about the central bank's sales of bonds bought under its quantitative easing programme. Among them were BoE Governor Andrew Bailey, Deputy Governor Dave Ramsden and Deputy Governor Ben Broadbent. If we closely examine their statements, all of them defend Quantitative Tightening (QT) but fail to suggest more moves in that direction while fearing economic consequences.

On the other hand, the US Dollar Index (DXY) rallied to the highest levels since early March after the market’s bets on the US Federal Reserve (Fed) rate cut in 2023 dropped while the odds of a 0.25% rate hike in June increased amid firmer US data and hawkish Fed talks. However, the latest challenges for the US debt ceiling deal and mixed concerns about the US-China ties seem to prod the greenback buyers and allow the pair to consolidate the weekly losses amid a sluggish session.

Among the key challenges for the DXY are fears of the US default and the Sino-American tension. Reuters came out with a warning note while citing the powerful group of US decision-makers, namely the House Freedom Caucus. “The small but powerful Republican faction warned this week that they could try to block any agreement to raise the $31.4 trillion debt ceiling from passing the House of Representatives, if the accord does not contain ‘robust’ federal spending cuts,” said the news. Elsewhere, the US Trade Representative's (USTR) office announced on Thursday that The US and Taiwan reached an agreement on the first part of their ‘21st Century’ trade initiative, covering customs and border procedures, regulatory practices, and small business. This comes ahead of planned meetings between China's Commerce Minister Wang Wentao and USTR Tai and US Commerce Secretary Gina Raimondo, which in turn can propel the Sino-American tension and prods the US Dollar advances.

Amid these plays, S&P 500 Futures struggle to trace Wall Street’s gains while the US Treasury bond yields remain sidelined after rising to a multi-day high the previous day.

Moving on, Federal Reserve (Fed) Chairman Jerome Powell’s speech and US debt ceiling negotiations will be crucial as Fed hawks are back to the table while US President Joe Biden said to have the decision to avoid a default by Sunday. Also important will be China’s reaction to the US-Taiwan trade deal.

Technical analysis

Unless providing a daily close beyond the six-week-old previous support line, close to 1.2425 by the press time, even the intraday buyers of the GBP/USD pair are off the table.

• EUR/USD bears could be throwing in the towel. 
• Bulls eye a run to test the 1.08s. 

As per the prior analysis, EUR/USD Price Analysis: Bears eye an extension but bulls look to test the 1.0880s, whereby EUR/USD was seen to be attempting to correct the heavy selling that has taken place over the course of several days, the following is playing out:

EUR/USD H4 chart, prior analysis

It was stated that the bulls could start to monitor for signs of deceleration and a potential correction.

The 4-hour trendline and horizontal resistance were key in this regard as a failure to break above these would leave the bears in control. 

EUR/USD H1 chart, prior analysis

The hourly chart was used to show that if the bulls committed, then there would be prospects of a move to test 1.0780s and 1.0790s and then 1.0800 and the 1.0820s.

EUR/USD live updates

On the 4-hour chart, the current candle is creeping higher toward the trendline resistance. 

The following hourly charts off a couple of scenarios:

The hourlñy 38.2% Fibonacci in the 1.0780s could act as a resistance area and although the price would be on the backside of the bearish trendline, there will still be scope for a downside extension. 

On the other hand, should the bulls commit, then a run toward a test of the bear´s commitments in the 1.08s will be on the cards. 

• GBP/JPY has slipped sharply below 172.00 amid a surprise jump in Japan’s inflation.
• Higher-than-projected Japan’s inflation numbers won’t impact BoJ’s prolonged ultra-dovish policy stance.
• Investors are anticipating that the BoE would not bring down inflation to half by the end of the year.

The GBP/JPY pair has witnessed a steep fall after failing to sustain above the immediate resistance of 172.00 in the Asian session. The cross has faced selling pressure as the Statistics Bureau of Japan has reported higher-than-anticipated inflation data for April.

National headline Consumer Price Index (CPI) jumped to 3.5% from the prior release of 3.2% while the street was anticipating a deceleration to 2.5%. Core CPI that doesn’t include food and energy prices accelerated to 4.1% vs. the consensus of 3.4% and the former release of 3.8%.

The release of the higher-than-projected inflation numbers would provide some relief to Bank of Japan (BoJ) policymakers but won’t impact their prolonged ultra-dovish policy stance. BoJ Kazuo Ueda has already conveyed that inflation projections are softening and the central bank would do whatever is required to keep inflation steadily above the 2% target.

Meanwhile, the Pound Sterling has remained solid in the past few trading sessions as the United Kingdom inflation is not showing promising signs of deceleration ahead. Investors are anticipating that the Bank of England (BoE) would not bring down inflation to half by the end of the year. BoE Governor Andrew Bailey has already conveyed that they underestimated the strength and persistence of inflation.

Further, UK Finance Minister Jeremy Hunt has promised a decline in tax burden from households, which would fuel retail demand further.

On Thursday, the UK Office for National Statistics (ONS) reported that 18% of UK firms are looking to pass on the impact of higher input prices and costly employment to end-consumers vs. 23% of firms recorded in the last survey.

• AUD/USD picks up bids to rebound from multi-day low, pares weekly losses.
• Markets sentiment dwindles amid fresh challenges for US debt limit deal, US-China ties.
• Downbeat Aussie jobs report weighs on hawkish RBA bets and prods AUD/USD bulls ahead of the key events.

AUD/USD grinds near intraday high as it clings to mild gains surrounding 0.6630 during Friday’s Asian session, after refreshing the lowest levels in three weeks the previous day.

The Aussie pair’s previous fall could be linked to the broad US Dollar run-up amid hawkish Fed bets and expectations of no US default. However, the latest challenges for the US debt ceiling deal and mixed concerns about the US-China ties seem to prod the greenback buyers and allow the pair to consolidate the weekly losses amid a sluggish session. It’s worth noting that the previous day’s disappointing Australia jobs report also exert downside pressure on the AUD/USD price.

Recently, Reuters came out with a warning note while citing the powerful group of the US decision-makers, namely the House Freedom Caucus. “The small but powerful Republican faction warned this week that they could try to block any agreement to raise the $31.4 trillion debt ceiling from passing the House of Representatives, if the accord does not contain ‘robust’ federal spending cuts,” said the news.

Elsewhere, the US Trade Representative's (USTR) office announced on Thursday that The US and Taiwan reached an agreement on the first part of their ‘21st Century’ trade initiative, covering customs and border procedures, regulatory practices, and small business. This comes ahead of planned meetings between China's Commerce Minister Wang Wentao and USTR Tai and US Commerce Secretary Gina Raimondo, which in turn can propel the Sino-American tension and prods the US Dollar advances.

On Thursday, the US Dollar Index (DXY) rallied to the highest levels since early March after the market’s bets on the US Federal Reserve (Fed) rate cut in 2023 dropped while the odds of a 0.25% rate hike in June increased amid firmer US data and hawkish Fed talks.

That said, US Initial Jobless Claims for the week ended on May 12 dropped to 242K on Thursday, versus 254K expected and 264K prior whereas the Philadelphia Fed Manufacturing Survey gauge for May improved to -10.4 from -31.3 prior, versus -19.8 market forecasts. Further, US Existing Home Sales for April eased to 4.28M versus analysts’ estimations of 4.3M and 4.44M prior. It’s worth noting that the US Retail Sales and Industrial Production for April printed upbeat figures earlier in the week and inspired the Fed hawks to defend their “higher for longer rates” bias, which in turn allowed the US Dollar to regain its power.

In a case of the Federal Reserve officials’ comments, Dallas Federal Reserve President Lorie Logan said on Thursday, as reported by CNBC, that data at this time does not support skipping an interest rate hike at the next meeting in June. On the same line, Fed Governor Philip Jefferson said on Thursday that inflation remains too high whereas St Louis Fed President James Bullard reiterated his support for higher rates.

Looking ahead, Federal Reserve (Fed) Chairman Jerome Powell’s speech and US debt ceiling negotiations will be the key for the AUD/USD pair traders to watch as US President Joe Biden said to have the decision to avoid a default by Sunday. Also important will be China’s reaction to the US-Taiwan trade deal.

Technical analysis

Despite bouncing off a 10-week-old ascending support line, around 0.6600 by the press time, the AUD/USD pair needs validation from weekly resistance line, close to 0.6640 at the latest, to convince buyers.

• US Dollar Index bulls take a breather at multi-day top after three-day uptrend.
• Hawkish Fed bets, hopes of no US default underpin US Treasury bond yields and DXY run-up.
• Challenges to US debt ceiling deal, likely spat between the Washington and Beijing over Taiwan poke US Dollar Index bulls.
• Fed Chair Powell’s speech, US President Biden’s conference eyed for clear directions.

US Dollar Index (DXY) remains sidelined near 103.50 as it makes rounds to the highest levels in two months amid Friday’s sluggish session, mainly due to the latest challenges to the US Dollar and sentiment. Even so, hawkish Federal Reserve (Fed) concerns and hopes of no US default put a floor under the DXY.

The market’s bets on the Fed rate cut in 2023 dropped heavily in recent days while the odds of a 0.25% rate hike in June gained acceptance, even with little speed. The same allows the US Dollar and yields to remain firmer.

Behind the hawkish Fed bets are the latest US data and Fed talks. That said, US Initial Jobless Claims for the week ended on May 12 dropped to 242K on Thursday, versus 254K expected and 264K prior whereas the Philadelphia Fed Manufacturing Survey gauge for May improved to -10.4 from -31.3 prior, versus -19.8 market forecasts. Further, US Existing Home Sales for April eased to 4.28M versus analysts’ estimations of 4.3M and 4.44M prior. It’s worth noting that the US Retail Sales and Industrial Production for April printed upbeat figures earlier in the week and inspired the Fed hawks to defend their “higher for longer rates” bias, which in turn allowed the US Dollar to regain its power.

In a case of the Federal Reserve officials’ comments, Dallas Federal Reserve President Lorie Logan said on Thursday, as reported by CNBC, that data at this time does not support skipping an interest rate hike at the next meeting in June. On the same line, Fed Governor Philip Jefferson said on Thursday that inflation remains too high whereas St Louis Fed President James Bullard reiterated his support for higher rates.

Furthermore, the latest speeches from US President Joe Biden and Republican US House Speaker Kevin McCarthy keep markets hopeful of witnessing no default of the US in paying its government debt. The same allows the US Dollar and yields to remain firmer.

Contrary to what’s mentioned above, the latest challenges for US President Biden in avoiding the US default and the likely escalation in the US-China tussles due to the trade deal between the US and Taiwan seem to cap the DXY. Also pausing the DXY run-up could be the market’s anxiety ahead of Federal Reserve Chairman Jerome Powell’s speech.

As markets turn optimistic about no US default, backed by the latest speeches from US President Joe Biden and Republican US House Speaker Kevin McCarthy, Reuters came out with a warning note while citing the powerful group of the US decision-makers, namely the House Freedom Caucus. “The small but powerful Republican faction warned this week that they could try to block any agreement to raise the $31.4 trillion debt ceiling from passing the House of Representatives, if the accord does not contain ‘robust’ federal spending cuts,” said the news.

On the other hand, the US Trade Representative's (USTR) office announced on Thursday that The US and Taiwan reached an agreement on the first part of their ‘21st Century’ trade initiative, covering customs and border procedures, regulatory practices, and small business. This comes ahead of planned meetings between China's Commerce Minister Wang Wentao and USTR Tai and US Commerce Secretary Gina Raimondo, which in turn can propel the Sino-American tension and prod the US Dollar advances.

Amid these plays, S&P 500 Futures struggle to track Wall Street’s gains while posting a minor upside near the 4,220 level.

Moving on, Federal Reserve (Fed) Chairman Jerome Powell’s speech and US debt ceiling negotiations will be the key as US President Joe Biden said to have the decision to avoid a default by Sunday. Should Fed Chair Powell manage to defend the latest hawkish bias about the US central bank, the US Dollar may have a further upside to track. On the other hand, US President Joe Biden’s inability to seal the deal could trigger the US Dollar’s slump.

Technical analysis

The first daily closing beyond the 100-DMA in more than 2.5 months allow the US Dollar Index (DXY) bulls to aim for a downward-sloping resistance line from late November, around 104.40 by the press time.