Forex-novosti i prognoze od 16-05-2023

Japanese economic growth came in as 0.4% versus 0.1% expected and 0.0% prior, per the preliminary reading of the first quarter (Q1) 2023 Gross Domestic Product (GDP) figures.

More to come

• US Dollar Index grinds higher after reversing week-start retreat from monthly top.
• US Retail Sales, Industrial Production offered positive surprise for April, Fed policymakers defend hawkish play.
• US President Biden, House Speaker McCarthy’s debt ceiling negotiations ended too soon, cited hopes of a deal by this weekend.
• Second-tier US housing data, risk catalysts eyed for clear directions.

US Dollar Index (DXY) seesaws around 102.60 amid early Wednesday, following a run-up to reverse the early week pullback from the highest levels in five weeks. With this, the greenback’s gauge versus six major currencies justify upbeat US data and hawkish Federal Reserve (Fed) comments while also making note of the latest positive development about the US debt ceiling issue.

US President Joe Biden and top congressional Republican Kevin McCarthy’s meeting ended within an hour and raised expectations of a positive development as congressional leaders, said, "It is possible to get a deal by the end of the week." Following the news, Reuters quotes the S&P Global Market Intelligence data while marking a fall in the one-year US Credit Default Swap (CDS) spreads from 164 basis points (bps) to 155 bps. “Spreads on five-year CDS decreased to 69 basis points from 72 bps on Monday,” reported the news.

That said, Federal Reserve Bank of Chicago President Austan Goolsbee and Atlanta Fed President Raphael Bostic recently defended the US central bank’s hawkish moves by citing inflation woes as they spoke at a conference hosted by the Federal Reserve Bank of Atlanta. Previously, Richmond Fed Thomas Barkin said in an interview with the Financial Times (FT) that if inflation persists, or God forbid accelerates, there’s no barrier in my mind to further increases in rates. On the same line, Cleveland Fed President Loretta Mester said, “I don’t think we're at that hold rate yet.”

It’s worth noting that US Retail Sales improved to 0.4% MoM for April, from -0.7% prior (revised) versus 0.7% expected. More importantly, Retail Sales Control Group for the said month crossed market forecasts of 0.0% and -0.4% prior with 0.7% actual figure whereas Retail Sales ex Autos matches 0.4% MoM estimations for April¸ surpassing the -0.5% prior. Further, the US Industrial Production MoM rose to 0.5% for April versus expectations of printing a 0.0% figure.

Amid these plays, the US Treasury bond yields remained firmer and Wall Street witnessed losses on Tuesday. However, the S&P500 Futures print mild gains by the press time.

Moving on, US Building Permits and Housing Starts for April will decorate today’s calendar and can entertain the DXY traders. However, major attention will be given to US debt ceiling updates and Fed talks for clear directions.

Technical analysis

Although 50-DMA puts a floor under the US Dollar Index (DXY) price near 102.35, a five-week-old horizontal resistance area around 102.75-80, followed by the 100-DMA hurdle of 102.90, can prod the bulls.

“Fear with rising unemployment is that once joblessness starts to rise it ‘goes way up’,” said Federal Reserve Bank of Chicago President Austan Goolsbee while participating in a conference hosted by the Federal Reserve Bank of Atlanta, together with Atlanta Fed President Raphael Bostic.

Also read: Fed's Bostic: Pressure on Fed will be “enormous” if unemployment starts to rise, inflation remains sticky

Key comments

Market reaction

Even if Fed’s Goolsbee fails to amplify hawkish comments from Atlanta Fed President Bostic, the tone of the statements appears positive for the US Dollar. However, the US Dollar Index (DXY) remains unimpressive as bulls take a breather around 102.70 after reversing the week-start gains.

Also read: Forex Today: Higher US yields, risk aversion lead to a stronger US Dollar

• USD/CHF is looking to stretch its upside move above 0.8970 amid a cautious market mood.
• The US debt-ceiling issues are expected to get a constructive outcome by the end of the week.
• Fed Barkin has opened room for more rate hikes while the street is anticipating a steady interest rate policy ahead.

The USD/CHF pair is looking to stretch its recovery above the immediate resistance of 0.8970 in the Asian session. The Swiss franc asset has rebounded firmly as the US debt-ceiling negotiations for raising the same to avoid the situation of default in augmenting obligated payments by the US treasury have been postponed.

S&P500 futures have added significant gains in early Asia after a bearish Tuesday. Market sentiment is still quite nervous as an absence of a constructive outcome from US debt-ceiling talks has pushed the United States economy further towards recession.

The White House and Republican leaders have admitted that a default that contains approval of a higher borrowing limit without cutting spending cannot be approved. Also, Reuters reported that the meeting ended on an upbeat and unexpected note as McCarthy, coming out of the meeting with Biden and other congressional leaders, said, "It is possible to get a deal by the end of the week."

The US Dollar Index (DXY) has sensed pressure in extending its recovery above 102.70, however, the upside seems favored after commentary from Federal Reserve (Fed) policymakers. Richmond Fed Bank President Thomas Barkin, cited on Tuesday that he would be comfortable with more interest rate hikes if needed to bring inflation down. The commentary from Fed Barkin has opened room for more rate hikes while the street is anticipating a steady interest rate policy ahead.

Meanwhile, markets in the Swiss economy will remain closed on Wednesday on account of Ascension Day.

“Fed will have to stay ‘super strong’ in its inflation commitment,” said Federal Reserve (Fed) Bank of Atlanta President Raphael Bostic while participating in a conference hosted by the Federal Reserve Bank of Atlanta.

Additional comments

Market reaction

Given the unimpressive statements and the early hours of the Asian session, market players fail to react to the statements. Even so, the US Dollar grinds higher after reversing the week-start losses.

Also read: Forex Today: Higher US yields, risk aversion lead to a stronger US Dollar

• EUR/USD stays pressured towards monthly low after breaking immediate bullish channel formation.
• Nearly oversold RSI, multiple supports near 1.0845-35 challenge Euro sellers.
• Downbeat MACD signals, jungle of resistances keep EUR/USD bears hopeful.

EUR/USD holds lower grounds near 1.0860 amid the early hours of Wednesday’s Asian session, after reversing the week-start rebound on Tuesday.

In doing so, the Euro pair justifies the previous day’s downside break of a weekly bullish channel, as well as the bearish MACD signals, amid a nearly oversold RSI (14) line.

Apart from the RSI (14) line that suggests limited room for the Euro pair towards the south, multiple lows marked since April 10 around 1.0837-45 also challenge the EUR/USD bears.

Hence, the pair sellers may retreat after hitting the aforementioned immediate support, maybe around that, failing to do so won’t hesitate to challenge the previous monthly low of around 1.0785. That said, the 1.0800 round figure may act as an intermediate halt during the likely fall.

On the contrary, the stated channel’s bottom line, near 1.0885 by the press time, guards the immediate recovery of the EUR/USD pair.

Following that, the 100-Hour Moving Average (HMA) and a fortnight-old descending trend line, respectively near 1.0900 and 1.0925, may prod the Euro pair buyers.

It’s worth noting that a horizontal area comprising multiple levels marked since May 02 and the 200-HMA, close to 1.0935-45 and 1.0950 in that order, appear as the last defense of the EUR/USD bears.

EUR/USD: Hourly chart

Trend: Limited downside expected

• GBP/USD has turned sideways after a sell-off move below 1.2500 as approval for raising the US debt-ceiling limit has been delayed.
• The Pound Sterling remained in action on Tuesday after the release of the downbeat UK Employment data.
• GBP/USD is at a make or a break level near the lower portion of the Rising Channel chart pattern plotted from 1.2276.

The GBP/USD pair is demonstrating a sideways auction above 1.2480 after a downside move below the psychological support of 1.2500 in the early Asian session. The Cable witnessed a steep fall after the White House reported that the decision for the approval of a higher US borrowing cap limit has been postponed till the end of the week.

Market mood is expected to remain cautious as each day spent without a concrete decision on the US debt-ceiling is pushing the United States economy into a position of default. The US Dollar Index (DXY) rebounded to near 102.60 as all parties familiar with US debt-ceiling negotiations have admitted disagreement for the approval of a higher US debt-ceiling limit without cutting the spending budget.

The Pound Sterling rebounded sharply on Tuesday after the release of the downbeat United Kingdom Employment data. However, those gains have faded now. Three-month Unemployment Rate jumped to 3.9% vs. the estimates and the former release of 3.8%. Claimant Count Change (April) soared to 46.7K while the street was anticipating a decline of 10.8K. Also, Average Earnings excluding bonuses landed at 6.7%, missing estimates of 6.8%.

GBP/USD is at a make or a break level near the lower portion of the Rising Channel chart pattern plotted from April 03 low at 1.2276. The 50-period Exponential Moving Average (EMA) has restricted the upside of the Pound Sterling.

A confident break of the Relative Strength Index (RSI) (14) below 40.00 will trigger the downside momentum.

A downside move below May 12 low at 1.2440 will trigger a breakdown of the Rising Channel pattern and will expose the Cable to April 21 low at 1.2367 followed by April 03 low at 1.2276.

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

• AUD/USD stays depressed after welcoming bears the previous day.
• Aussie bears previously cheered US debt ceiling concerns, strong US data and downbeat Australia job numbers.
• Disappointment from China data, dicey markets supersede receding fears of US default to exert more downside pressure on AUD/USD.
• Australia’s Q1 Wage Price Index, risk catalysts eyed for clear directions.

AUD/USD justifies its risk barometer status as it remains pressured near 0.6650 amid early Wednesday morning in Asia, after reversing the week-start gains the previous day. The Aussie pair’s latest inaction may also be linked to the cautious mood ahead of the key Aussie wage data, as well as receding fears of the US default. However, hawkish Fed talks and strong US data, as well as an absence of a strong message suggesting a US debt ceiling extension prod the Aussie bulls.

That said, Reuters reported that the Democratic President Joe Biden and top congressional Republican Kevin McCarthy's US debt ceiling negotiations ended on Tuesday after less than an hour, as the looming fear of an unprecedented American debt default prompted Biden to cut short an upcoming Asia trip. The news also mentioned that the meeting ended on an upbeat and unexpected note as McCarthy, coming out of the meeting with Biden and other congressional leaders, said, "It is possible to get a deal by the end of the week."

Following the news, Reuters quotes the S&P Global Market Intelligence data while marking a fall in the one-year US Credit Default Swap (CDS) spreads from 164 basis points (bps) to 155 bps. “Spreads on five-year CDS decreased to 69 basis points from 72 bps on Monday,” reported the news.

Elsewhere, US Retail Sales improved to 0.4% MoM for April, from -0.7% prior (revised) versus 0.7% expected. More importantly, Retail Sales Control Group for the said month crossed market forecasts of 0.0% and -0.4% prior with 0.7% actual figure whereas Retail Sales ex Autos matches 0.4% MoM estimations for April¸ surpassing the -0.5% prior. Further, the US Industrial Production MoM rose to 0.5% for April versus expectations of printing a 0.0% figure.

Talking about the Fed comments, Richmond Fed Thomas Barkin said in an interview with the Financial Times (FT) that if inflation persists, or God forbid accelerates, there’s no barrier in my mind to further increases in rates. On the same line, Cleveland Fed President Loretta Mester said, “I don’t think we're at that hold rate yet.”

It should be noted that the Reserve Bank of Australia’s (RBA) Monetary Policy Meeting Minutes showed the policymakers’ accord to the hawkish surprise even as some of the floors cited easing inflation fears and discussed policy pivot. Furthermore, downbeat data from China, Australia’s biggest consumer, also weigh on the AUD/USD price. Additionally, fears of more West versus Russia tension and the US-China tussles exert more downside pressure on the AUD/USD price. It should be noted that the recession woes are an extra load on the Aussie price.

Against this backdrop, the US Treasury bond yields remained firmer and Wall Street witnessed losses on Tuesday, which in turn allowed the US Dollar to cheer the haven demand. As a result, the AUD/USD price remained pressured.

Looking ahead, the RBA Meeting Minutes defend the policymakers’ hawkish bias and hence upbeat signal from today’s Aussie Q1 Wage Price Index, expected to increase to 3.6% YoY versus 3.3% prior, could allow the AUD/USD pair to pare recent losses. However, a light calendar elsewhere and mixed sentiment may keep the Aussie sellers hopeful.

Technical analysis

Sustained trading below the 200-DMA hurdle of around 0.6720 joins the firmer US Dollar to push the AUD/USD prices toward an upward-sloping support line from March 10, close to 0.6620 at the latest.

“A measure of the cost to insure exposure to U.S. government debt declined on Tuesday as Democratic President Joe Biden and top congressional Republican Kevin McCarthy edged closer to a deal to avoid a debt default,” said Reuters early Wednesday morning in Asia.

The news quotes the S&P Global Market Intelligence data while marking a fall in the one-year US Credit Default Swap (CDS) spreads from 164 basis points (bps) to 155 bps. “Spreads on five-year CDS decreased to 69 basis points from 72 bps on Monday,” reported the news.

While providing details, Reuters also states that a closely-watched meeting on Tuesday between President Biden and McCarthy, the speaker of the House of Representatives, ended on an upbeat note, with the White House describing the meetings as "productive and direct."

Also read: Forex Today: Higher US yields, risk aversion lead to a stronger US Dollar

• USD/CAD is aiming to recapture the critical resistance of 1.3500 amid a delay in the approval of a higher US debt-ceiling limit.
• The USD index rebounded strongly despite weaker-than-anticipated monthly US Retail Sales data.
• A rebound in Canada’s inflation might force the Bank of Canada (BoC) to reconsider its neutral interest rate policy stance ahead.

The USD/CAD pair has shown a V-shape recovery from near the round-level support of 1.3400 as negotiations between White House and Republican leaders concluded without a constructive outcome. Reuters reported that the meeting ended on an upbeat and unexpected note as McCarthy, coming out of the meeting with Biden and other congressional leaders, said, "It is possible to get a deal by the end of the week."

S&P500 futures are showing some gains in the Asian session as the Federal Reserve (Fed) is highly likely to hold the interest rate policy steady in June. The overall market mood has turned cautious amid further delay for an urgent outcome from the US debt ceiling negotiations.

The US Dollar Index (DXY) is showing signs of volatility contraction around 102.70 and is expected to add more gains ahead. On Tuesday, the USD index rebounded strongly despite weaker-than-anticipated monthly US Retail Sales data (April). The economic data expanded at a slower pace at 0.4% against the estimate of 0.7%. A mild expansion is insufficient to impact expectations for a steady monetary policy but is also not strongly supportive of holding interest rates ahead.

On the Canadian Dollar front, inflation figures have turned out persistent. Annual headline Consumer Price Index (CPI) (April) landed at 4.4%, higher than the consensus of 4.1% and the former release of 4.3%. While the core inflation landed between the estimates of 3.9% and the prior release of 4.3% at 4.1%. This might force the Bank of Canada (BoC) to reconsider its neutral interest rate policy stance ahead.

• Gold Price breaks short-term key supports as bears cheer firmer US Dollar.
• Hopes of United States debt limit extension, upbeat US data and hawkish Federal Reserve talks weigh on XAU/USD.
• S&P500 Futures remain depressed tracing downbeat Wall Street performance, Treasury bond yields rise amid risk-off mood.
• Risk catalysts will be the key to follow for the Gold price predictions.

Gold Price (XAU/USD) holds lower grounds at a two-week bottom surrounding $1,990 early Wednesday, after breaking the key short-term support lines during the previous day’s fall. That said, the yellow metal bears the burden of the strong US Dollar, as well as upbeat United States data, while failing to justify the optimism surrounding the US debt limit extension.

Gold price drops on firmer US Dollar, fails to cheer debt limit hopes

Gold price broke important supports and marked the biggest daily loss in nearly a fortnight as the US Dollar Index (DXY) remains firmer despite the recent relief in the risk markets due to the receding fears of the United States default. The reason for the DXY run-up could be linked to the strong US data and the hawkish Federal Reserve (Fed) commentary.

Recently, Reuters reported that the Democratic President Joe Biden and top congressional Republican Kevin McCarthy's US debt ceiling negotiations ended on Tuesday after less than an hour, as the looming fear of an unprecedented American debt default prompted Biden to cut short an upcoming Asia trip. The news also mentioned that the meeting ended on an upbeat and unexpected note as McCarthy, coming out of the meeting with Biden and other congressional leaders, said, "It is possible to get a deal by the end of the week."

On Tuesday, US Retail Sales improved to 0.4% MoM for April, from -0.7% prior (revised) versus 0.7% expected. More importantly, Retail Sales Control Group for the said month crossed market forecasts of 0.0% and -0.4% prior with 0.7% actual figure whereas Retail Sales ex Autos matches 0.4% MoM estimations for April¸ surpassing the -0.5% prior. Further, the US Industrial Production MoM rose to 0.5% for April versus expectations of printing a 0.0% figure.

It should be noted that Richmond Fed Thomas Barkin said in an interview with the Financial Times (FT) that if inflation persists, or God forbid accelerates, there’s no barrier in my mind to further increases in rates. On the same line, Cleveland Fed President Loretta Mester said, “I don’t think we're at that hold rate yet.”

Amid these plays, the US Treasury bond yields remained firmer and Wall Street witnessed losses on Tuesday, which in turn allowed the US Dollar to cheer the haven demand. As a result, the Gold price remained pressured.

China data, geopolitical fears also weigh on XAU/USD

Apart from what’s already mentioned above, downbeat data from China, one of the world’s biggest Gold consumers, also weigh on the XAU/USD price. Additionally, fears of more West versus Russia tension and the US-China tussles exert more downside pressure on the Gold price. It should be noted that the recession woes are an extra load on the Gold price.

Moving on, Wednesday’s light calendar may allow the Gold price to consolidate recent losses in a case where the sentiment improves. As a result, the risk catalysts will be eyed for clear directions of the XAU/USD.

Gold price technical analysis

Gold price remains well below an eight-day-old horizontal support of around $2,000, as well as an upward-sloping support line from late March, close to $1,993 by the press time, suggesting the bear’s dominance.

It’s worth noting that the bearish signals from the Moving Average Convergence and Divergence (MACD) indicator teases sellers but the lower lows on the Relative Strength Index (RSI), placed at 14, hint at limited downside room.

As a result, the XAU/USD sellers might want to wait for a clear downside break of the 50-DMA support of $1,982 for conviction.

Meanwhile, the Gold price corrective bounce needs validation from the aforementioned support-turned-resistances around $1,993 and $2,000 before recalling the XAU/USD bulls targeting a five-week-old horizontal resistance area surrounding $2,050.

Following that, the latest all-time high of around $2,080 and the $2,100 round figure will be on the radars of the XAU/USD bulls.

Overall, the Gold price remains on the seller’s desk but a sustained downside break of $1,982 becomes necessary to convince bears.

Gold price: Daily chart

Trend: Recovery expected

• NZD/USD bulls were pressured following a fresh high in the daily chart´s correction. 
• Uncertainty over the US debt ceiling and hawkish Fedspeak may fuel USD safe-haven demand.

NZD/USD is down by some 0.16% as the forex markets head towards a close on Tuesday. The pair traveled from a high of 0.6259 and made a low of 0.6223.

´´The Kiwi lost a little of yesterday’s shine and is down a touch as we get underway today, but moves have been orderly and contained, mostly reflecting a slight uptick in the USD DXY as bond yields rose, data and Fedspeak surprised to the up/hawkish side,´´ analysts at ANZ Bank explained.

The analysts also explained that 1) ´´local participants are starting to size up the Budget, with the bond markets nervous about bond supply and FX markets worried about how credit rating agencies will perceive the Budget, hoping for a tick, but fearing the opposite,´´and 2) ´´More bonds pose an upside risk to bond yields, but not in a “good” way, as it’s supply, not demand driven. But going the other way, uncertainty over the US debt ceiling and hawkish Fedspeak may fuel USD safe-haven demand and it seems reasonable to expect more volatility.´´

NZD/USD technical analysis

As per the prior day´s analysis, NZD/USD bulls in the market and eye a firm correction, the pair moved up into the 38.2% Fibonacci resistance:

Prior analysis:

Update:

There are prospects of a move lower although the 4-hour and 1-hour charts can be used to gauge as to whether there is going to be a deceleration in the bullish correction and so far, it is early days still. 

Japan's growth data for the first quarter and the Australian Wage Price Index will be the highlights of the Asian session on Wednesday. Despite mixed data and the ongoing debt ceiling drama, the US Dollar has gained momentum.

Here is what you need to know on Wednesday, May 17:

The US Dollar strengthened across the board on Tuesday, driven by higher US yields and mixed US data. The Dow Jones index experienced a 1% loss, while the Nasdaq slid by 0.18%. Investor sentiment remained cautious. The US Dollar Index gained 0.20% and was last observed above 102.60.

“The president changed the scope of who is negotiating,” said Kevin McCarthy, the top congressional Republican, during his talks regarding the debt ceiling. He sounded more optimistic about a deal to avoid a US default. 

US Retail Sales rose by 0.4% in April, falling short of the market consensus of 0.7%. However, March figures were revised higher from -1% to -0.7%. Industrial Production expanded by 0.5% in April, surpassing the market consensus of 0%. On Wednesday, the US will report Building Permits and Housing Starts.

Fed’s Mester sounded hawkish on Tuesday. She mentioned she would like to get to a point where it could equally be a potential increase or decrease in interest rates. “I don’t think we’re at that hold rate yet”. More Fed speakers are scheduled on Wednesday. Earlier, Fed’s Barking said that if inflation persists or accelerates “there’s no barrier in my mind to further increases”. 

The US 10-year Treasury yield rose to 3.57%, reaching its highest level in two weeks before retracing slightly. The 2-year yield reached 4.12%. European yields also rose, weighing on the Japanese Yen. USD/JPY reached fresh weekly highs above 136.60 before pulling back modestly. Japan will release preliminary Q1 GDP and March Industrial Production data.

EUR/USD was rejected from above 1.0900 and dropped towards 1.0850. It continues to maintain a bearish tone, trading near the weekly low area. Final inflation data is due in the Eurozone on Wednesday.

GBP/USD failed to hold above 1.2500 and pulled back due to a strong US Dollar. The Pound was also influenced by UK data. The ILO Unemployment rate unexpectedly edged higher from 3.8% to 3.9% in the three months to March, reaching the highest level in over a year. The claimant count change also showed an unexpected increase of 46.7K in April, compared to an expected decline of 10.8K.

USD/CAD finished modestly higher, above 1.3470. The Canadian Dollar strengthened across the board following higher-than-expected Canadian inflation data. The annual Consumer Price Index (CPI) unexpectedly accelerated for the first time since June 2022, reaching 4.4%.

Analysts at RBC wrote: 

NZD/USD attempted a recovery but retreated to 0.6230 after reaching 0.6258. AUD/USD fell from above 0.6700 to 0.6655. The Australian Dollar lagged due to weaker Chinese data, the RBA minutes and a larger-than-expected decline in the Westpac Consumer Confidence report for May. Australia will release the Wage Price Index on Wednesday and the Employment report on Thursday.

Gold experienced a sharp drop below $2,000, remaining under pressure and potentially testing the crucial support level of $1,970. Silver also lost ground, falling to $23.60. Crude oil prices retraced some of Monday's gains, with WTI ending around $70.55. Cryptocurrencies also experienced losses; BTC/USD falling below $27,000 by 1.40%.

• EUR/USD stays in negative territory, down 0.06%, as solid US economic data triggers a jump in US Treasury bond yields and strengthens the US Dollar.
• Eurozone data largely aligned with estimates, while ZEW Economic Sentiment Index dropped sharply, reflecting increasing recession fears in the bloc.
• Upcoming speeches from regional Fed Presidents could provide further insight into US monetary policy, with some officials stating it’s too early to discuss rate cuts.

EUR/USD trims some of its earlier losses though it remains in negative territory, sponsored by solid economic data from the United States (US), triggering a jump in US Treasury bond yields. Therefore, the  US Dollar (USD) rose, helped by US bond yields, while Eurozone’s (EU) data was aligned with estimates. The EUR/USD is trading at 1.0868, down 0.06%.

US Dollar strengthens as Eurozone data aligns with estimates, ZEW sentiment index plunges

US equities are slightly mixed, except for the Nasdaq 100. US Retail Sales for April improved, with some figures missing estimates, but overall, the month-over-month (MoM) numbers beat March’s data, except for Retail Sales on an annual basis. Later, the US Federal Reserve (Fed) reported that Industrial Production for April rose by 0.5% MoM, above estimates, while year-over-year (YoY) stood at 0.2% above March’s 0.1%.

Although the EUR/USD’s initial reaction headed towards 1.0880s, overall US Dollar strength dragged the exchange rates toward the day’s lows at 1.0855. The US Dollar Index (DXY), a gauge of the buck’s value against a basket of six currencies, trimmed some of Monday’s losses, edging up 0.17% at 102.597.

The EU’s agenda revealed the Balance of Trader printed a surplus of 25.6 billion of Euro’s, above the prior’s month 4.6 Billion. Furthermore, the Gross Domestic Product (GDP) for Q1 was aligned with estimates at 1.3%, while the Employment Change QoQ rose 0.6% in Q1. The ZEW Economic Sentiment Index plunged to -9.4 as recession fears mount, despite the ongoing tightening cycle by the European Central Bank (ECB).

Aside from this, US debt ceiling discussions finished in the White House, and initial reports prompted that US Congress leaders agreed that a deal is possible by the end of the week while emphasizing that a default “is a horrible option.”

Late Fed speakers like Aaron Golsbee and Lorie Logan, Presidents of the Chicago and Dallas Fed Regional Banks, commented that it’s early to discuss interest rate cuts. Logan added that when conditions are uncertain, the Fed may need to move more slowly and added that we need to move slowly.

EUR/USD Technical Levels

Reuters reported that the Democratic President Joe Biden and top congressional Republican Kevin McCarthy's U.S. debt ceiling negotiations ended on Tuesday after less than an hour, as the looming fear of an unprecedented American debt default prompted Biden to cut short an upcoming Asia trip.

Reuters reported that the meeting ended on an upbeat and unexpected note as McCarthy, coming out of the meeting with Biden and other congressional leaders, said, "It is possible to get a deal by the end of the week."

US Senate majority leader Schumer's comments

• USD/JPY is meeting support on the front side of the bullish trend,
• If the trendline breaks, then the bears will be encouraged to move in.

USD/JPY has been in the hands of the bulls. However, there is the possibility of a significant correction to the downside if support near 136.20 fails. 135.50 would then be eyed as the following video illustrates.

USD/JPY daily chart

The price is running into resistance as illustrated within the W-formation. This is a reversion pattern that opens risk towards the neckline and trendline support. 

USD/JPY H4 chart

There is firm resistance as seen on the 4-hour chart and we are now testing support.

A break of the support and the trendline opens risk of a move to the downside as illustrated above. 

USD/JPY H1 chart

From an hourly perspective, the price is meeting support but while still on the front side of the bullish trend, there will be prospects of a continuation for the sessions ahead. If, however, the trendline breaks, the bears will be encouraged to move in.

• Silver prices slide as US retail sales data spur a jump in US Treasury bond yields, driving XAG/USD down to six-week lows around $23.64.
• Technical outlook shows a double-top chart pattern with XAG/USD between 50 and 100-day EMAs, while a bearish RSI suggests further declines may be imminent.
• XAG/USD could target the $22.90 level if the 100-day EMA is breached, while reclaiming the $24.00 figure could pave the way for a rally toward the 50-day EMA and potentially $25.00.

Silver price continues to validate a double-top formation, falls to fresh six-week lows around $23.64, shy of testing the 100-day Exponential Moving Average (EMA) at $23.48. Factors like US Retails Sales improving in April spurred a jump in US Treasury bond yields, a headwind for the white metal. Therefore, the XAG/USD is trading at $23.73 after reaching a daily high of $24.10.

XAG/USD Price Analysis: Technical outlook

A double-top chart pattern remains as the XAG/USD continued to slide, sitting between the 50 and 100-day EMAs, each at $24.24 and $23.48, respectively. The Relative Strength Index (RSI) indicator at bearish territory suggests Silver’s fall could continue in the near term, but the 3-day Rate of Change (RoC) has begun to show that sellers are losing momentum.

If XAG/USD cracks the 100-day EMA, that will exacerbate a fall toward the $23.00 a troy ounce figure before sellers can reach the double-top’s objective to fall toward $22.90, shy of testing the 200-day EMA at $22.77.

On the other hand, if XAG/USD reclaims the $24.00 figure, that could exert upward pressure on the XAG/USD and open the door to test the 50-day EMA. A breach of the latter will expose the February 2 high at $24.63 before challenging the $25.00 psychological figure.

XAG/USD Price Action – Daily chart

• GBP/USD bears are in the market testing daily support.
• Sterling bulls eye a move towards 1.2550s. 

GBP/USD is trading at around 1.2480 and has traveled between a low of 1.2465 and a high of 1.2546 so far on the day. The British Pound was in trouble at the start of the London day with the rise in Britain's jobless numbers.

Markets have started to re-price the Bank of England as they expect the central bank to pause its rate-increasing path over the coming months that would otherwise be needed to bring down inflation. Current market pricing indicates potentially just  one more 25 basis point rate increase from the Bank of England

The Pound fell by as much as 0.5% against the Dollar to 1.2465 and the lows of the day. The United Kingdom´s Unemployment Rate unexpectedly climbed to 3.9% in the three months to March as more people sought to get back into the jobs market.

Meanwhile, there is an eye being kept on Congress and the delays in raising the US debt ceiling. Tighter credit conditions caused by the recent banking crisis in the US and elsewhere have increased the likelihood that the US economy will slip into a recession, leading to Federal Reserve rate cuts and a weaker US Dollar.

´´With time running out to strike a deal to raise the debt limit, President Biden and congressional leaders are set to meet on Tuesday for pivotal face-to-face negotiations at the White House to avoid a default that economists say could eliminate jobs and cause a recession,´´ the New York Times wrote

´´The meeting, at 3 pm, comes a day after Treasury Secretary Janet L. Yellen reiterated that the United States could run out of money to pay its bills by June 1 if Congress does not raise or suspend the debt limit, the statutory cap on how much the government can borrow to finance its obligations.´´

´´Ms. Yellen warned on Tuesday that the United States faced ´an economic and financial catastrophe´ if it defaulted and said the standoff over the debt limit was already affecting financial markets and households.´´

GBP/USD technical analysis

The M-formation is homing in the 1.2550s in a bullish correction, although the bears are in the market on Tuesday but support is holding. 

• AUD/USD falls 0.62% as US economic data remains strong, while weaker-than-expected Chinese data weighs on the Australian Dollar.
• Hawkish remarks from Federal Reserve officials and concerns over “unacceptably high inflation” keep the US Dollar well-supported in the North American session.
• Reserve Bank of Australia minutes show potential for future rate hikes, depending on economic and inflation developments, while Consumer Confidence in Australia declines.

AUD/USD retraces from daily highs of 0.6709 and drops 0.62% after a slew of economic data from the United States (US) showed that the economy remains resilient amidst 500 bps of rate hikes implemented by the US Federal Reserve (Fed). Additionally, weaker data than foreseen data from China weighed on the Australian Dollar (AUD). At the time of writing, the AUD/USD is trading at 0.6653, below its opening price.

AUD/USD drops as US economic data outshines expectations amidst disappointing Chinese figures

Wall Street is treading water, except for the Nasdaq, which is up 0.21%. Data-wise, the US economic docket revealed that Retails Sales in April missed estimates but improved compared to March figures. Monthly, sales grew 0.4%, aligned with forecasts, while excluding autos, rose 0.4%, above March’s -0.5% contraction. Annually based, Retail Sales expanded at a 1.6% pace below the last month’s 2.4% growth.

Meanwhile, April’s Industrial Production in the US improved to 0.5% MoM, above estimates and prior’s month 0% expansion, and on an annually based, rose by 0.2% above March’s 0.1%.

After the US data was released, the AUD/USD spiked towards 0.6690 before making a U-turn and diving toward the day’s lows of 0.6651. Additionally, hawkish remarks by Federal Reserve (Fed) officials kept the US Dollar (USD) bid in the North American session.

Loretta Mester, the President of Cleveland’s Fed, revealed that the Fed couldn’t do much about slowing the economy but could “do its part” to curb inflation. Later, Richmond’s Fed President Thomas Barkin commented that if more rate hikes are needed, he’s “comfortable with that.”

As of writing, the New York Fed President John Williams stressed that the economy is facing “unacceptably high inflation,” though it’s gradually moving in the right direction.

Aside from this, the US debt ceiling discussions would continue throughout the day. However, US Treasury Secretary Janet Yellen warned that “time is running out” to avert a catastrophe by not raising the debt ceiling.

On the Australian front, Consumer Confidence dropped compared to April’s 85.8 figure, reaching 79.0 in May. The Reserve Bank of Australia’s (RBA) minutes showed that the central bank discussed pausing or raising rates at the May meeting. The RBA left the door open for further increases, but it would depend on “how the economy and inflation evolve.”

The AUD/USD took a hit as China’s Industrial Production and Retail Sales in April improved but missed estimates suggesting that growth is slowing down. Industrial Production rose by 5.6%, below the 10.9% forecast, while Retails Sales jumped 18.4%, beneath the 21% forecast.

AUD/USD Price Analysis: Technical outlook

The AUD/USD show three candlesticks, depicting a 50 pip range within the 0.6650-0.6700 area, unable to crack the 20-day EMA at 06694 on the upside. On the downside, a six-month-old support trendline keeps buyers supported around the bottom of the range, suggesting that a catalyst is needed to give clear direction in the pair. On the upside, AUD/USD buyers must crack 0.6700 to challenge the 100-day EMA at 0.6732 and the 200-day EMA at 0.6784. Conversely, a drop below 0.6650, the AUD/USD could pose a challenge to test 0.6600, ahead of the April low of 0.6573

• Gold prices fall 0.80% as US economic data showcases resilience, led by strong retail sales and industrial production figures.
• Hawkish tones from Fed officials Mester and Barkin contribute to rising US Treasury bond yields, further pressuring gold prices.
• Upcoming speeches from New York Fed John Williams, Dallas Fed Lorie Logan, and Atlanta’s Fed Raphael Bostic may provide more insight into the economic outlook.

Gold price is erasing Monday’s gains, plunging 0.80%, as data from the United States (US) showed signs of resilience amidst a solid retail sales report. Industrial Production recovered in April, though manufacturing production stood at contractionary territory. The factors mentioned above and the US bond yields rising were a headwind for XAU/USD prices. At the time of writing, the XAU/USD is trading at $2000.91 after hitting a daily high of $2018.28.

Solid Retail Sales and Industrial Production data strengthen the greenback and XAU/USD dips

The US economic agenda revealed that Retail Sales rose by 0.4% MoM, below estimates of 0.8%, while excluding autos rose by 0.4% MoM, aligned with estimates. It should be said that both figures surpass March’s readings, which showed sales plunging. Annually based figures rose by 1.6% below the prior’s month 2.4% rise, suggesting an ongoing deceleration of the United States (US) economy.

In another data, the US Federal Reserve (Fed) reported that Industrial Production in April rose by 0.5% MoM, above estimates of 0%, while annually based, uptick to 0.2% from 0.1% in March. The same report showed that Manufacturing Production expanded at a 1% MoM pace, crushing forecasts of 0.1%, with motor vehicle production underpinning the figures.

On the data release, XAU/USD extended its losses and reached a two-day new low of $1998.17 before trimming some of its losses. US Treasury bond yields continued to rise as Federal Reserve officials led by San Francisco Fed President Loretta Mester and Richmond’s President Thomas Barkin sounded hawkish.

Mester said that the Fed cannot do much about slowing long-term economic growth but can “do its part” by tackling inflation. She emphasized the Fed’s commitment to getting inflation to the 2% target. In the meantime, Thomas Barkin said that if more increases are needed to bring down, he’s “comfortable with that.”

Upcoming events

Further Fed speaking is expected with New York Fed John Williams, Dallas Fed Lorie Logan and Atlanta’s Fed Raphael Bostic.

Gold Price Analysis: Technical outlook

XAU/USD remains in a neutral bias, albeit exchanging hands above the 50, 100, and 200-day Exponential Moving Averages (EMAs), each at $1978.42. Nevertheless, since reaching a year-to-date (YTD) high of $2081.82, XAU/USD retraced sharply, below the April 13 high of $2048.79, which opened the door for a deeper pullback. Since then, XAU/USD has fallen more than 3.5%, with sellers eyeing to extend its losses past the $2000 mark. Once cleared, the next support for XAU/USD would be the 50-day EMA at $1978.43 before Gold tests the April 19 swing low of $1969.34.

The US debt ceiling farce continues. Economists at Commerzbank analyze the implications for Gold price.

Gold to decline if the US debt ceiling conflict were to be resolved

“In view of the ongoing dispute over the US debt ceiling, the Gold price will probably hold its own above the $2,000 mark for the time being, living up to its reputation as a safe haven.”

“Any debt default by Washington, even if only temporary, would doubtless have serious negative repercussions for the US economy, which makes it more likely that monetary policy will be loosened – to a greater extent than is already priced in on the market – and make Gold more attractive in relative terms as a non-interest-bearing investment.”

“According to Treasury Secretary Janet Yellen, the deadline is 1 June. If the parties fail to reach agreement by then, the treasury risks running out of money on that day. Equally, the precious metal can be expected to decline if the conflict were to be resolved.”

Thomas Barkin, president of the Federal Reserve Bank of Richmond, told Bloomberg on Tuesday that he would be comfortable with more rate increases if that's what is needed to bring inflation down, per Reuters.

Key takeaways

"I like the optionality implied in the statement from last meeting."

"Deposit flows are stable at banks in my district, encouraged by the resilience I've seen."

"Commercial office sector is where you hear the most concern."

"Most people I talk to anticipate a downturn over coming quarters."

"When it comes to downsizing, businesses are quite cautious, reluctant to let staff go."

"Businesses will not give up pricing power unless they're forced to do it."

Market reaction

The US Dollar Index clings to modest recovery gains slightly above 102.50 following these comments.

As the Fed nears the end of its tightening cycle and interest rate volatility reduces, the USD has been grinding weaker. Waves of uncertainty remain, particularly around the US debt ceiling and a resolution should see the tide shift against the USD anew, in the view of economists at HSBC.

The ongoing US debt ceiling discussions could increase volatility

“We still expect the USD to decline, but we remain mindful of possible risks, with the most obvious prevailing source of concern being the US debt ceiling. In fact, the US debt ceiling is not a new issue for the FX market to navigate.”

“To be clear, we are not expecting a technical default. But the debt ceiling issue has the potential to spark a rapid increase in FX volatility. Increasing fear of ‘hard landing’ risks and the subsequent rise in FX volatility could see the ‘safe haven’ USD attempting to rally, before falling. That being said, we think the more probable outcome is still one of a resolution. This would likely keep FX volatility relatively subdued while risk sentiment improves, allowing the USD to weaken going forward.”

EUR/USD has recently faced renewed headwinds, pushing the cross back below 1.10. Economists at Danske Bank maintain their strategic case for a lower EUR/USD.

USD strength in store

“In line with market expectations, we think the Fed has delivered its last rate hike for this hiking cycle. However, we think the current 3x25 bps rate cuts priced for the rest of the year seem too aggressive. If we are right in this call, that will add some USD support in H2. For the ECB, we think there are three 25 bps rate hikes left, bringing the policy rate up to 4%.”

“We maintain the strategic case for a lower EUR/USD based on relative terms of trade, real rates and relative unit labour costs. Despite the impending Fed pause, we see the prospect of the USD finding further near-term support as we expect the Fed to hold rates steady into 2024. Furthermore, we think the outlook of the US economy looks less gloomy.”

“We continue to forecast the EUR/USD cross at 1.03 in 6-12M.”

 US Treasury Secretary Janet Yellen warned on Tuesday a United States default would result in an "unprecedented economic and financial storm" that could trigger an income shock and lead to recession, per Reuters.

Yellen further elaborated by saying that default could disrupt government operations such as air traffic control, law enforcement, national defense and telecommunications and lead to a financial markets 'break' with worldwide panic triggering margin calls, runs and fire sales.

Market reaction

Markets remain cautious on Tuesday and the Dow Jones Industrial Average was last seen losing 0.55% on a daily basis.

ZAR is fracturing along geopolitical lines. Economists at ING expect the USD/ZAR pair to test 20.00 in the near term.

Broad Dollar bear trend will carry USD/ZAR lower later this year

“The US ambassador to South Africa accused the country of shipping arms (or allowing the shipment of arms) to Russia last December. USD/ZAR traded to a new record high on the news. The US ambassador has since backtracked on those comments – although it is unclear whether the accusation still stands. It will probably be hard to put this particular genie back in the bottle anytime soon.”

“Even though we think a broad Dollar bear trend will carry USD/ZAR lower later this year, in the nearer term – a febrile environment suggests USD/ZAR may challenge 20.00.”

• EUR/USD adds to Monday’s advance and flirts with 1.0900.
• If the rebound picks up pace, the pair should retarget the 1.1000 mark.

EUR/USD manages to grab extra impulse and trades closer to the key barrier at 1.0900 on Tuesday.

The surpass of the 1.0900 region in a convincing fashion should prompt the pair to embark on a potential visit to the psychological 1.1000 hurdle. Further upside could see the 2023 peak at 1.1095 (April 26) revisited in the not-so-distant future.

Looking at the longer run, the constructive view remains unchanged while above the 200-day SMA, today at 1.0457.

EUR/USD daily chart

• The index navigates within a narrow range on Tuesday.
• US yields made a U-turn and now extend the weekly rebound.
• US Retail Sales disappointed expectations in April.

The USD Index (DXY), which measures the greenback vs. a basket of its main competitors, keeps the irresolute price action around the 102.40/30 zone on Tuesday.

USD Index keeps looking at data, yields

The index remains under pressure amidst a tepid bias towards the appetite for the riskier assets, although the still unresolved debt ceiling issue is expected to put a floor on occasional bouts of weakness in the buck.

The ongoing price action in DXY comes along the reversal in US yields across the curve, which rapidly changed course in the wake of lower-than-expected US Retail Sales for the month of April.

In the US docket, Industrial Production expanded 0.5% MoM in April and 0.2% vs. the same month of 2022. In addition, Manufacturing Production rose 1.0% MoM and contracted 0.9% YoY.

What to look for around USD

The index abandons the area of 5-week highs in the 102.75/80 band amidst some inconclusive risk appetite trends and ahead of the release of key results in the docket.

The index seems to be facing downward pressure in light of 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 an impasse 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 rising uncertainty surrounding the US banking sector.

Key events in the US this week: NY Empire State Index, TIC Flows (Monday) – Retail Sales, Business Inventories, Industrial Production, NAHB Housing Market Index (Tuesday) – MBA Mortgage Applications, Building Permits, Housing Starts (Wednesday) – Philly Fed Index, Initial Jobless Claims, CB Leading Index, Existing Home Sales (Thursday) – 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 down 0.03% at 102.39 and faces the next support at 101.01 (weekly low April 26) prior to 100.78 (2023 low April 14) and finally 100.00 (psychological level). On the other hand, the break above 102.75 (monthly high May 15) would open the door to 102.80 (weekly high April 10) and then 103.05 (monthly high April 3).

Economists at Commerzbank see further limited CAD recovery potential against the USD.

Hawkish BoC supports the CAD

“The CAD is benefiting from the hawkish BoC rhetoric, especially since the Fed also appears to be at the end of the rate hike cycle. We see further limited CAD recovery potential against the USD given the robust economy. In this context, the CAD should benefit if the gap in interest rate expectations for the Fed and BoC narrows further or sustainably turns positive.”

“In a risk-averse environment, however, the CAD should find it difficult to hold its ground against the USD, which is favored as a safe haven. A risk to our forecasts therefore remains a further smoldering uncertainty after the financial market turmoil in March.”

Source: Commerzbank Research

• USD/JPY reverses an intraday dip amid the emergence of some USD dip-buying on Tuesday.
• Hawkish remarks by Fed’s Mester lift bets for additional rate hikes and boosts the Greenback.
• A softer risk tone could underpin the safe-haven JPY and cap any further gains for the major.

The USD/JPY pair attracts some dip-buying on Tuesday and move back above the 136.00 mark during the early North American session, closer to a one-and-half-week high touched the previous day.

The US Dollar (USD) recovers its intraday losses in reaction to hawkish remarks by Cleveland Federal Reserve President Loretta Mester and turns out to be a key factor lending support to the USD/JPY pair. Mester said that interest rates are not at a sufficiently restrictive level and that the central bank isn't at the spot to hold rates yet. This, in turn, triggers a sharp intraday rise in the US Treasury bond yields and acts as a tailwind for the Greenback, overshadowing the mixed US Retail Sales figures.

The US Census Bureau reported that the headline US Retail Sales rose 0.4% MoM in April as compared to consensus estimates for a reading of 0.8%. Meanwhile, sales excluding automobiles registered a modest 0.4% growth during the reported month, as anticipated. The positive surprise came from Retail Sales Control Group, which recorded a solid rebound from the previous month's 0.4% downfall and increased by 0.7% during the reported month, surpassing market expectations for a flat reading.

This, along with a more dovish stance adopted by the Bank of Japan (BoJ), continues to undermine the Japanese Yen (JPY) and further contributes to the USD/JPY pair's intraday bounce. It is worth recalling that BoJ Governor Kazuo Ueda said last week that it was too early to discuss specific plans for an exit from the massive stimulus program. That said, a generally weaker toen around the equity markets could benefit the JPY's relative safe-haven status and cap any meaningful gains for the major.

Against the backdrop of concerns about the US debt ceiling, weaker-than-expected Chinese macro data fuels recession fears and tempers investors' appetite for riskier assets. Nevertheless, the fundamental backdrop seems tilted in favour of bullish traders and suggests that the path of least resistance for the USD/JPY pair is to the upside. Hence, a subsequent move up towards testing the 200-day Simple Moving Average (SMA), currently around the 137.00 round-figure mark, looks like a distinct possibility.

Technical levels to watch

• Loonie rises across the board after Canadian inflation data. 
• US Retail Sales rise below expectations in April. 
• USD/CAD drops to lowest since Thursday, under 1.3430. 

The USD/CAD dropped from 1.3455 to the 1.3410 area following the release of US and Canadian economic data. The Loonie is among the top performers of the day in the currency market.

Inflation rebounds unexpectedly in Canada

In Canada, data released on Thursday showed the Consumer Price Index (CPI) rose to 4.4% on a yearly basis in April from the 19-month low of 4.3% in March, and against expectations of a decline to 4.1%. 

“Inflation now lies well above the April MPR's implied forecast of 4.0% y/y, and while the top-line story on core inflation may provide some reassurances to the BoC, the underlying story is one of further evidence that policy may not be tight enough to bring inflation down to its 2% target over a reasonable horizon. The risks continue to build for a BoC hike later this year, especially if Q1 growth figures surprise sharply to the upside”, commented analysts at TD Securities. 

The Loonie rose across the board after the CPI, hitting fresh daily highs. At the same time, data from the US triggered a mixed reaction to the Greenback. US Retail Sales rose 0.4% in April, below the 0.7% market consensus, but March figures were revised upward from -1% to -0.7%.

USD/CAD erases most of last week’s gains 

The USD/CAD is falling sharply for the second day in a row and is approaching the 1.3400 level. A break below this level could expose the next support area seen around 1.3360/70. A daily close below this area could open the door for a test of the monthly low at 1.3310/15. 

The immediate resistance for the pair is the 1.3455 area. If the it rallies above this level, it would alleviate the current bearish pressure.

Technical levels 

The US Dollar is likely to strengthen, in the view of economists at Rabobank.

USD – safe haven of choice

“It is our view that the USD remains a primary safe haven and that it will retain this status for many years to come.”

“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 six-month forecast of EUR/USD 1.06.”

Cleveland Federal Reserve President Loretta Mester said on Tuesday that she would like the policy rate to get to a point where it could equally be a potential increase or decrease, per Reuters.

Additional takeaways

"I don't put it in terms of a pause, I put it in terms of a hold."

"I don't think we're at that hold rate yet. However, there is four weeks to go until next meeting, need to see more data."

"Whether banking turmoil is adding to pull back in credit, we're monitoring."

"At this point given, how stubborn inflation is, can't say I'm at a level where it's equally probable that the next thing would be an increase or a decrease."

"We know part of total rate increase has not affect the economy yet."

"Seeing some slowdown in labor market conditions, still think the labor market is quite tight."

"I need to see more evidence that inflation is coming down."

"Inflation is still high, we have to stick to what we're doing."

Market reaction

The US Dollar stays under modest bearish pressure in the early American session on Thursday and the US Dollar Index was last seen losing 0.05% on a daily basis at 102.38.

• GBP/USD struggles to capitalize on its intraday bounce from the post-UK jobs data low.
• The US Retail Sales fail to impress the USD bulls or provide any meaningful impetus.
• The fundamental/technical setup warrants some caution for aggressive bullish traders.

The GBP/USD pair witnessed good two-way price swings on Tuesday and now seems to have stabilized around the 1.2500 psychological mark, nearly unchanged for the day. Spot prices hold steady during the early North American session and move little following the release of the US macro data.

The US Census Bureau reported that the headline US Retail Sales rose 0.4% MoM in April as compared to consensus estimates for a reading of 0.8%. Meanwhile, sales excluding automobiles registered a modest 0.4% growth during the reported month. The data does little to impress the US Dollar (USD) bulls or provide any meaningful impetus to the GBP/USD pair. Against the backdrop of concerns about the US debt ceiling, reviving safe-haven demand leads to a modest downtick in the US Treasury bond yields and undermines the Greenback, which, in turn, lends support to the major.

That said, the overnight hawkish remarks by several Federal Reserve (Fed) officials warned on Monday that interest rates could still rise further amid relatively high inflation and a robust labor market. This could act as a tailwind for the US bond yields and limit the downside for the USD. This, along with expectations that fewer rate increases by the Bank of England (BoE) will be needed in coming months to bring down inflation, caps the upside for the GBP/USD pair. The speculations were fueled by the rather unimpressive UK monthly employment details released earlier this Tuesday.

In fact, the UK Office for National Statistics (ONS) reported that the number of people claiming unemployment-related benefits rose by 46.7K in April, more than the 26.5K seen in March and well above estimates for a fall of 10.8 K. Furthermore, the jobless rate ticked higher to 3.9% from 3.8%, suggesting that the flatlining economy has started to take a toll of Britain’s labour market. Additional details of the report showed that UK Average Earnings excluding bonuses rose by 6.7% in the quarter to March, softer than the 6.8% expected, though slightly higher than February's 6.6%.

The aforementioned fundamental backdrop warrants some caution for aggressive bullish traders and before positioning for an extension of the GBP/USD pair's overnight goodish rebound from the 1.2445-1.2440 region, or a three-week low. Even from a technical perspective, last week's break below a short-term ascending trend channel suggests that the path of least resistance for spot prices is to the downside.

Technical levels to watch

• EUR/USD gives away initial gains and revisits 1.0860.
• EMU, Germany Economic Sentiment surprised to the downside.
• US Retail Sales increased less than expected last month.

EUR/USD rapidly abandons the area of daily highs around 1.0900 in response to the sudden bout of strength in the dollar following the release of US Retail Sales.

EUR/USD: Daily upside seems capped just above 1.0900

EUR/USD deflates to the 1.0860 region and rebounds afterwards following a quick uptick in the greenback, all in response to lower-than-expected results from the US docket.

Indeed, US Retail Sales expanded at a monthly 0.4% in April, coming in short of initial expectations.

Following the release of Retail Sales, US yields made a U-turn and now trade with marked gains across the curve, while the German 10-year Bund yields also leap to the 2.30% region, eroding initial losses.

Later in the NA session, Industrial Production comes next ahead of the NAHB index and Business Inventories. Additionally, Fed’s Mester, Bostic, Williams, Logan and Barr are also due to speak

Closer to home, another revision of the Q1 GDP Growth Rate saw the economy expand 0.1% QoQ and 1.3% YoY. In addition, the ZEW’s Economic Sentiment in Germany and the broader euro bloc unexpectedly dropped to -9.4 and -10.7 for the current month. Finally, ECB’s Tuominen and Lagarde will also speak later on Tuesday.

What to look for around EUR

EUR/USD extends the weekly rebound and adds to Monday’s promising price action, always with the immediate target at the 1.0900 barrier.

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: ECOFIN Meeting, EMU Flash Q1 GDP Growth Rate, ZEW Economic Sentiment, Germany ZEW Economic Sentiment (Tuesday) – EMU Final Inflation Rate (Wednesday).

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 0.02% at 1.0877 and the surpass of 1.1095 (2023 high April 26) would target 1.1100 (round level) en route to 1.1184 (weekly high March 21 2022). Conversely, the next contention level emerges at 1.0844 (monthly low May 15) seconded by 1.0831 (monthly low April 10) and finally 1.0802 (100-day SMA).

Economists at Commerzbank  see limited upside potential for the GBP.

Downside risks

“As the rate hike expectations are already quite high, it is difficult to imagine that it will rise further over the coming weeks – even if the economic data were to improve somewhat. Instead, we see an increased risk of market expectations being disappointed if the economic data comes in weaker.” 

“We see hardly any appreciation potential for Sterling following the positive development over the past months, instead, we see downside risks.”

• Annual CPI inflation in Canada rebounded to 4.4% in April. 
• USD/CAD hits fresh daily low after data as Loonie rises across the board. 

Inflation in Canada, as measured by the Consumer Price Index (CPI), rose to 4.4% on a yearly basis in April from the 19-month low of 4.3% in March, Statistics Canada (StatCan) reported on Tuesday. This reading came in against market forecast of a decline to 4.1%. “This was the first acceleration in headline consumer inflation since June 2022. On a year-over-year basis, higher rent prices and mortgage interest costs contributed the most to the all-items CPI increase in April 2023”, said StatCan. 

On a monthly basis, the CPI rose by 0.7% as expected, above the 0.4% of consensus, and accelerating from the 0.5% of March. “Prices for gasoline (+6.3%) contributed the most to the headline month-over-month movement. Excluding gasoline, the monthly CPI rose 0.5%.”

Additionally, the Bank of Canada's Core CPI, which excludes volatile food and energy prices, dropped to 4.1% on a yearly basis from 4.3% in March, compared to analysts' estimate of 3.9%.

Market reaction 

The USD/CAD dropped from 1.3455 to levels under 1.3430, reaching fresh daily lows. The decline took palace even as the US Dollar strengthened following the US Retail Sales report. The Loonie rose across the board boosted by higher-than-expected Canadian CPI. 
 

• DXY comes under pressure following recent tops near 102.80.
• The surpass of 102.80 exposes a move to the April high at 103.05.

DXY comes under renewed downside pressure and revisits the low-102.00s amidst the debate between risk appetite trends and debt ceiling unease.

The continuation of the bearish move, however, appears not favoured for the time being. That said, the resumption of the uptrend is expected to clear the weekly high at 102.80 (April 10) to allow for a potential challenge of the April top at 103.05 (April 3).

On the downside, there is a formidable contention around the 101.00 neighbourhood for the time being.

Looking at the broader picture, while below the 200-day SMA, today at 105.81, the outlook for the index is expected to remain negative.

DXY daily chart

Economists at ING are keeping a close eye on AUD this week. The Aussie could rise if wage data surprise to the upside.

Markets are not expecting any more hikes

“The Reserve Bank of Australia (RBA) minutes opened the door to more tightening if necessary, and tomorrow we’ll see the first quarter wage price index in Australia, which is expected to rise from 3.3% to 3.6% YoY. Any upside surprise may prompt some bets on further tightening by the RBA, and offer some support to AUD: at the moment, markets are not expecting any more hikes.” 

“On Thursday, April employment figures will also be released and could confirm a still very tight jobs market.”

The financial markets continue to monitor developments on the debt ceiling dispute. You-Na Park-Heger, FX Analyst at Commerzbank, expects the US Dollar to weaken as the deadline approaches.

Solution to the debt dispute?

“It is questionable whether the USD will be able to benefit if an agreement between the two parties is postponed again.”

“Will the USD then still be able to gain in its function as a safe haven or will concerns about an imminent default by the US dominate at some point, so that the USD will come under depreciation pressure? The closer the presumed deadline approaches, the more likely the latter seems to me.”

Canada CPI Overview

Statistics Canada is scheduled to release the consumer inflation figures for April later during the early North American session this Tuesday, at 12:30 GMT. The headline CPI is expected to have risen by 0.4% during the reported month as compared to the 0.5% increase in March. The yearly rate, meanwhile, is expected to inch down from 4.3% to 4.1% in April - marking the lowest since August 2021. However, the Bank of Canada's (BoC) Core CPI, which excludes volatile food and energy prices, is estimated to edge up to 0.7% in April and decelerate to 3.9% on a yearly basis as compared to 0.6% and 4.3%, respectively, in March.

Analysts at NBF offer a brief preview of the crucial CPI report and write: “A rebound in gasoline prices could have been only partially offset by further moderation in the food segment and resulted in a 0.4% increase of the consumer price index in April (before seasonal adjustment). If we’re right, the 12-month rate of inflation should come down from 4.3% to a two-and-a-half-year low of 4.1%. The core measures preferred by the BoC should decrease as well; we see both the CPI-Trim (4.0% vs. 4.4%) and the CPI-Median (4.2% vs. 4.6%) declining four ticks on an annual basis.”

How Could It Affect USD/CAD?

Heading into the key release, the USD/CAD pair struggles to capitalize on its modest intraday uptick and seesawed between tepid gains/minor losses just above mid-1.3400s. Given that the Bank of Canada (BoC) has shown readiness to resume the rate-hiking cycle, if necessary to press inflation to the target, a surprisingly strong CPI print should provide a fresh boost to the domestic currency. This, in turn, will set the stage for an extension of the pair's previous day's retracement slide from the 1.3665-1.3670 region, or over a one-week high.

Conversely, softer Canadian consumer inflation figures could weigh on the Canadian Dollar, though the immediate market reaction is likely to be limited amid a modest US Dollar (USD) weakness. This might do little to provide any meaningful impetus to the USD/CAD pair. That government's borrowing limit, could infuse some volatility and produce short-term trading opportunities. said, the simultaneous release of the US monthly Retail Sales figures, along with developments surrounding a standoff to raise the federal

Key Notes

  •  Canadian CPI Preview: Forecasts from five major banks, inflation likely to ease again

  •  USD/CAD Forecast: Bulls look to seize back control ahead of Canadian CPI, US Retail Sales

  •  USD/CAD: Loonie to benefit if Canadian inflation were to surprise on the upper end – Commerzbank

About Canadian CPI

The Consumer Price Index (CPI) released by Statistics Canada is a measure of price movements by the comparison between the retail prices of a representative shopping basket of goods and services. The purchasing power of CAD is dragged down by inflation. The Bank of Canada aims at an inflation range (1%-3%). Generally speaking, a high reading is seen as anticipatory of a rate hike and is positive (or bullish) for the CAD.

• EUR/JPY’s recovery appears to have met initial hurdle near 148.00.
• The  continuation of the rebound targets the weekly high near 149.30.

The ongoing upside momentum in EUR/JPY struggles to surpass the 148.00 region with conviction on Tuesday.

Once the 148.00 area is surpassed, the cross should be able to challenge the weekly peak at 149.26 (May 8). The surpass of this level could pave the way for a potential test of the YTD high at 151.61 (May 2).

So far, further upside looks favoured while the cross trades above the 200-day SMA, today at 143.11.

EUR/JPY daily chart

Economists at Société Générale discuss GBP/USD and EUR/GBP outlook.

Hawkish 25 bps increase by the BoE and outlook for Fed pause should augur well for further GBP/USD upside 

“The rebound in the Dollar checked the advance of GBP/USD last week but the hawkish 25 bps increase by the BoE and outlook for Fed pause (tither spread) in theory should augur well for further upside in the coming weeks.”

“For EUR/GBP, the technical break below the 200-DMA and underperformance of EUR/USD could nudge the cross closer towards 0.86. The cross is in the process of trying to retrace the 1.6% intra-day gain of 15 December which coincided with the hawkish policy reset by the ECB.”

Latest Q1 GDP figures in Malaysia surprised to the upside, note Senior Economist Julia Goh and Economist Loke Siew Ting at UOB Group.

Key Takeaways

“Malaysia’s economy chalked up a robust growth of 5.6% y/y in 1Q23, which was better than our estimate (5.0%) and Bloomberg consensus (5.1%). Nevertheless, growth momentum moderated further compared to 4Q22’s 7.1% y/y. On a seasonally adjusted basis, real GDP expanded 0.9% q/q (4Q22: -1.7% q/q).”

“Growth was anchored by domestic demand particularly private consumption and investments, while net exports added 2.1ppts to headline growth in 1Q23. All sectors expanded last quarter, led by services, manufacturing, and construction industries. The current account surplus narrowed to MYR4.3bn (or 1.0% of GDP) in 1Q23, from MYR27.5bn (5.9% of GDP) in 4Q22.”

“The better-than-expected 1Q23 GDP outturn has lifted our full year GDP outlook even though we are keeping an average GDP expansion of ~4.0% for the rest of the year. We remain cautious on the external outlook while domestic drivers are seeing signs of normalisation and moderation. Hence, we raise our full year GDP growth forecast to 4.4% for 2023 (from 4.0% previously, 2022: 8.7%). Brighter avenues in 2H23 include stronger investment recovery, higher tourism activity, lower unemployment rate, and supportive policy measures particularly gradual removal of price controls and subsidies that help to contain inflation pressures.”

• Gold price meets with a fresh supply on Thursday, though the downside remains limited
• Hawkish Federal Reserve expectations drive some flow away from the non-yielding metal.
• Looming recession fears lend support to the XAU/USD amid a modest US Dollar weakness.

Gold price struggles to capitalize on the previous day's modest uptick and comes under some renewed selling pressure on Tuesday. The XAU/USD, however, manages to bounce off the daily low and hold above the $2,000 psychological mark through the first half of the European session.

Looming recession risks lend support to Gold price

The market sentiment remains fragile in the wake of a standoff to raise the federal government's borrowing limit, which, along with weaker-than-expected Chinese macro data, fuel recession fears and benefit the safe-haven Gold price. In fact, US President Joe Biden expressed confidence that a deal could be done in time ahead of an expected meeting with congressional leaders later this Tuesday. Republican House of Representatives Speaker Kevin McCarthy, however, said the two sides were still far apart. Apart from this, signs that the post-COVID recovery in China - the world's second-largest economy - is losing steam temper investors' appetite for perceived riskier assets.

A weaker US Dollar contributes to limiting losses for XAU/USD

The anti-risk flow, along with concerns about the US debt ceiling, trigger a fresh leg down in the US Treasury bond yields, which is seen weighing on the US Dollar (USD) for the second successive day. A weaker Greenback lends additional support to the US Dollar-denominated Gold price. However, fresh speculations that the Federal Reserve (Fed) will stick to its hawkish stance in the wake of a rise in consumer inflation expectations contribute to the offered tone surrounding the non-yielding yellow metal. it is worth recalling that the Michigan survey showed last Friday that consumers see prices over the next five years climbing at an annual rate of 3.2% - the highest level since 2011.

Hawkish Fed expectations could cap the upside for Gold price

Adding to this, a slew of Fed officials warned on Monday that interest rates could still rise further amid relatively high inflation and a robust labor market. This could act as a tailwind for the US bond yields and the USD, supporting prospects for a further near-term downside for Gold price. Market participants now look forward to the US economic docket, featuring the release of monthly Retail Sales figures and industrial production data, due later during the early North American session. Apart from this, Fedspeaks could produce short-term trading opportunities around the XAU/USD. The focus, however, will remain glued to Fed Chair Jerome Powell's speech on Friday.

Gold price technical outlook

From a technical perspective, acceptance below the $2,000 mark will expose the $1,980 horizontal zone. This is closely followed by support near the $1,970 region, which if broken decisively might shift the near-term bias in favour of bearish traders and make the Gold price vulnerable to prolong its recent corrective pullback from the all-time high, around the $2,078-$2,079 area touched earlier this month. On the flip side, the $2,020-$2,021 region now seems to have emerged as an immediate hurdle. The next relevant resistance is pegged near the $2,035-$2,040 region. Some follow-through should allow Gold to climb back towards the all-time high and extend the momentum further towards conquering the $2,100 round-figure mark.

Key levels to watch

Antje Praefcke, FX Analyst at Commerzbank, expects the Swedish Krona to strengthen against the Euro latter in the year.

EUR/SEK should have peaked when it moved towards 11.40-50 this year

“As long as the ECB is perceived as the more restrictive central bank, with the market expecting two further rate steps, the Krona is struggling to record sustainable gains against the Euro. I am nonetheless of the view that EUR/SEK should have peaked when it moved towards 11.40-50 this year”. 

“In the Eurozone too inflation will fall, economic and inflation data will weaken as a result of past rate hikes and the market might have to get used to the idea that the ECB will only hike the key rate one more time rather than twice.”

“It might take a little while yet, but I think that SEK stands a good chance to gain ground against the Euro over the course of the year.”

• US Dollar stays on the back foot for the second straight day on Tuesday.
• US Dollar Index manages to hold above 102.00 following Monday's slide.
• US Retail Sales data and headlines surrounding debt ceiling talks could impact USD valuation.

The US Dollar (USD) is having a hard time finding demand at the beginning of the week as investors assess the latest macroeconomic data releases from the United States (US) and comments from the Federal Reserve (Fed) officials. The US Dollar Index, which tracks the USD's performance against a basket of six major currencies, registered small losses on Monday and extended its slide below 102.50 early Tuesday.

The US Census Bureau will release the Retail Sales data for April in the early American session on Tuesday and the Federal Reserve will publish Industrial Production report. More importantly, US President Joe Biden will meet with Republican House of Representatives Speaker Kevin McCarthy and three other top congressional leaders at 1900 GMT for the next round of debt limit negotiations.

Daily digest market movers: US Dollar loses altitude following previous week's rally

• The data from the US showed on Monday that the headline General Business Conditions Index of the Federal Reserve Bank of New York's Empire State Manufacturing survey slumped to -31.8 in May from 1.8 in April.
• In an interview with CNBC on Monday, Chicago Federal Reserve Bank President Austan Goolsbee said that they need to monitor more than normal data sets and be attuned to credit conditions when deciding on policy.
• Minneapolis Federal Reserve Bank President Neel Kashkari reiterated that inflation is "much too high" and that they have a long way to go before reaching the inflation goal.
• Atlanta Federal Reserve President Raphael Bostic told Bloomberg on Monday that, if he were voting now, he would vote to hold rates in June. However, he warned that he has to keep a possible rate hike on the table.
• US House Speaker Kevin McCarthy told reporters that Congressional and White House negotiators were still far apart in talks to raise the debt ceiling to avoid a default.
• Retail Sales in the US are forecast to rise 0.7% in April following the 0.6% decrease recorded in March. Industrial Production is expected to stay unchanged on a monthly basis.
• "If Congress fails to increase the debt limit, it would cause severe hardship to American families, harm our global leadership position, and raise questions about our ability to defend our national security interests," warned US Treasury Secretary Yellen.
• Following a two-day rally, the benchmark 10-year US Treasury bond yield stays in negative territory below 3.5%.
• Wall Street's main indexes recorded small gains on Monday. Early Tuesday, US stock index futures trade virtually unchanged on the day.

US Dollar Index technical analysis: Bullish momentum fades

The US Dollar Index (DXY) closed slightly below the 50-day Simple Moving Average (SMA) on Monday, currently located at around 102.50, and stays below that level on Tuesday. Furthermore, the Relative Strength Index (RSI) indicator on the daily chart retreated to the 50 area, reflecting the loss of bullish momentum.

On the downside, 102.00 (psychological level, static level) aligns as first technical support ahead of 101.75 (20-day SMA). A daily close below the latter could open the door for an extended slide toward 101.00 (psychological level, static level).

In case the DXY manages to stabilize above 102.50, it is likely to face strong resistance at 103.00 (psychological level, 100-day SMA) before targeting 103.60 (static level from February).

How does Fed’s policy impact US Dollar?

The US Federal Reserve (Fed) has two mandates: maximum employment and price stability. The Fed uses interest rates as the primary tool to reach its goals but has to find the right balance. If the Fed is concerned about inflation, it tightens its policy by raising the interest rate to increase the cost of borrowing and encourage saving. In that scenario, the US Dollar (USD) is likely to gain value due to decreasing money supply. On the other hand, the Fed could decide to loosen its policy via rate cuts if it’s concerned about a rising unemployment rate due to a slowdown in economic activity. Lower interest rates are likely to lead to a growth in investment and allow companies to hire more people. In that case, the USD is expected to lose value.

The Fed also uses quantitative tightening (QT) or quantitative easing (QE) to adjust the size of its balance sheet and steer the economy in the desired direction. QE refers to the Fed buying assets, such as government bonds, in the open market to spur growth and QT is exactly the opposite. QE is widely seen as a USD-negative central bank policy action and vice versa.

President Biden and Speaker McCarthy are expected to hold another round of key debt ceiling negotiations today. Given the high risk that no tangible progress is made, upside risks for safe havens (USD and JPY) are elevated, economists at ING report.

A key day for debt-limit negotiations

“This should be another pivotal day in Washington for debt ceiling negotiations, with President Joe Biden expected to meet Speaker of the House Kevin McCarthy. Biden is still scheduled to leave for the G7 meeting in Japan tomorrow, and the White House has so far said there are no plans to curtail the trip for the debt ceiling impasse.”

“Should we see no progress towards a debt-limit deal today, we could definitely see markets price a greater deal of the US defaulting on its debt. The potentially very negative spill-over into risk sentiment and money markets means that the upside risks for the Dollar and the Yen are quite significant in such a scenario.”

• EUR/GBP gains some positive traction on Tuesday, albeit struggles to capitalize on the strength.
• The immediate market reaction to softer UK jobs data fades rather quickly amid a weaker USD.
• The German ZEW survey, Eurozone GDP print fail to impress the Euro bulls or boost to the cross.

The EUR/GBP cross attracts fresh buying on Tuesday and reverses a major part of the previous day's losses, though the intraday uptick runs out of steam near the 0.8715-0.8720 region. Spot prices quickly slide back below the 0.8700 mark during the early European session and remain well within the striking distance of the YTD low touched last Thursday.

The British Pound weakens a bit following the release of the UK employment details and turns out to be a key factor that lends some support to the EUR/GBP cross. In fact, the UK Office for National Statistics (ONS) report that the number of people claiming unemployment-related benefits rose by 46.7K in April as compared to the 26.5K in the previous month and consensus estimates for a fall of 10.8 K. Furthermore, the jobless rate ticked higher to 3.9% from 3.8%, suggesting that the flatlining economy has started to take a toll of Britain’s labour market.

Additional details of the report showed that UK Average Earnings excluding bonuses rose by 6.7% in March, softer than the 6.8% expected, though slightly higher than April's 6.6%. The data, meanwhile, does little to influence expectations about the need for further rate hikes by the Bank of England (BoE) and is largely overshadowed by the emergence of fresh selling around the US Dollar (USD), which benefits the Sterling Pound. This, in turn, is seen as a key factor that keeps a lid on any meaningful upside for the EUR/GBP cross and warrants caution for bulls.

The shared currency's relative underperformance, meanwhile, could be attributed to the disappointing release of the German ZEW Economic Sentiment Index, which deteriorated sharply to -10.7 in May as compared to 4.1 previous and -5.5 expected. Separately, the preliminary estimates showed that the Eurozone economy expanded by 0.1% during the three months to March of 2023, matching the pace registered in the fourth quarter of 2022. The data, however, does little to impress the Euro bulls or provide any impetus to the EUR/GBP cross.

Technical levels to watch

UOB Group’s Economist Lee Sue Ann comments on the latest interest rate decision by the Bank of England (BoE).

Key Takeaways

“The Bank of England (BOE)’s Monetary Policy Committee (MPC) voted by a majority of 7-2 to increase the Bank Rate by 25bps to 4.50%. Similar to Mar, the MPC, in its Monetary Policy Summary and Minutes, kept the statement, ‘If there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required’.

“The MPC no longer expects the UK economy to enter recession this year and now expects GDP to grow by 0.25% in 2023 and by 0.75% in 2024. Inflation is expected to remain above 10%, before falling sharply over the coming months, driven largely by falling energy prices.”

“Whether the MPC will be comfortable with pausing by the time of the next meeting on 22 Jun will depend very much on incoming data and developments. However, we stick to our view that the BOE may pause as soon as next month.”

ECB officials are splitting opinions on how much further the policy tightening cycle has to run. Economists at Société Générale do not expect the EUR/USD pair to reach new highs.

The speed of travel depends more on events in the US

“Speculation at what level the ECB will pause intensified after MNI quoted (centrist/dovish) ECB sources, saying at least one or two more 25 bps rate increases are likely over the summer.”

“Hawkish members last week warned rates could reach 4% in September, but the majority of the council still sees this as unlikely, barring an upside inflation surprise. One or two more increases probably won’t be enough to set pulses racing about new highs for the EUR/USD of about 1.11.” 

“Tactically, the speed of travel depends more on events in the US. This includes discussions about the debt ceiling between the President and Congressional lawmakers, which will reportedly resume today.” 

• Germany’s ZEW Economic Sentiment Index dropped more than expected in May.
• EUR/USD remains unfazed near 1.0900 on the mixed ZEW surveys.

The German ZEW headline number showed that the Economic Sentiment Index deteriorated sharply in May, arriving at-10.7 from 4.1 in April, missing the market expectation of -5.5.

Meanwhile, the Current Situation Index improved to -34.8 from -32.5, bettering the market expectation of -37.5.

During the same period, the Eurozone ZEW Economic Sentiment Index worsened to -9.4 from 6.4, compared to the estimates of 8.2. 

Key points

Market reaction

The EUR/USD pair has paid a little heed to the mixed data, holding the higher ground near 1.0900, up 0.20% on the day.

According to the preliminary release published by Eurostat on Tuesday, the Eurozone economy expanded by 0.1% in the quarter in the three months to March of 2023, meeting the 0.1% expected clip and at the same pace registered in the fourth quarter of 2022.  

On an annualized basis, the bloc’s GDP rate grew by 1.3% in Q4 vs. 1.3% booked in Q4 2022 while meeting 1.3% expectations.

The old continent’s Preliminary Employment Change data came in at 0.6% and 1.7% on a quarterly and yearly basis respectively.

Market reaction

EUR/USD was last seen trading at 1.0894, up 0.20% on the day. In line with expectations Eurozone GDP data failed to move the needle around the Euro.

 About Eurozone Preliminary GDP

The Gross Domestic Product released by Eurostat is a measure of the total value of all goods and services produced by the Eurozone. The GDP is considered as a broad measure of the Eurozone's economic activity and health. Usually, a rising trend has a positive effect on the EUR, while a falling trend is seen as negative (or bearish).

Economists at Commerzbank discuss how the inflation data due in Canada today could impact the Loonie.

Moves in USD/CAD seemed to be dominated by concerns about the US debt ceiling

“If inflation rates are in line with consensus expectations or slightly below, this is likely to change BoC rate expectations and the Loonie only very marginally. The OIS expectations signal that the market is only pricing in a small chance of further rate hikes and continues to expect rate cuts for year-end.”

“If, contrary to expectations, inflation were to surprise on the upper end though, this might fuel expectations that the BoC will leave interest rates at current levels of 4.5% for longer or might need to take further action. If this reduces the gap between Fed an BoC expectations, in particular, the Loonie would benefit.” 

“Most recently the moves in USD/CAD seemed to be dominated by concerns about the US debt ceiling though.”

See – Canadian CPI Preview: Forecasts from five major banks, inflation likely to ease again

• Silver drops to a multi-week low, though finds some support near the 38.2% Fibo. level.
• The technical setup favours bearish traders and supports prospects for deeper losses.
• A sustained strength beyond the $24.20-30 area is needed to negate the negative bias.

Silver comes under some renewed selling pressure following the previous day's modest uptick and drops to its lowest level since April 3 during the first half of trading on Tuesday. The white metal, however, finds some support near the 38.2% Fibonacci retracement level of the March-May rise and trades just below the $24.00 mark during the early European session, still down 0.80% for the day.

From a technical perspective, the two-way price move witnessed over the past three days constitutes the formation of a rectangle on hourly charts. Against the backdrop of the recent sharp pullback from over a one-year top, this might still be categorized as a bearish consolidation phase. Moreover, oscillators on hourly/daily charts are holding deep in the negative territory and support prospects for further losses.

That said, it will still be prudent to wait for a sustained break below the $23.70-$23.65 area (38.2% Fibo.) before positioning for an extension of over a one-week-old downtrend. The XAG/USD might then test the $23.40 strong horizontal support, which coincides with the 100-day Simple Moving Average (SMA). The latter should act as a pivotal point to determine the near-term trajectory. 

The subsequent downfall could drag the XAG/USD towards 50% Fibo. level, around the $23.00 round-figure mark. The next relevant support is pegged near the $22.65-$22.60 region ahead of the $22.30-$22.25 zone, or the 61.8% Fibo. level. A convincing break below the latter will be seen as a fresh trigger for bearish traders and pave the way for a further depreciating move.

On the flip side, the top end of a short-term trading range, around the $24.15-$24.20 region, could act as an immediate hurdle. A sustained strength beyond might trigger a short-covering rally and lift the XAG/USD towards the 23.6% Fibo. level, around the $24.60 zone. Some follow-through buying should allow bulls to reclaim the $25.00 psychological mark and aim to test the next resistance near the $25.30-$25.40 supply zone.

Silver daily chart

Key levels to watch

The worst-performing EMEA currency over the past week was once again the ZAR. Economists at MUFG Bank believe that the Rand could stage a relief rally this week.

Domestic factors contributing to ZAR underperformance

“The latest trigger for the deeper ZAR sell-off last week were heightened fears that geopolitical tensions between South Africa and the US could escalate significantly. It followed comments from a US ambassador stating that South Africa supplied arms to Russia. South African Finance Minister Godongwana has since claimed that the diplomatic row has been resolved, and it is unlikely to result in the US imposing penalties such as sanctions.”

“The ZAR is attempting to stage a relief rally that could extend further in the week ahead although other domestic concerns such as ongoing energy supply disruptions and the paring back of China reopening optimism are acting as a dampener on upside potential.”

• EUR/USD adds to Monday’s gains and approaches 1.0900.
• EMU GDP, Germany’s Economic Sentiment due later.
• US Retail Sales take centre stage later on Tuesday.

EUR/USD adds to the auspicious start of the week and flirts with the key barrier at 1.0900 the figure on turnaround Tuesday.

EUR/USD now looks at EMU, US data

EUR/USD probes the boundaries of the 1.0900 hurdle amidst the continuation of the corrective decline in the greenback and the generalized improvement in the sentiment surrounding the risk-associated universe.

Indeed, the pair picks up extra pace and extends further the bounce off recent lows near 1.0850 in spite of the so far knee-jerk in US and German yields, while expectation of a pause of the Fed’s normalization process in June and extra rate hikes by the ECB in the next couple of months appear on the rise.

Later in the NA session, the focus of attention will be on the release of US Retail Sales, Industrial Production, the NAHB index and Business Inventories. Additionally, Fed’s Mester, Bostic, Williams, Logan and Barr are also due to speak.

Closer to home, another revision of the Q1 GDP Growth Rate in the euro area is due along with the ZEW’s Economic Sentiment in Germany and the broader euro bloc. Finally, ECB’s Tuominen and Lagarde will also speak later on Tuesday.

What to look for around EUR

EUR/USD extends the weekly rebound and adds to Monday’s promising price action, always with the immediate target at the 1.0900 barrier.

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: ECOFIN Meeting, EMU Flash Q1 GDP Growth Rate, ZEW Economic Sentiment, Germany ZEW Economic Sentiment (Tuesday) – EMU Final Inflation Rate (Wednesday).

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 0.17% at 1.0892 and the surpass of 1.1095 (2023 high April 26) would target 1.1100 (round level) en route to 1.1184 (weekly high March 21 2022). Conversely, the next contention level emerges at 1.0844 (monthly low May 15) seconded by 1.0831 (monthly low April 10) and finally 1.0802 (100-day SMA).

In its latest oil market report published on Wednesday, the International Energy Agency (IEA) said that “current market pessimism stands in stark contrast to the tighter market balances for H2.”

Additional takeaways

Market reaction

WTI is unable to extend its recovery momentum after the warning issued in IEA’s oil market outlook. The US oil is trading at around $71.50, easing from session highs of $71.62, still up 0.29% on the day.

Senior Economist Julia Goh and Economist Loke Siew Ting at UOB Group assess the recently published Q1 GDP figures in the Philippines.

Key Takeaways

“The Philippines’ economy grew by 6.4% y/y in 1Q23 (4Q22: revised down to +7.1% from +7.2% previously), slightly better than our estimate and Bloomberg consensus of 6.2%. Nonetheless, it marked the second quarter of growth deceleration and the slowest expansion post pandemic since 2Q21, reflecting the normalisation of economic activities that were associated with monetary policy tightening.”

“There was mixed performance across all sectors in 1Q23, with services sector remaining the key growth driver, followed by construction and manufacturing industries. Higher government spending and total investment as well as stock replenishment activities helped to cushion the persistent moderation in household consumption and a drag from net trade during the quarter.”

“In view of lingering downside risks to domestic growth prospects and that 1Q23 GDP outturn is not too far off our expectations, we maintain our 2023 full-year economic outlook for the Philippines at 5.0% (official est: 6.0%-7.0%, 2022: +7.6%). We continue to expect real GDP growth to decelerate further over the next few quarters with year-ago high statistical base effects also playing an important role.”

• NZD/USD gains traction for the second successive day, though the upside remains limited.
• Sliding US bond yields keeps the USD bulls on the defensive and lends support to the major.
• Looming recession risks, hawkish Fed expectations to limit the USD losses and cap the pair.

The NZD/USD pair attracts some dip-buying near the 0.6225 area on Tuesday and looks to build on the overnight solid bounce from a nearly two-week low. The pair trades around the mid-0.6200s during the early European session, which bulls awaiting a sustained move beyond a technically significant 200-day Simple Moving Average (SMA) before placing fresh bets.

A softer tone surrounding the US Dollar (USD) turns out to be a key factor lending some support to the NZD/USD pair, though any meaningful appreciating move seems elusive. A standoff to raise the federal government's borrowing limit triggers a fresh leg down in the US Treasury bond yields and undermines the Greenback. It is worth recalling that US President Joe Biden expressed confidence that a deal could be done in time ahead of an expected meeting with congressional leaders later today. Republican House of Representatives Speaker Kevin McCarthy, however, said the two sides were still far apart.

The downside for the USD, however, seems cushioned amid fresh speculations that the Federal Reserve (Fed) will stick to its hawkish stance. The bets were lifted by the Michigan survey, which showed that consumers see prices over the next five years climbing at an annual rate of 3.2% 
- the highest since 2011. Furthermore, the overnight hawkish comments by several Fed officials suggest that the US central bank will keep interest rates higher for longer. Apart from this, the prevalent cautious mood around the equity markets should limit losses for the safe-haven buck and cap the upside for the risk-sensitive Kiwi.

The weaker-than-expected Chinese macro data released today pointed to a wobbly post-COVID recovery in the world's second-largest economy and fueled recession fears. Apart from this, concerns about the US debt ceiling temper investors' appetite for riskier assets. This, along with diminishing odds for further rate hikes by the Reserve Bank of New Zealand (RBNZ), amid a slide in inflation expectations for the first quarter, warrants caution for bulls. This makes it prudent to wait for strong follow-through selling before confirming that the NZD/USD pair's recent pullback from a nearly three-month high has run its course.

Market participants now look forward to the US economic docket, featuring the release of monthly Retail Sales figures later during the early North American session. This, along with the US bond yields and the broader risk sentiment, will influence the USD price dynamics and provide short-term impetus to the NZD/USD pair. Nevertheless, the aforementioned fundamental backdrop suggests that the path of least resistance for spot prices is to the downside. Hence, any subsequent move up could be seen as a selling opportunity and runs the risk of fizzling out rather quickly.

Technical levels to watch

• The index trades in an inconclusive fashion near 102.40.
• US yields show no clear direction so far on Tuesday.
• US Retail Sales, NAHB Index, Fedspeak next on tap.

The greenback, in terms of the USD Index (DXY), navigates a tight range around the 102.40 zone on turnaround Tuesday.

USD Index focuses on data, risk trends

The index alternates gains with losses in the 102.40 region following Monday’s marked retracement from multi-week highs near 102.80.

In the meantime, US yields appear tilted to the downside in the wake of the opening bell in the Euroland and against the backdrop of steady bets for a Fed’s pause of its hiking cycle at the June 14 meeting.

On the latter, and amidst the data-dependent stance from the Fed, investors are expected to closely follow the release of April’s Retail Sales later in the NA session seconded by Industrial Production figures, the NAHB Housing Market Index as well as Business Inventories.

In addition, Cleveland Fed L. Mester (2024 voter, hawk), Atlanta Fed R. Bostic (2024 voter, hawk), NY Fed J. Williams (permanent voter, centrist), Dallas Fed L. Logan (voter, centrist) and FOMC’s M. Barr (permanent voter, centrist) are all due to speak later on Tuesday.

What to look for around USD

The index abandons the area of 5-week highs in the 102.75/80 band amidst some inconclusive risk appetite trends and ahead of the release of key results in the docket.

The index seems to be facing downward pressure in light of 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 an impasse 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 rising uncertainty surrounding the US banking sector.

Key events in the US this week: NY Empire State Index, TIC Flows (Monday) – Retail Sales, Business Inventories, Industrial Production, NAHB Housing Market Index (Tuesday) – MBA Mortgage Applications, Building Permits, Housing Starts (Wednesday) – Philly Fed Index, Initial Jobless Claims, CB Leading Index, Existing Home Sales (Thursday) – 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 down 0.06% at 102.35 and faces the next support at 101.01 (weekly low April 26) prior to 100.78 (2023 low April 14) and finally 100.00 (psychological level). On the other hand, the break above 102.75 (monthly high May 15) would open the door to 102.80 (weekly high April 10) and then 103.05 (monthly high April 3).

A small decline in wage growth is hitting the Pound. Economists at ING expect the EUR/GBP pair to extend its rally.

Start of longer-lasting rise in EUR/GBP

“After last month's unexpected surge in the level of UK average pay, the growth rate on a monthly basis slowed once again.”

“With the BoE having put a lot of weight on this release, as well as the next CPI print, the chances of a pause at the June meeting have slightly increased.”

“The price action in the Pound this morning is mirroring this: EUR/GBP has broken back above 0.8700 and we think there is still ample upside room as further BoE tightening is priced out of the Sonia curve.”

Economists at ING note that the EUR/USD pair should hold above 1.08 to avoid significant losses.

Watch the pivotal 1.0800 level

“This morning, we’ll have the only potential market-moving data release out of the Eurozone this week: the German ZEW surveys. Consensus is leaning towards a pessimistic read, with the expectations index falling again below zero and the ‘current situation’ index declining from -32.5 to -37.0. Still, the market impact shouldn’t be very material barring a sizeable deviation from consensus.” 

“EUR/USD should remain primarily driven by the USD leg and the US debt-limit saga: we see 1.0800 as the key benchmark support, and a break below that level would probably signal a significant deterioration in market sentiment.”

• USD/JPY edges lower on Tuesday and snaps a three-day winning streak to over a one-week high.
• Looming recession risks benefit the safe-haven JPY and exert downward pressure on the major.
• The Fed-BoJ policy divergence to limit losses as traders look forward to the US Retail Sales data.

The USD/JPY pair comes under some selling pressure on Tuesday and for now, seems to have snapped a three-day winning streak to a one-and-half-week high, around the 136.30-136.35 region touched the previous day. Spot prices remain depressed through the early European session and currently trade just below the 136.00 round-figure mark, down nearly 0.20% for the day.

A generally weaker tone around the equity markets drives some haven flows towards the Japanese Yen (JPY) and turns out to be a key factor weighing on the USD/JPY pair. The weaker-than-expected Chinese macro data released on Tuesday adds to worries about a global economic slowdown and tempers investors' appetite for riskier assets. The flight to safety, along with a standoff to raise the federal government's borrowing limit, is seen dragging the US Treasury bond yields lower. This, in turn, keeps the US Dollar (USD) bulls on the defensive and contributes to the offered tone surrounding the major.

It is worth recalling that US President Joe Biden expressed confidence that a deal could be done in time ahead of an expected meeting with congressional leaders later today. Republican House of Representatives Speaker Kevin McCarthy, however, said the two sides were still far apart. The downside for the USD, meanwhile, seems limited amid speculations that the Federal Reserve (Fed) will stick to its hawkish stance. The bets were lifted by the Michigan survey on Friday, which showed that consumers see prices over the next five years climbing at an annual rate of 3.2%  - the highest since 2011.

Furthermore, the overnight hawkish comments by several Fed officials suggest that the US central bank will keep interest rates higher for longer. In contrast, the Bank of Japan (BoJ) Governor Kazuo Ueda said last week that it was too early to discuss specific plans for an exit from the massive stimulus program. This marks a big divergence in the Fed-BoJ policy outlook, which should cap any meaningful gains for the JPY and supports prospects for the emergence of some dip-buying around the JPY. This makes it prudent to wait for strong follow-through selling before confirming that spot prices have topped out.

Market participants now look forward to the release of the US monthly Retail Sales figures, due later during the early North American session. This, along with the US bond yields, will influence the USD price dynamics and provide some impetus to the USD/JPY  pair. Apart from this, traders will take cues from the broader risk sentiment to grab short-term opportunities ahead of the prelim Japanese GDP report, scheduled for release during the Asian session on Wednesday.

Technical levels to watch

Economists at Goldman Sachs explain their three reasons to stay bullish on Sterling.

EUR/GBP to target 0.86

“The headwinds that burdened the Sterling in 2022, including high natural gas and energy prices, Brexit-related complications, and the relative stance of BoE policy, have all lessened, leading us to recommend staying short on EUR/GBP with a target of 0.86.”

“The BoE's recent significant forecast upgrades to growth and inflation suggest a risk of more persistent inflation that would necessitate further monetary policy tightening.”

“The BoE's policy stance no longer appears as an outlier in the G10, turning the previous negative influence on the currency into a positive one.”

UOB Group’s Senior Economist Julia Goh and Economist Loke Siew Ting comment on the latest jobs report in Malaysia.

Key Takeaways

“Malaysia’s labour market continued to post a gradual improvement in Mar, with both labour force (Mar: +30.5k or +0.2% m/m to 16.81mn, Feb: +25.8k or +0.2% m/m to 16.78mn) and total employment (Mar: +33.7k or +0.2% m/m to 16.22mn, Feb: +30.0k or +0.2% m/m to 16.19mn) expanding to hit an all-time high. The national unemployment rate also held steady at 3.5% in Mar. The same goes for labour force participation rate, which maintained at 69.9%.”

“There was a sustained increase in hiring across all economic sectors in Mar, led by the services and manufacturing sectors. The employment-to-population ratio inched up for the second straight month to 67.5% (from 67.4% in Feb), marking the highest level on record and indicating strong ability of Malaysia’s economy to create employment.”

“We maintain our 2023 year-end unemployment rate projection at 3.2% (BNM est: 3.3%, end-2022: 3.6%) as the latest reading of labour market indicators and economic performance remain largely in line with our expectations. The government’s ongoing measures to create and retain jobs as well as initiatives to lure high value-added investment will sustain the improvement in the labour market in the near term, despite lingering global macro headwinds and financial uncertainty. Moreover, the government is presently looking in principle at the policy for a progressive wage system in Malaysia, which is deemed positive for the labour market over the medium and long term.”

• AUD/USD takes offers to renew intraday low, reverses the week-start rebound.
• Market sentiment worsens as US policymakers jostle about the debt ceiling issue.
• Softer China data, RBA’s policymakers’ hesitance to defend the latest hawkish surprise favor Aussie pair buyers.
• US Retail Sales, debt ceiling talks will be crucial for clear directions ahead of Australian Wage Price Index, employment numbers.

AUD/USD recalls sellers as it drops to 0.6675 while printing mild losses amid early Tuesday morning in Europe after posting an upbeat start of the week. The Aussie pair’s latest weakness could be linked to the risk-off mood, as well as downbeat signals from the Reserve Bank of Australia (RBA) and China.

That said, the RBA’s May month monetary policy meeting minutes fail to justify the latest hawkish surprise as it cited that easing inflation pressure. The Minutes also showed the policymakers’ concerns about the sluggish productivity growth weighing on the AUD/USD prices. 

Also read: RBA Minutes: Board considered pausing or hiking 25 basis points in may policy decision

On the other hand, the People’s Bank of China (PBOC) keeps the one-year Medium-term Lending Facility (MLF) rates unchanged at 2.75%, per the latest update, which in turn prods the AUD/USD buyers. Additionally, the Chinese central bank also released its quarterly economic report stating that China's economy isn’t experiencing deflation and that economic growth is set to rebound sharply. However, downbeat prints of China data supersede the price-positive signals for the Aussie pair. It should be noted that China Industrial Production grew 5.9% for April versus 10.9% expected and 3.9% prior whereas the Retail Sales rose 18.4% YoY from 10.6% prior and 21.0% market forecasts.

On a different page, the White House announced a meeting between President Joe Biden and Republican House of Representatives Speaker Kevin McCarthy to overcome the looming US default. Ahead of the event, the US policymakers appear somewhat optimistic about extending the debt ceiling limit before the June expiry. However, the latest comments from United States House Speaker Kevin McCarthy saying, “I don’t think we’re in a good place,” also seem to weigh on the Gold price, via fears of deadlock on the US debt ceiling extension as Republicans may stick to their demand.

Against this backdrop, S&P 500 Futures dropped 0.30% intraday even as Wall Street closed positive and the yields remain pressured, which in turn shows the market’s indecision and awaits the important data/events for clear directions.

Looking forward, AUD/USD may remain pressured amid the market’s risk-off mood ahead of the US Retail Sales for April, expected at 0.7% MoM versus -0.6% prior. Following that, the talks between US President Biden and House Speaker McCarthy to avoid debt expiration will be crucial to watch as the deadline for US default looms, recently brought forward to the first week of June. It’s worth observing that Wednesday’s quarterly prints of the Australia Wage Price Index for the first quarter (Q1) and Aussie employment numbers for April will also entertain the Aussie pair traders.

Technical analysis

Unless providing a daily closing beyond the 200-DMA, around 0.6720 at the latest, the AUD/USD remains on the bear’s radar.

CME Group’s flash data for natural gas futures markets noted traders trimmed their open interest positions by nearly 2K contracts on Monday after four consecutive daily builds. Volume followed suit and went down by around 75.4K contracts, partially reversing the previous daily advance.

Natural Gas remains stuck within the range bound theme

Prices of the natural gas rose for the second session in a row on Monday. The improvement in the price action came amidst diminishing open interest and volume and is indicative that extra gains lack conviction for the time being. So far, the commodity’s upside remains capped by the $2.50 region per MMBtu.

Economists at Rabobank expect USD/CNH to settle around the 7 level.

PBoC to set interest rates slightly lower in order to stimulate the economy

“The current low level of price increases in both producer and consumer prices has increased the chance that the PBoC will set interest rates slightly lower in order to stimulate the economy. Therefore, we include again our earlier expectation of slightly lower interest rates which we argue will set USD/CNH slightly higher at a rate of 7.”

“We expect the PBoC 7-day reverse repo rate and the PBoC 1-year Marginal lending facility to be at respectively 1.90% and 2.65% at the upcoming PBOC meeting of 21st of May.”

Here is what you need to know on Tuesday, May 16:

The positive shift seen in risk mood made it difficult for the US Dollar to find demand on Monday and the US Dollar Index (DXY) snapped a two-day winning streak. Early Tuesday, the DXY holds its ground as markets await April Retail Sales data from the US. In the European session, Eurostat will release the Gross Domestic Product growth data for the first quarter and ZEW Survey - Economic Sentiment for the Euro area and Germany will also be looked upon for fresh impetus. Market participants will continue to pay close attention to comments from central bank officials.

US stock index futures trade modestly lower on the day and the benchmark 10-year US Treasury bond yield stays in negative territory below 3.5%. Following the 0.6% decline recorded in March, Retail Sales in the US are forecast to rise 0.7% in April. US President Joe Biden will meet with Republican House of Representatives Speaker Kevin McCarthy and three other top congressional leaders at 1900 GMT for the next round of debt limit negotiations.

US April Retail Sales forecast: US Dollar unlikely to find reprieve.

Early Tuesday, the data published by the UK's Office for National Statistics (ONS) revealed that the ILO Unemployment Rate edged higher to 3.9% in the three months to March. This reading came in higher than the market expectation of 3.8%. In the same period, wage inflation, as measured by Average Earnings Including Bonus, held steady at 5.8% but surpassed analysts' estimate of 5.1% by a wide margin. Pound Sterling came under heavy selling pressure after the mixed jobs report and GBP/USD dropped below 1.2500.

EUR/USD registered small gains on Monday but closed below 1.0900. The pair stays relatively quiet early Tuesday. Citing Eurosystem sources, MNI reported on Monday that the European Central Bank (ECB) was most likely to raise key rates once or twice more in this tightening cycle.

Supported by rising US Treasury bond yields, USD/JPY climbed to its highest level in over 10 days above 136.00 on Monday. The pair seems to have gone into a consolidation phase early Tuesday and was last seen trading a few pips below 136.00.

USD/CAD fell sharply on Monday and closed below 1.3500 as rising crude oil prices helped the commodity-sensitive Canadian Dollar gather strength. Later in the day, Statistics Canada will publish the Consumer Price Index data for April, which is forecast to rise 4.1%, compared to 4.3% in March.

During the Asian trading hours, the data from Australia revealed that the Westpac Consumer Confidence Index worsened to -7.9% in May from 9.4% in March. AUD/USD stays under modest bearish pressure on Tuesday and trades in negative territory below 0.6700 after having failed to stabilize above that level on Monday.

Following a quiet Asian session, Gold price turned south in the European morning and dropped toward $2,000.

Bitcoin rose toward $28,000 on Monday but lost its bullish momentum before testing that level. BTC/USD stays on the back foot early Tuesday and trades in negative territory near $27,000. Ethereum posted small gains on Monday. In the European morning, ETH/USD fluctuates in a tight channel slightly above $1,800.

• Gold price takes offers to reverse the week-start corrective bounce, renews intraday low of late.
• XAU/USD drops as US Dollar picks up bids amid market’s anxiety ahead of US Retail Sales, debt ceiling talks.
• Downbeat China data, softer yields also weigh on the Gold price on a key day.

Gold price (XAU/USD) refreshes intraday low near $2005.00 as it takes offers to reverse the week-start corrective bounce heading into Tuesday’s European session. In doing so, the bright metal bears the burden of the markets’ cautious mood ahead of the US Retail Sales for April and the all-important US debt ceiling talks, scheduled for 19:00 GMT.

It’s worth noting that the US Dollar Index (DXY) picks up bids to refresh its intraday high near 102.50, following the downbeat Monday, as it cheers the market’s fears of the US default and anxiety ahead of the key US data. It’s worth noting that the latest comments from US House Speaker McCarthy saying, “I don’t think we’re in a good place,” seem to put a floor under the US Dollar price, via fears of deadlock on the US debt ceiling extension as Republicans may stick to their demand.

Apart from the US Dollar moves, the downbeat data from China, one of the key customers of Gold, also weigh on the XAU/USD. That said, China's Industrial Production grew 5.9% for April versus 10.9% expected and 3.9% prior whereas the Retail Sales rose 18.4% YoY from 10.6% prior and 21.0% market forecasts.

Elsewhere, the Fed policymakers’ hesitance in letting go of the hawkish bias joins the fears of recession and banking woes to roil the risk profile and exert downside pressure on the Gold price.

Amid these plays, S&P 500 Futures dropped 0.30% intraday even as Wall Street closed positive and the yields remain pressured, which in turn shows the market’s indecision and awaits the important data/events for clear directions.

Moving on, the Gold price is likely to remain pressured amid the market’s risk-off mood ahead of the US Retail Sales for April, expected at 0.7% MoM versus -0.6% prior. Following that, the talks between US President Biden and House Speaker McCarthy to avoid debt expiration will be crucial to watch as the deadline for US default looms, recently brought forward to the first week of June.

Gold price technical analysis

Gold price reverses from a convergence of the 100-bar and 200-bar Exponential Moving Averages (EMAs), around $2,019 by the press time.

The XAU/USD pullback, however, fails to gain support from the RSI (14) line as it drops below the 50.0 level and suggests bottom-picking.

The same highlights a one-week-old horizontal support zone around the $2,000 round figure for the Gold sellers to watch as an immediate rest-points.

Even if the XAU/USD breaks the $2,000 support, despite nearly oversold RSI, an upward-sloping support line from April 27, close to $1,995 at the latest, will be the last defense of the buyers.

On the contrary, an upside break of the $2,019 EMA confluence isn’t an open ticket to the Gold price upside as a downward-sloping trend line from May 03, close to $2,023 as we write, could challenge the bulls before giving them control.

Gold price: Hourly chart

Trend: Limited downside expected

The US Census Bureau will release the April Retail Sales report on Tuesday, May 16 at 12:30 GMT and as we get closer to the release time, here are the forecasts of economists and researchers of eight major banks regarding the upcoming data. 

Retail Sales in the US are expected to rise by 0.7% month-on-month vs. a revised -0.6% (was -1.0%) in March. Meanwhile, sales ex-autos are expected at 0.4% MoM vs. a revised -0.4% (was -0.8%) in March.  The so-called control group used for GDP calculations is expected at 0.3% MoM vs. -0.3% in March. 

Commerzbank

“Retail sales figures for April will now provide the first indications of whether consumers are starting to run out of steam after all. However, we are more likely to expect a decent increase again. We forecast a 0.7% increase in retail sales. However, part of the increase reflects the rise in the price of gasoline, which inflates nominal sales at gas stations.”

TDS

“We expect retail sales to rebound by a strong 1.0% MoM in April following March's 0.6% MoM drop. Auto sales will likely be a key driver as well as sales in gas stations. Importantly, control group sales likely recovered after two consecutive retreats in Feb-Mar, as online sales appear to have held up. We also look for sales in bars/restaurants to expand at a brisk pace.”

RBC Economics

“We expect the US retail sales to tick up 0.5% in April, driven by an increase in unit auto sales.”

NBF

“Car dealers likely contributed strongly to the headline number, as auto sales jumped during the month. An increase in gasoline station receipts is also likely to have taken place, reflecting higher pump prices. All told, headline sales could have advanced 1.5%. Spending on items other than vehicles could have expanded too, albeit at a slower pace.”

CIBC

“Consumers were cautious to open their wallets to retailers at the end of the first quarter, but a jump in unit vehicle sales in April suggests that the second quarter could have started on more solid footing, with retail sales likely increasing by an impressive 0.9%. Higher gasoline prices could have also helped the nominal headline gain. In the control group, which excludes autos, gasoline, restaurants, and building materials, and feeds more directly into non-auto goods consumption in GDP, sales could have increased by a healthy 0.3%, reflecting strength in wages and job growth. We are a bit above consensus which could be modestly bearish for bonds.” 

Wells Fargo

“For April, we expect retail sales to rise 1.0%, while retail sales ex-autos rose 0.5%. Separately reported auto sales data suggest another strong month for sales, and incomes are more broadly on track to keep spending sustainable, at least in the short term, due to the historically strong labor market.”

Deutsche Bank

“We expect the headline to print at +0.7% in April, up from -0.6% previously, or +0.5% vs -0.4% ex autos. Headline will likely be boosted by strong auto sales in the month. The gain in ex-autos sales is likely to be gas price related and we expect a flat reading on retail control (unch. vs. -0.3%), which is the direct input into GDP for goods spending. So consumption is likely grinding lower after a strong start to the year.”

Citi

“We expect a solid 0.8% MoM increase in total retail sales in April and excluding auto and gas, expect a more modest 0.3% MoM gain. Control group retail sales should also increase by a more modest 0.5% MoM. April retail sales would be consistent with real goods spending increasing more modestly as demand remains muted near term.”

FX option expiries for May 16 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

- EUR/USD: EUR amounts        

• 1.0815-20 555m
• 1.0895-1.0900 680m
• 1.0920 306m
• 1.0950-65 925m
• 1.0995-1.1000 900m

- USD/JPY: USD amounts                     

• 135.75 280m
• 136.00 384m

- USD/CHF: USD amounts        

• 0.8850 200m

- AUD/USD: AUD amounts

• 0.6700-10 1.5b
• 0.6760 515m
• 0.6800 566m

- USD/CAD: USD amounts       

• 1.3305 450m
• 1.3640 438m

- EUR/GBP: EUR amounts        

• 0.8740 233m

Economist at UOB Group Ho Woei Chen reviews the latest inflation figures in China.

Key Takeaways

“Headline inflation was near flat at 0.1% y/y, -0.1% m/m in Apr. The data continues to paint an uneven economic recovery in China as the demand recovery has failed to lift prices.”

“The weak price trend was largely due to declines in some of the food components while persistent falls in prices of transport and communication and residential costs continued to weigh down non-food inflation but service inflation edged higher in Apr. Lower domestic prices were also partly due to the sales and promotions by merchants.”

“China’s PPI remained in deflation for the 7th consecutive month with the decline in prices accelerating to -3.6% y/y.”

“Overall, China’s headline and core inflation averaged 1.0% y/y and 0.7% y/y respectively in Jan-Apr while PPI averaged -2.1% y/y. We now see CPI and PPI undershooting our forecast of 2.0% and -1.0% in 2023.”

“Monetary policy will stay accommodative with the prospect of another 25 bps cut to the RRR later this year should credit growth slow.”

Open interest in crude oil futures extended the downtrend on Monday and dropped by around 3.9K contracts according to preliminary readings from CME Group. Volume, instead, increased by around 4.1K contracts after two consecutive daily pullbacks.

WTI seems to have entered a consolidative phase

Monday’s decent gains in prices of the WTI were amidst shrinking open interest and a small increase in volume and is indicative that the continuation of the rebound seems out of favour in the very near term. That said, the price action around the commodity could face some near-term consolidation around the $70.00 region for the time being.

• GBP/USD takes offers to refresh intraday low, reverses week-start rebound from a fortnight low.
• UK Claimant Count Change rise for April, ILO Unemployment Rate also increase for three months to March.
• BoE’s Pill highlights inflation woes to defend hawkish monetary policy.
• US Retail Sales for April, policymakers’ efforts to avoid debt payment default will be the key to follow for fresh impulse.

GBP/USD refreshes intrday low near 1.2490 as it bears the burden of mostly downbeat UK employment numbers heading into Tuesday’s London open.

UK Claimant Count Change jumped by 46.7K in April versus -10.8K expected and 26.5K prior while ILO Unemployment Rate for three months to March rose to 3.9% against expectations of witnessing no change figure of 3.8%. Further, the Average Earnings excluding bonus and including for three months to March came in unimpressive despite crossing the forecasts.

The latest figures, however, justifies Monday’s hawkish comments from Bank of England (BoE) Chief Economist Huw Pill. “The Bank of England needs to guard against second-round inflationary effects which could see inflation bottom out at 4% or 5%, rather than return to its 2% target,” said BoE per Reuters.

Even if the downbeat UK data weigh on the Pound Sterling price, the sluggish US Dollar puts a floor under the GBP/USD price. That said, the US Dollar Index (DXY) keeps the week-start pullback from the monthly high despite bouncing off intraday low to 102.45 by the press time.

That said, the greenback’s latest weakness could be linked to Monday’s NY Empire State Manufacturing Index which marked the biggest fall since April 2020, to -31.8 for May. The same joins the downbeat signals from the US inflation numbers flashed the last week, as well as justifying the Federal Reserve’s (Fed) dovish hike. Recently, the odds of witnessing no rate hike from the Fed in 2023 are popular.

On a different page, mixed views surrounding the US policymakers’ readiness to avoid the debt ceiling expiration, global markets turn cautious as President Joe Biden and House Speaker Kevin McCarthy brace for the key negotiations scheduled at 19:00 GMT. That said, the latest comments from US House Speaker McCarthy saying, “I don’t think we’re in a good place,” seem to put a floor under the US Dollar price, via fears of deadlock on the US debt ceiling extension as Republicans may stick to their demand.

Having witnessed initial market reaction to the UK job numbers, the GBP/USD pair may witness lackluster moves amid anxiety ahead of the US Retail Sales for April, expected at 0.7% MoM versus -0.6% prior. Following that, the talks between US President Biden and House Speaker McCarthy to avoid debt expiration will be crucial to watch as the deadline of US default looms, recently brought forward to the first week of June.

Should the US data trace the latest trend of being downbeat, as well as the US policymakers manage to either solve the default riddle or unveils guide to extend the debt ceiling, the GBP/USD may recover.

Technical analysis

GBP/USD remains indecisive while staying between a one-month-old ascending trend line and the mid-April peak, respectively near 1.2450 and 1.2550.

• EUR/USD is struggling in extending its recovery above 1.0880 as the USD Index has made a recovery.
• The expectations for a neutral policy stance by the Federal Reserve have jumped further as US labor market conditions have started easing.
• The street is mixed over the interest rate guidance for the European Central Bank as the central bank seems far from the interest rate peak.
• EUR/USD is making efforts for shifting the auction above the 38.2% Fibonacci retracement at 1.0876.

EUR/USD is facing delicate barricades around 1.0880 in the early European session. The major currency pair is struggling in extending its recovery further as the US Dollar Index (DXY) is gathering strength for a reversal after a sheer correction.

S&P500 futures witnessed selling pressure in early Asia as investors are paring positions in risk-sensitive assets ahead of the US debt-ceiling talks. The overall market mood is turning risk-averse as investors are worried that further delay in US debt-ceiling outcome would fuel fears of a default in augmenting obligated payments by the US Treasury.

The US Dollar Index (DXY) has shown signs of recovery after building a base around 102.40. Apart from the US debt-ceiling talks, the United States Retail Sales data also holds significant importance. Meanwhile, the demand for US government bonds has increased. The 10-year US Treasury yields have dropped below 3.49%.

Federal Reserve policymakers’ mixed views on interest rate guidance

An unchanged interest rate policy by the Federal Reserve (Fed) is widely anticipated by the market participants as the United States inflation is consistently softening for the past few months. Also, US Producer Price Index (PPI) has slowed down sharply due to a bleak economic outlook and lower gasoline prices. Recently, the expectations for a neutral policy stance jumped further as US labor market conditions started easing. However, Federal Reserve policymakers have mixed views on interest rate guidance.

Atlanta Federal Reserve President Raphael Bostic. Fed policymaker told Bloomberg on Monday that, if he were voting now, he would vote to hold rates in June. However, he warned that he has to keep a possible rate hike on the table.

While Richmond Federal Reserve Bank President Thomas Barkin believes “It is not obvious to me that there is a financial stability challenge of having a higher rate path.  I don’t see the urgency of making a different decision because of financial stability risks.”

Investors await US debt-ceiling talks

Investors are underpinning the risk-aversion theme to dodge uncertainty associated with US borrowing cap negotiations to avoid the risk of default by the US Treasury in augmenting obligated payments. Postponed Friday’s meeting is scheduled for Tuesday and a volatile action in the FX domain cannot be ruled out. No doubt, US President Joe Biden will work on closing the argument with approval for a higher borrowing cap for the US Treasury without surrendering the budget for spending initiatives. However, House of Representatives Joseph McCarthy would also attempt for reducing spending to avoid expanding budget deficit.

Reuters reported that US House Speaker Kevin McCarthy told on Monday, “Congressional and White House negotiators were still far apart in talks to raise the debt ceiling to avoid a default.”

Eurozone GDP to remain in spotlight

The street is awaiting the release of the preliminary Eurozone Gross Domestic Product (GDP) data to understand its economic strength as European Central Bank (ECB) policymakers have been consistently betting on the Eurozone’s economic resilience for a period of time. As per the estimates, the pace of GDP growth is seen unchanged on a quarterly and an annual basis at 0.1% and 1.3% respectively.

Meanwhile, the street is confused over the interest rate guidance for the European Central Bank (ECB) as the central banks seem far from the interest rate peak.

EUR/USD technical outlook

EUR/USD is making efforts for shifting auction above the 38.2% Fibonacci retracement (placed from March 15 low at 1.0516 to April 26 high at 1.1095) at 1.0876 on a four-hour scale. The downward-sloping trendline from May 08 high at 1.1054 will act as a barricade for the Euro bulls.

Also, the 20-period Exponential Moving Average (EMA) at 1.0893 is restricting the upside for the shared currency bulls.

The Relative Strength Index (RSI) (14) would drop again if fails to jump above 40.00.

• The British Unemployment Rate unexpectedly rises to 3.9% in March.
• UK Claimant Count Change came in at 46.7K in April.
• The UK wages excluding bonuses rose to 6.7% YoY in March vs. 6.8% expected.

The latest data released by the Office for National Statistics (ONS) showed on Tuesday that the United Kingdom’s (UK) ILO Unemployment Rate rose from February’s 3.8% to 3.9% in March vs. the 3.8% expected while the claimant count change showed an unexpected increase in the reported month.

The number of people claiming jobless benefits jumped by 46.7K in April, compared with -10.8K expected and 26.5K booked previously.

The UK’s average weekly earnings, excluding bonuses, arrived at 6.7% 3Mo/YoY in March versus 6.6% prior and 6.8% expected while the gauge including bonuses came in at 5.8% 3Mo/YoY in the second month of the year versus 5.8% previous and 5.1% expected.

GBP/USD reaction

GBP/USD came under renewed bearish pressure and gave up 1.2500 on the mixed UK employment data. The pair is trading 0.29% lower on the day at 1.2492, as of writing.

About UK jobs

The UK Average Earnings released by the Office for National Statistics (ONS) is a key short-term indicator of how levels of pay are changing within the UK economy. Generally speaking, positive earnings growth anticipates positive (or bullish) for the GBP, whereas a low reading is seen as negative (or bearish).

• Retail Sales in the US are expected to rebound 0.7% after dipping slightly in March.
• Robust spending on cars and fuel likely to boost US Retail Sales, US Dollar in turn.
• Meeting between US President Biden and Congress leaders on debt ceiling will be closely eyed.

Retail Sales data in the United States (US) will be released by the US Census Bureau on Tuesday. The headline number is forecast to increase 0.7% in April after posting the second straight monthly drop in March.

The US Dollar (USD) has been on a sustained recovery following last week’s United States Consumer Price Index (CPI) figures for April. The US Retail Sales report could have a significant impact on the US Dollar’s valuation amid a lack of high-impact economic data releases from the US docket this week.

What to expect in the next US Retail Sales?

Tuesday’s US economic calendar features the release of the Retail Sales report for the fourth month of the year.

On a monthly basis, the headline Retail Sales are seen rebounding 0.7% during the reported month. Excluding autos, core Retail Sales are likely to have jumped 0.4% in April as against a 0.4% decline registered in March. US Retail Sales Control Group for April are foreseen at 0%, compared with March’s 0.3% decrease.

Economists expect the increase to be driven by robust spending on cars and fuel. Meanwhile, the Financial Times (FT) reported that “the outlook for retail sales is mixed as continued strength in the labor market and wages is likely to support consumer spending.” 

According to analysts at BBH, “the data highlight will be April retail sales Tuesday. The headline is expected at 0.8% m/m vs. a revised -0.6% (was -1.0%) in March, while ex-autos is expected at 0.4% m/m vs. a revised -0.4% (was -0.8%) in March.  The so-called control group used for GDP calculations is expected at 0.3% m/m vs. -0.3% in March. In late April, the Census Bureau reported its annual revisions to the retail sales data.” 

When is US April Retail Sales report released and how can they affect EUR/USD?

The Retail Sales data is scheduled for release at 12:30 GMT on Tuesday. With the US Dollar recovering ground to reach a monthly high in the wake of mounting US default fears and looming banking sector concerns, the EUR/USD pair remains vulnerable to more downside risks below the 1.0900 psychological mark. Stronger-than-expected US Retail Sales data is likely to help ease economic worries, in turn, lifting the main currency pair at the expense of the Greenback.

On the other hand, weaker Retail Sales details are likely to rekindle recession fears while reinforcing the market’s expectations of a US Federal Reserve (Fed) rate cut as early as July. Worries over a potential economic downturn could provide a fresh leg in the ongoing recovery of the safe-haven US Dollar.

At the moment, markets are pricing in an 82% chance of the Federal Reserve holding rates at the current level in June while maintaining a 33% chance of a rate cut in July.

Heading into the key release, the US Dollar is struggling to extend last week’s rally, as risk sentiment has somewhat improved after US President Joe Biden said over the weekend that the talks with Congress on raising the US government's debt limit were moving along. President Biden added that more will be known about their progress in the next two days.

US President Biden will meet with the congressional leaders on Tuesday for talks on a plan to raise the nation's debt limit and avoid a catastrophic default.

Meanwhile, Dhwani Mehta, Asian Session Lead Analyst at FXStreet, offers a brief technical outlook for the major and explains: “Having breached the critical 21-Day Moving Average (DMA) support last week, the selling interest around the EUR/USD pair remains unabated, as the pair took out the bullish 50 DMA cushion on Monday, The 14-day Relative Strength Index (RSI) is holding well below the midline, suggesting that there is more room to the downside. 

Dhwani also outlines important technical levels to trade the EUR/USD pair: “On the upside, EUR/USD buyers need acceptance above the bullish 50 DMA support-turned resistance to initiate any meaningful recovery toward 1.0950 psychological level. Conversely, immediate support awaits at Tuesday’s low of 1.0845, below which a sharp sell-off toward the ascending 100 DMA at 1.0804 cannot be ruled out.”

Retail Sales related content

• Debt default back on table as manufacturing melts
• Gold Price Forecast: XAU/USD bulls await US Retail Sales, debt ceiling news for fresh impetus
• EUR/USD Outlook: Bulls seem non-committed ahead of Eurozone/US macro data

About US Retail Sales

The Retail Sales released by the US Census Bureau measure the total receipts of retail stores. Monthly percent changes reflect the rate of changes in such sales. Changes in Retail Sales are widely followed as an indicator of consumer spending. Generally speaking, a high reading is seen as positive (or bullish) for the US Dollar, while a low reading is seen as negative (or bearish).

Economist at UOB Group Lee Sue Ann expects the Bangko Sentral ng Pilipinas (BSP) to raise the policy rate by 25 bps later in the week.

Key Quotes

“We are maintaining our BSP rate call of two more 25 bps hikes at the next two meetings in May and Jun, before taking a pause at 6.75% in 2H23.”

“That said, we do not rule out the fact that the possibility of a temporary interest rate pause by BSP at this coming meeting has somewhat increased given recent monetary policy decisions made by regional central banks, rising risks of a gloomier global growth outlook, and increasing global financial stress.”

Considering advanced prints from CME Group for gold futures markets, open interest resumed the uptrend and rose by around 13.4K contracts on Monday, reversing the previous daily drop. Volume, on the flip side, shrank for the second straight session, this time by around 36.4K contracts.

Gold points to some consolidation near term

Gold prices started the week on the positive foot amidst rising open interest, which suggests that further gains appear on the cards in the very near term. In the meantime, the yellow metal remains well underpinned by the key $2000 mark per ounce troy.

• USD/CAD licks its wounds after positing the biggest daily loss in a week.
• WTI crude oil struggles to cheer US SPR news, supply crunch fears amid downbeat EIA report.
• US Dollar remains pressured on softer data, mixed Fedspeak and fears of US default.
• BoC CPI, US Retail Sales will decorate calendar, US debt ceiling negotiations are the key for Loonie pair traders.

USD/CAD treads water around 1.3470 heading into Tuesday’s European session, following a downbeat start of the week. In doing so, the Loonie pair aptly portrays the trader’s cautious mood ahead of top-tier US and Canadian data/events amid mixed sentiment.

Given the mixed views surrounding the US policymakers’ readiness to avoid the debt ceiling expiration, global markets turn cautious as President Joe Biden and House Speaker Kevin McCarthy brace for the key negotiations scheduled at 19:00 GMT. That said, the latest comments from US House Speaker McCarthy saying, “I don’t think we’re in a good place,” seem to put a floor under the US Dollar price, via fears of deadlock on the US debt ceiling extension as Republicans may stick to their demand.

It should be noted that the US Dollar Index (DXY) drops to 102.40 as it keeps the week-start pullback from the monthly high. On the other hand, WTI crude oil retreats from the intraday high to $71.40 by the press time amid mixed clues from the US Energy Information Administration’s (EIA) latest Oil report, the US readiness to refill the Strategic Petroleum Reserve (SPR) and fears of supply crunch due to wildfire in Canada’s Alberta, one of the key global Oil producers.

Elsewhere, downbeat US data and firmer Canadian statistics joined upbeat Crude oil price to underpin the USD/CAD pair’s biggest daily slump in over a week the previous day.

On Monday, NY Empire State Manufacturing Index marked the biggest fall since April 2020, to -31.8 for May, whereas Canada’s Housing Starts for April and Wholesale Sales for March rose past market forecasts and priors.

While portraying the market sentiment, S&P 500 Futures print mild losses even as Wall Street closed positive and the yields remain pressured, which in turn shows the market’s indecision and awaits the important data/events for clear directions.

Moving on, Canada’s Consumer Price Index (CPI) and the Bank of Canada (BoC) CPI Core for April, together with the US Retail Sales for the said month, will be the key data to watch for the USD/CAD pair traders for clear directions. Above all, the Loonie pair traders should keep their eyes on how the US policymakers tackle the default fears for a better guide.

Technical analysis

USD/CAD reversed from the 50-DMA the previous day to snap a two-day uptrend. The pair’s following declines, however, failed to gain support from the MACD and hence the Loonie pair struggles near the 200-DMA support near 1.3465-60 by the press time.

In an interview with the Financial Times late Monday, Thomas Barkin, president of the Federal Reserve Bank of Richmond, “if inflation persists, or God forbid accelerates, there’s no barrier in my mind to further increases in rates.”

Additional quotes

“Would advocate for a “steady” approach that would “lessen the damage of any potential overcorrection”.

“It is not obvious to me that there is a financial stability challenge of having a higher rate path . . . I don’t see the urgency of making a different decision because of financial stability risks.”

“There’s a plausible story that demand is going to come down meaningfully because of waning fiscal stimulus, eroding personal balance sheets, the lagged effects of rate moves, credit tightening, and that cooling in demand will not soon afterwards have a similar effect on inflation.”

“I’m still looking to be convinced that story is going to turn into reality.”

Market reaction

The US Dollar Index was last seen trading at 102.40, down 0.05% on the day.

• GBP/USD is oscillating in a narrow range above 1.2550 as the focus has shifted to UK labor market data.
• S&P500 futures have generated decent losses in Asia as investors are cautious ahead of US debt ceiling talks.
• Shortages of labor and historically high food inflation have remained major catalysts of double-digit UK inflation.

The GBP/USD is displaying topsy-turvy moves above the immediate support of 1.2550 in the early European session. The Cable is showing signs of volatility contraction ahead of the release of the United Kingdom Employment data.

S&P500 futures have generated decent losses in the Asian session as investors are cautious ahead of US debt ceiling talks. The overall market mood seems in favor of the risk-aversion theme as the outcome of the US debt-ceiling negotiations between congressional Republicans and US President Joe Biden would be full of surprises.

Economists at ANZ Bank believe that a deal will be reached to suspend the debt limit for a few months to provide more time to negotiate a mutually satisfactory outcome. Negotiations over that period are likely to be fractious, causing financial market volatility and disrupting growth.”

The US Dollar Index (DXY) is demonstrating a loss in the downside momentum below 102.40 after a series of downside swings. A power-pack action is anticipated from the USD Index ahead of the monthly US Retail Sales (April) data. As per the estimates, the economic data expanded by 0.7% in April vs. a contraction of 0.6% witnessed in March.

On the Pound Sterling front, shortages of labor and historic high food inflation have been major catalysts of double-digit United Kingdom inflation. The release of the UK Employment (April) data will indicate the strength in the overall labor market.

• Asian equities trade mixed amid broadly cautious mood, softer China statistics.
• Sluggish Oil price, upbeat Wall Street fails to impress equity buyers ahead of debt ceiling talks.
• US policymakers remain at loggerheads before the key negotiations, suggesting fears of “catastrophic” default.
• Central bankers’ hesitance in promoting higher rates, scheduling of US debt ceiling talks favors cautious optimism.

Markets in the Asia-Pacific zone grind lower as fears of the US default joins downbeat China data during Tuesday’s sluggish session.

While portraying the mood, MSCI’s Index of Asia-Pacific shares outside Japan rises 0.60% intraday whereas Japan’s Nikkei 225 rise 0.80% amid Bank of Japan (BoJ) policymakers’ defense of the easy money policy. However, stocks from Australia, New Zealand and China print mild losses whereas those from India lack clear directions.

Late on Monday, market sentiment improved as the White House announced a meeting between President Joe Biden and Republican House of Representatives Speaker Kevin McCarthy to overcome the looming US default. The same allowed Wall Street to end the day in positive territory. However, the latest comments from United States House Speaker Kevin McCarthy saying, “I don’t think we’re in a good place,” seem to put a floor under the US Dollar price, via fears of deadlock on the US debt ceiling extension as Republicans may stick to their demand.

Elsewhere, China Industrial Production grew 5.9% for April versus 10.9% expected and 3.9% prior whereas Retail Sales rose 18.4% YoY from 10.6% prior and 21.0% market forecasts.

It’s worth noting that the Reserve Bank of Australia’s (RBA) latest monetary policy meeting minutes disappointed Australian traders as it cited easing inflation pressure and showed the policymakers’ concerns about the sluggish productivity growth.

On a broader page, S&P500 Futures print mild losses while the US Treasury bond yields remain pressured which in turn shows the market’s indecision and awaits the important data/events for clear directions.

Moving on, trades will pay attention to the US Retail Sales for April, expected at 0.7% MoM versus -0.6% prior, for immediate directions. However, the US policymakers’ ability to offer a positive surprise to the markets, via either a strong solution to avoid the default or a basic guide to extend the debt ceiling, will be interesting to watch for a clear guide.

Also read: Forex Today: US Dollar corrects lower amid cautious markets

• USD/INR prints the first daily loss in four, retreats from 1.5-month high.
• Softer India inflation figures, Fed’s dovish hike allow RBI to defend current inaction.
• WTI crude oil retreat, downbeat US data and mixed Fedspeak allows Indian Rupee to regain upside momentum.
• US debt ceiling talks, Retail Sales in the spotlight for fresh impulse.

USD/INR holds lower ground near the intraday low of 82.20 as it snaps a three-day uptrend during early Tuesday. In doing so, the Indian Rupee (INR) cheers the broad US Dollar weakness, as well as benefits from easing pressure on the Indian central bank to act and a retreat in the crude oil price.

That said, US Dollar fails to cheer the downward shift in the market’s sentiment as the latest comments from United States House Speaker Kevin McCarthy saying, “I don’t think we’re in a good place,” seem to put a floor under the US Dollar price, via fears of deadlock on the US debt ceiling extension as Republicans may stick to their demand.

It’s worth noting that the US Dollar Index (DXY) drops to 102.40 as it keeps the week-start pullback from the monthly high even as the White House announced a meeting between President Joe Biden and Republican House of Representatives Speaker Kevin McCarthy to overcome the looming US default.

The DXY’s latest weakness could be linked to Monday’s NY Empire State Manufacturing Index which marked the biggest fall since April 2020, to -31.8 for May. The same joins the downbeat signals from the US inflation numbers flashed the last week, as well as justifying the Federal Reserve’s (Fed) dovish hike.

On Monday, India’s WPI Inflation followed the suit of the Consumer Price Index (CPI) flashed in the last week and eased pressure from the Reserve Bank of India (RBI) to act, which in turn weighed on the USD/INR price. Also exerting downside pressure on the Indian Rupee pair could be the recent retreat in the WTI crude oil price as the black gold fades the previous day’s rebound from a two-week low, easing from an intraday high to $71.40 by the press time.

Moving on, the US Retail Sales for April, expected at 0.7% MoM versus -0.6% prior, appears the key for the USD/INR pair traders to watch for clear directions. More importantly, the US policymakers’ ability to offer a positive surprise to the markets, via either a strong solution to avoid the default or a basic guide to extend the debt ceiling, will be interesting to watch for clear directions.

Technical analysis

Failure to cross 82.50 hurdle keeps USD/INR bears hopeful even if the 200-DMA support of around 81.70 appears the key challenge for sellers.

• AUD/USD is aiming to reclaim the 0.6700 resistance as the USD Index has retreated.
• The Australian Dollar ignored weaker-than-anticipated Chinese Retail Sales and Industrial Production data.
• RBA policymakers believed that more rate hikes were required due to inflation risks.

The AUD/USD pair has rebounded after a correction to near 0.6680 in the Asian session. The Aussie asset is aiming to recapture the round-level resistance of 0.6700 as the US Dollar Index (DXY) has retreated after a less-confident recovery attempt.

The Australian Dollar ignored weaker-than-anticipated annual Chinese Retail Sales and Industrial Production data (April). However, figures landed better than prior releases, indicating that the economy is walking slowly on the recovery path.  

In early Asia, the Reserve Bank of Australia (RBA) also released which conveyed that the unexpected decision of 25 basis points (bps) interest rate hike was based on inflation risks. RBA policymakers believed that more rate hikes were required due to inflation risks from weak productivity growth, persistently high services inflation, and faster-than-forecast rental increases.

Scrutiny of AUD/USD’s four-hour scale indicates that the upside is capped from April 14 high of around 0.6806 while the downside is restricted from March 07 low around 0.6580. Intermediate support is plotted from May 03 low around 0.6640. The 200-period Exponential Moving Average (EMA) at 0.6700 is indicating a sideways trend.

Meanwhile, the Relative Strength Index (RSI) (14) has rebounded from 40.00, indicating weak downside bias.

An acceptance above the round-level resistance at 0.6800 confidently, Australian Dollar bulls will firmly drive the asset higher toward February 06 low at 0.6855 followed by February 21 high at 0.6920.

In an alternate scenario, US Dollar bulls will flex their muscles if the Aussie asset will drop below March 15 low at 0.6590. An occurrence of the same will expose the asset to March 08 low at 0.6568 followed by 02 November 2022 high around 0.6500.

AUD/USD four-hour chart

• Gold price is sideways below $2020.00 as investors await the US debt-ceiling talks’ outcome for further action.
• US President Joe Biden aims for closing the argument with approval for a higher borrowing cap without impacting spending initiatives’ budget.
• Gold price is forming a volatility contraction pattern around $2,020.00, which indicates a back-and-forth action.

Gold price (XAU/USD) is continuously delivering a sideways performance as investors are looking for potential cues for decisive action. The precious is showing sideways auction below $2,020.00 ahead of the outcome of United States debt-ceiling talks between Republican leaders and the White House.

Postponed Friday’s meeting is scheduled for Tuesday and a volatile action in the FX domain cannot be ruled out. No doubt, US President Joe Biden will work on closing the argument with approval for a higher borrowing cap for the US Treasury without surrendering budget' spending initiatives. However, House of Representatives Joseph McCarthy would also attempt for reducing spending to avoid further budget deficits.

The US President is highly needed to raise debt-ceiling to avoid default on obligated payments as it would harm the United States leadership positions and the economy’s credibility.

S&P500 futures have reported some losses in Asia as investors are worried about the scenario if the debt-ceiling negotiations conclude without a meaningful outcome. The US Dollar Index (DXY) has retreated after a recovery attempt below 102.40. Going forward, US Retail Sales data will also remain in the limelight as it would provide more clarity on monetary policy guidance. Largely, the Federal Reserve (Fed) is expected to keep the interest rate policy steady in June’s monetary policy meeting.

Gold technical analysis

Gold price is forming a volatility contraction pattern around $2,020.00 on an hourly scale, which indicates a back-and-forth action. However, an explosion in the same results in wide ticks and heavy volume. The downward-sloping trendline plotted from all-time highs at May 03 high at $2,079.78 is acting as a barricade for the Gold bulls.

The 200-period Exponential Moving Average (EMA) at $2,018.68 is straight, indicating a lackluster move ahead.

Also, the Relative Strength Index (RSI) (14) is oscillating in the 40.00-60.00, which indicates that investors await a fresh trigger for further action.

Gold hourly chart

• EUR/USD picks up bids to extend week-start rebound from monthly low.
• Euro bulls cheer upbeat EC economic forecasts and downbeat US data to ignore softer Eurozone, German catalysts.
• Looming fears of US debt ceiling talks going haywire weigh on US Dollar.
• Hopes of upbeat Eurozone Q1 GDP, softer US Retail Sales also weigh on the EUR/USD price.

EUR/USD remains firmer for the second consecutive day around 1.0880 as it defends the previous day’s U-turn from a five-week low heading into Tuesday’s European session. Adding strength to the Euro pair is the broad US Dollar weakness amid the cautious mood ahead of the debt ceiling talks, as well as due to the downbeat US data. It’s worth noting that mostly upbeat economic analysis from the European Commission (EC) also favors the Euro buyers ahead of the first readings of the Eurozone’s first quarter (Q1) Gross Domestic Product (GDP).

On Monday, the European Commission upwardly revised its quarterly projections for Eurozone’s economic growth and inflation for 2023 to 1.1% and 5.8% versus 0.9% and 5.6% expected in February. Further, the European Central Bank (ECB) also released its monthly Economic Bulletin offering details on the economic, financial and monetary developments in the Euro area while saying, “Most of the impact on inflation is expected from 2023 onward.” The ECB Bulletin also said that the transmission of rate hikes to economic activity is faster.

Alternatively, Germany’s Economy Ministry said in its monthly report that the underlying economic momentum has recently weakened noticeably. However, the report also said, “Mood indicators point to economic recovery in the further course of the year.” On the same line, Eurozone Industrial Production dropped 4.1% MoM in March versus -2.5% expected and +1.5% previous reading. More importantly, the YoY figures were quite disappointing with -1.4% yearly mark compared to 2.0% prior and 0.9% expected.

On the other hand, the US Dollar Index (DXY) drops to 102.40 as it keeps the week-start pullback from the monthly high. Behind the DXY’s latest weakness is Monday’s NY Empire State Manufacturing Index which marked the biggest fall since April 2020, to -31.8 for May. The same joins the downbeat signals from the US inflation numbers flashed the last week, as well as justifying the Federal Reserve’s (Fed) dovish hike, to weigh on the US Dollar and propel the EUR/USD price.

Elsewhere, the Federal Reserve (Fed) signals have been mostly upbeat as Atlanta Fed President Raphael Bostic told CNBC on Monday that there is still a long distance to go on inflation and added that they may have to "go up on rates," as reported by Reuters. On the contrary, Chicago Federal Reserve Bank President Austan Goolsbee said in an interview with CNBC on Monday that a lot of impact of rate hikes is still in the pipeline. Furthermore, Minneapolis Fed President Neel Kashkari stated that signaled that the Fed has a long way to go to get inflation to 2.0%.

It should be noted that the White House announced a meeting between President Joe Biden and Republican House of Representatives Speaker Kevin McCarthy to overcome the looming US default. However, the latest comments from United States House Speaker Kevin McCarthy saying, “I don’t think we’re in a good place,” seem to put a floor under the US Dollar price, via fears of deadlock on the US debt ceiling extension as Republicans may stick to their demand.

Against this backdrop, S&P 500 Futures print mild losses even as Wall Street closed positive and the yields remain pressured, which in turn shows the market’s indecision and awaits the important data/events for clear directions.

Looking ahead, the likely unimpressive Eurozone Q1 GDP prints of 0.1% QoQ and 1.3% YoY can entertain EUR/USD traders on posting any positive surprise, which is more likely. In case of the downbeat figures, the Euro pair sellers need to remain cautious ahead of the US Retail Sales for April, expected at 0.7% MoM versus -0.6% prior.

Above all, the US policymakers’ ability to offer a positive surprise to the markets, via either a strong solution to avoid the default or a basic guide to extend the debt ceiling, becomes needed for the EUR/USD bulls.

Technical analysis

The EUR/USD portrays a two-week-long falling wedge bullish pattern as the oversold RSI (14) line favors the buyers. Adding strength to the recovery moves are the bullish MACD signals.

With this, the Euro buyers are likely to keep the reins, at least technically, as they approach the key 1.0940 resistance confluence comprising the top line of the stated falling wedge and the 200-bar Exponential Moving Average (EMA).

• USD/JPY remains pressured around intraday low as it reverses from two-week-old horizontal resistance.
• Downside break of ascending trend line from Thursday, bearish MACD signals favor Yen pair seller.
• 200-HMA appears the key hurdle for the Yen buyers to crack and retake control.

USD/JPY recalls the sellers after their two-day absence as the Yen pair drops to 135.95 during early Tuesday. In doing so, the Yen pair take a U-turn from a fortnight-long horizontal resistance, as well as break a three-day-old ascending support line, now immediate resistance.

In addition to the pullback from a short-term key resistance and a downside break of the nearby support trend line, the bearish MACD signals and a downward-sloping RSI (14) line, not oversold, also keep the Yen buyers hopeful.

With this, the USD/JPY pair appears all set to test the 50% Fibonacci retracement level of its April 26 to May 02 upside, near 135.40.

However, a convergence of the 61.8% Fibonacci retracement and the 200-Hourly Moving Average (HMA), near 134.90-85, appears a tough nut to crack for the Yen pair sellers.

Following that, the 134.00 round figure and the monthly low of around 133.50 will gain the USD/JPY seller’s attention.

On the contrary, USD/JPY recovery remains elusive unless breaking a horizontal resistance area comprising tops marked since April 28, close to 136.30-35.

Even if the Yen pair buyers manage to keep the reins past 136.35, the tops marked in May and March, respectively near 137.80 and 137.90, may prod the bulls before directing them to the 138.00 round figure.

USD/JPY: Hourly chart

Trend: Further downside expected

• USD/CHF retreats from intraday high, stays defensive after reversing from two-week top the previous day.
• Market sentiment turns sluggish as traders await US debt ceiling talks, Retail Sales data.
• Recently downbeat US data, mixed Fedspeak favor Swiss Franc buyers.

USD/CHF remains pressured near 0.8950 and prints minor losses while reversing from the intraday high during a two-day downtrend to early Tuesday. In doing so, the Swiss Franc (CHF) pair cheers the US Dollar’s downbeat performance amid the market’s cautious mood ahead of the key data and events.

That said, the US Dollar Index (DXY) drops to 102.40 as it defends the week-start pullback from the monthly high. With this, the greenback’s gauge versus six major currencies bears the burden of the softer US data and mixed Federal Reserve (Fed) commentary even as challenges to sentiment put a floor under the DXY.

Monday’s NY Empire State Manufacturing Index for May marked the biggest fall since April 2020, to -31.8 for May. The same joins the downbeat signals from the US inflation numbers flashed the last week, as well as justifying the Federal Reserve’s (Fed) dovish hike, to weigh on the US Dollar and the USD/CHF price.

However, the Fed policymakers remain mostly hawkish despite not suggesting more rate hikes, which in turn puts a floor under the USD/CHF. On Monday, the Federal Reserve (Fed) signals have been mostly upbeat as Atlanta Fed President Raphael Bostic told CNBC on Monday that there is still a long distance to go on inflation and added that they may have to "go up on rates," as reported by Reuters. On the contrary, Chicago Federal Reserve Bank President Austan Goolsbee said in an interview with CNBC on Monday that a lot of impact of rate hikes is still in the pipeline. Furthermore, Minneapolis Fed President Neel Kashkari stated that signaled that the Fed has a long way to go to get inflation to 2.0%.

On a different page, the White House announced a meeting between President Joe Biden and Republican House of Representatives Speaker Kevin McCarthy to overcome the looming US default. Ahead of the event, the US policymakers appear somewhat optimistic about extending the debt ceiling limit before the June expiry, which in turn weighed on the USD/CHF. However, the latest comments from United States House Speaker Kevin McCarthy saying, “I don’t think we’re in a good place,” seem to favor the US Dollar, via fears of deadlock on the US debt ceiling extension as Republicans may stick to their demand.

Amid these plays, S&P 500 Futures print mild losses even as Wall Street closed positive and the yields remain pressured, which in turn shows the market’s indecision and awaits the important data/events for clear directions.

Moving on, US Retail Sales for April, expected at 0.7% MoM versus -0.6% prior, will be the first to entertain USD/CHF traders ahead of the key US debt ceiling negotiations. Should the US policymakers offer a positive surprise to the markets, the odds of witnessing a slump in the US Dollar can’t be ruled out.

Technical analysis

Despite reversing from a one-month-old descending resistance line, around 0.8985 by the press time, the USD/CHF pair’s short-term downside remains elusive unless it breaks the one-week-old rising support line, close to 0.8920 by the press time.

• Silver price takes offers to reverse the previous day’s corrective bounce off six-week low.
• Failure to cross late March swing highs lure XAG/USD sellers even as oversold RSI prods downside.
• 200-SMA acts as an extra upside filter; bullish MACD signals also challenge Silver bears.

Silver price (XAG/USD) renews its intraday low near $24.00 as it reverses the week-start rebound from the lowest levels in 1.5 months. In doing so, the bright metal portrays its inability to cross a horizontal resistance stretched since late March.

With this, the XAG/USD is likely to decline further towards the 50% Fibonacci retracement level of the commodity’s March-May upside, near $23.80.

However, the oversold RSI (14) and bullish MACD signals will join the multiple levels marked during late March and early April, near $23.50, to limit the Silver price.

In a case where the Silver price remains bearish past $23.50, the 61.8% Fibonacci retracement, also known as the Golden Fibonacci Ratio, around $23.25, will act as the final defense of the Silver buyers.

Meanwhile, the XAG/USD’s upside break of the immediate six-week-old horizontal resistance, near $24.20, isn’t an open invitation to the buyers as multiple hurdles marked in April around $24.50-60 challenge the metal’s further upside. Also acting as an upside filter is the 200-SMA level of around $25.00.

To sum up, Silver price is likely to witness further downside but the room toward the south is limited.

Silver price: Four-hour chart

Trend: Limited downside expected

• NZD/USD has slipped below 0.6250 as the Chinese economy showed growth in retail demand and production at a slower pace.
• S&P500 futures have increased their losses as anxiety among investors ahead of US debt-ceiling negotiations is escalating.
• The US Dollar Index has rebounded firmly above 102.40 as the risk aversion theme is gaining traction.

The NZD/USD pair has dropped below 0.6250 as the National Bureau of Statistics of China has reported weaker-than-anticipated annual Retail Sales (April) data. The economic data expanded at a slower pace at 18.4% than the forecast of 21.0% but higher than the prior release of 10.6%.

Apart from that, annual Industrial Production data (April) also landed in between the estimates of 10.9% and the former release of 3.9% at 5.6%. A slower growth rate in retail demand and Industrial Production indicates that the Chinese economy is atleast on the right track of progress after the rollback of full lockdown curbs.

It is worth noting that New Zealand is one of the leading trading partners of China and the New Zealand Dollar.

S&P500 futures have increased their losses as anxiety among investors ahead of US debt-ceiling negotiations is escalating. The overall market mood has turned cautious and the appeal for risk-perceived assets is fading away.

The US Dollar Index (DXY) has rebounded firmly above 102.40 as investors are worried that further delay in the Federal borrowing cap raise would result in default for obligated payments by the US Treasury. This will cost millions of jobs, have a huge impact on the US leadership position, and have a serious impact on overall production.

Apart from that, US Retail Sales data will be keenly watched. Monthly Retail Sales data (April) is seen expanding by 0.7% vs. a contraction of 0.6%. A recovery in retail demand could ease expectations of a pause in the aggressive rate-hike spell by the Federal Reserve (Fed).

Following the release of the key economic data from China for April, the country’s National Bureau of Statistics (NBS) released a statement, via Reuters, expressing their outlook on the economy.

Key quotes

developing story ...

• USD/CNH picks up bids to reverse week-start pullback from two-month high.
• China Industrial Production, Retail Sales remain below market expectations but stay below previous readings.
• US Dollar pauses retreat from five-week top amid market’s anxiety ahead of the key data/events.
• US Retail Sales, debt ceiling talks eyed for clear directions.

USD/CNH takes the bids to refresh intraday high near 6.9690 during early Tuesday, reversing the previous day’s pullback from a two-month high after China’s headline data failed to impress the offshore China Yuan (CNH) buyers. Also fueling the USD/CNH buyers could be the mixed sentiment and the US Dollar’s pause in the previous retreat.

China Industrial Production grew 5.9% for April versus 10.9% expected and 3.9% prior whereas the Retail Sales rose 18.4% YoY from 10.6% prior and 21.0% market forecasts.

Also read: China’s April Retail Sales rise 18.4%, Industrial Output increases 5.6%

Apart from the China data, USD/CNH also bears the burden of the previous day’s mixed updates from the People’s Bank of China (PBOC). That said, the People's Bank of China’s mixed updates underpins the USD/CNH pair’s upside. That said, PBOC keeps the one-year Medium-term Lending Facility (MLF) rates unchanged at 2.75%, per the latest update. Additionally, the Chinese central bank also released its quarterly economic report stating that China's economy isn’t experiencing deflation and that economic growth is set to rebound sharply.

Elsewhere, the White House announced a meeting between President Joe Biden and Republican House of Representatives Speaker Kevin McCarthy to overcome the looming US default. Ahead of the event, the US policymakers appear somewhat optimistic about extending the debt ceiling limit before the June expiry.

However, the latest comments from United States House Speaker Kevin McCarthy saying, “I don’t think we’re in a good place,” also seem to weigh on the Gold price, via fears of deadlock on the US debt ceiling extension as Republicans may stick to their demand.

Against this backdrop, S&P 500 Futures print mild losses even as Wall Street closed positive and the yields remain pressured, which in turn shows the market’s indecision and awaits the important data/events for clear directions.

As a result, today’s US policymakers’ negotiations to avoid the US default and the US Retail Sales for April will be eyed closely for clear directions. Should the US policymakers offer a positive surprise to the markets, the odds of witnessing a slump in the US Dollar can’t be ruled out. On the same line are the downbeat US Retail Sales for April, expected at 0.7% MoM versus -0.6% prior.

Technical analysis

A six-week-old rising wedge bearish chart formation joins nearly overbought RSI (14) to tease USD/CNH bears. However, a clear downside break of 6.9360 support becomes necessary for the offshore Chinese Yuan bears to keep the reins.

China’s April Retail Sales YoY, jumped 18.4% vs. 21.0% expected and 10.6% previous while the country’s Industrial Production came in at 5.6% YoY vs. 10.9% estimated and 3.9% prior.

Meanwhile, the Fixed Asset Investment increased 4.7% YTD YoY in April vs 5.5% expected and 5.1% last.

more to come ....

Market reaction

The Australian Dollar has come under renewed selling pressure after the downbeat Chinese data release. The AUD/USD pair is losing 0.27% on the day to trade at 0.6681, as of writing.

• AUD/NZD bears are in control on the front side of the micro trend.
• Bulls are trying to break the longer-term trendline. 

AUD/NZD is attempting to break the trendline resistance but might find resistance below 1.0750 and support might be calling in 1.0700 in the near term as the following illustrates. 

AUD/NZD daily chart

AUD/NZD is on the back side of the prior trendline resistance and an M-formation is forming which is a reversion pattern:

AUD/NZD H4 chart

The M-formation´s neckline aligns near a 38.2% Fibonacci level. 

AUD/NZD H1 chart

AUD/NZD bulls need to show up and get the price on the back side of the bearish trend on the hourly chart form above 1.0700 support area.

• AUD/USD has slipped below 0.6700 as RBA minutes indicate that a rate hike was announced due to inflation risks.
• Australia’s quarterly labor cost index data is seen accelerating to 0.9%.
• The Congressional Budget Office warned that the US would face a "significant risk" of defaulting on payment obligations.

The AUD/USD pair has dropped below the round-level support of 0.6700amid the release of the Reserve Bank of Australia (RBA) minutes for May’s monetary policy meeting. RBA minutes indicate that it went for a rate hike due to a higher inflation outlook. More rate hikes were required due to inflation risks from weak productivity growth, persistently high services inflation, and faster-than-forecast rental increases.

Investors should be aware of the fact that RBA Governor Philip Lowe raised interest rates unexpectedly by 25 basis points (bps) to 3.85%. The street was anticipating an unchanged policy stance as Australia’s inflation is consistently declining for the past three months. Monthly inflation has already softened significantly from its peak of 8.4% to 6.3% figure recorded for March.

RBA policymakers are anticipating a further slowdown in the Australian economy due to higher interest rates, which will weigh heavily on Australian inflation ahead.

On Wednesday, the Australian Bureau of Statistics will report the Wage Price Index data for the first quarter of CY2023. As per the estimates, quarterly labor cost index data is seen accelerating to 0.9% from the former release of 0.8%. Also, annual data is expected to jump to 3.6% vs. the prior release of 3.3%. An increase in labor cost index data would fuel the need for further quantitative tightening by the RBA.

Meanwhile, the US Dollar Index (DXY) has rebounded to near 102.40 as investors are getting anxious ahead of US debt-ceiling negotiations. The Congressional Budget Office warned that the United States would face a "significant risk" of defaulting on payment obligations within the first two weeks of June if fails in raising the government's $31.4 trillion debt ceiling, adding that payment operations will remain uncertain throughout May.

• AUD/JPY renews intraday low after RBA Minutes, sluggish yields also weigh on prices.
• RBA Minutes disappoints hawks by citing little room for upside risks to inflation.
• US 10-year Treasury bond yields snap two-day uptrend amid US default woes, anxiety ahead of the key US data.
• BoJ’s defense of early money policy, mixed sentiment prod AUD/JPY bulls.

AUD/JPY takes offers to refresh the intraday low near 91.00, reversing the week-start run-up, as the Reserve Bank of Australia’s (RBA) latest monetary policy meeting minutes disappoint the Australia Dollar (AUD) buyers on early Tuesday. Apart from the RBA Minutes, the sluggish US Treasury bond yields also exert downside pressure on the cross-currency pair.

RBA’s May month monetary policy meeting minutes fail to justify the latest hawkish surprise as it cited that easing inflation pressure. The Minutes also showed the policymakers’ concerns about the sluggish productivity growth weighing on the AUD/JPY prices. 

Also read: RBA Minutes: Board considered pausing or hiking 25 basis points in may policy decision

Additionally, the US 10-year Treasury bond yields drop back to 3.49% after a two-day uptrend as market sentiment weakens ahead of the key US debt ceiling talks. Furthermore, anxiety before the key US Retail Sales and China data dump also prods the week-start optimism and lures the risk barometer AUD/JPY pair.

That said, the latest comments from United States House Speaker Kevin McCarthy saying, “I don’t think we’re in a good place,” seem to weigh on the sentiment amid fears of deadlock on the US debt ceiling extension as Republicans may stick to their demand.

Moving on, China’s data dump for April, comprising Industrial Production and Retail Sales for April may entertain the AUD/JPY pair traders. More importantly, headlines surrounding the US debt ceiling talks and the Bank of Japan (BoJ) should be watched carefully for clear directions.

Technical analysis

Despite the latest retreat, AUD/JPY sellers need to conquer the previous resistance line from early May, now immediate support near 91.00, to retake control.

Reuters reports that Australia's central bank decided to hike at its May meeting due to inflation risks from weak productivity growth, persistently high services inflation and faster-than-forecast rental increases, saying more rate rises may be required.

Minutes of the Reserve Bank of Australia's May 2 policy meeting released on Tuesday said board members also considered a pause, but that the inflation risks warranted a 25 basis point increase, after holding rates steady in April, Reuters reported.

Key notes

"In weighing up the two options, members recognised that the arguments were finely balanced but judged it appropriate to increase interest rates at his meeting," the minutes said.

"Members also agreed that further increases in interest rates may still be required, but that this would depend on how the economy and inflation evolve."

Reuters reports that ´´the primary driver for the RBA's decision was its inflation outlook. Inflation is not expected to decline to the top of the Bank's 2-3% target range until mid-2025, leaving little room for upside risks,´´ the May minutes said.

´´Members noted strong employment data and high services price inflation in March, while the depreciation of the Australian dollar and an increase in house prices, may have been in part caused by the decision to pause rates in April.´´

´´Governor Philip Lowe has warned that the central bank cannot take too long to being inflation to heel. Rates have already risen by a whopping 375 basis points since last May to an 11-year high of 3.85%.´´

About the RBA minutes

The Reserve Bank of Australia (RBA) publishes the minutes of its monetary policy meeting two weeks after the interest rate decision is announced. It provides a detailed record of the discussions held between the RBA’s board members on monetary policy and economic conditions that influenced their decision on adjusting interest rates and/or bond buys, significantly impacting the AUD. The minutes also reveal considerations on international economic developments and the exchange rate value.

• US Dollar Index remains depressed near intraday low, keeps week-start U-turn from monthly high.
• Anxiety ahead of US debt ceiling negotiations weighs on market sentiment and yields but fail to impress DXY bulls.
• Softer US data, mixed Fed talks also prod US Dollar Index bulls as crucial data/events loom.
• Disappointment from talks between US President Joe Biden and House Speaker Kevin McCarthy may propel US Dollar.

US Dollar Index (DXY) holds lower grounds near 102.40 as it bears the burden of the market’s cautious mood ahead of the key US debt ceiling talks and the US data amid mixed concerns on early Tuesday.

The greenback’s gauge versus the six major currencies snapped a two-day uptrend to reverse from a five-week high the previous day amid the market’s optimism that the US policymakers will be able to tackle the debt ceiling woes. Adding to the DXY’s weakness were downbeat US data and mixed comments from Federal Reserve (Fed) officials. However, the recent comments from the US diplomats and the anxiety before the 190:00 GMT talks, as well as ahead of the US Retail Sales for April, challenge the US Dollar Index even as it prints mild losses of late.

On Monday, the United States NY Empire State Manufacturing Index since April 2020, to -31.8 for May, tracing the downbeat signals from the US inflation numbers flashed the last week, as well as justifying the Federal Reserve’s (Fed) dovish hike.

Following the data, the Federal Reserve (Fed) signals have been mostly upbeat as Atlanta Fed President Raphael Bostic told CNBC on Monday that there is still a long distance to go on inflation and added that they may have to "go up on rates," as reported by Reuters. On the contrary, Chicago Federal Reserve Bank President Austan Goolsbee said in an interview with CNBC on Monday that a lot of impact of rate hikes is still in the pipeline. Furthermore, Minneapolis Fed President Neel Kashkari stated that signaled that the Fed has a long way to go to get inflation to 2.0%.

It should be noted that the latest comments from United States House Speaker Kevin McCarthy saying, “I don’t think we’re in a good place,” seem to weigh on the sentiment and puts a floor under the DXY amid fears of deadlock on the US debt ceiling extension as Republicans may stick to their demand.

Against this backdrop, S&P 500 Futures print mild losses even as Wall Street closed positive and the yields remain pressured, which in turn shows the market’s indecision and awaits the important data/events for clear directions.

That said, crucial statistics from China and the US may entertain the DXY traders before the US debt ceiling negotiations. In case the US policymakers offer a positive surprise to the markets, the odds of witnessing a slump in the US Dollar can’t be ruled out. It’s worth noting that the downbeat US Retail Sales may also weigh on the greenback.

Technical analysis

Although a five-week-old horizontal resistance area surrounding 102.75-80 restricts the short-term US Dollar Index upside, the sellers need validation from the 50-day Exponential Moving Average (EMA) to keep the reins.

In recent trade today, the People’s Bank of China (PBOC) set the yuan at 6.9506 vs. the last closing of 6.9520 and the estimate of 6.9500. 

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.

• USD/CAD is struggling in keeping its auction above 1.3460 amid further correction in the USD Index.
• Fed Goolsbee believes that a lot of impact of rate hikes is still in the pipeline.
• Further softening of Canada’s inflation will allow the BoC to keep interest rate policy steady.

The USD/CAD pair is juggling in a narrow range above the crucial support of 1.3460 in the Asian session. The Loonie is struggling in keeping its auction above the aforementioned support as the US Dollar Index (DXY) has extended its correction further below 102.40.

S&P500 futures have increased their losses in the Asian session as anxiety among investors ahead of US debt-ceiling talks is escalating further. Market mood is getting cautious as one more time delay in a constructive decision for raising the borrowing cap for US Treasury would induce market volatility. Reuters reported that US House Speaker Kevin McCarthy told on Monday, “Congressional and White House negotiators were still far apart in talks to raise the debt ceiling to avoid a default.”

The USD Index has deepened its correction as the expectations for a pause in the rate-hiking cycle by the Federal Reserve (Fed) are skyrocketing. Chicago Federal Reserve Bank President Austan Goolsbee cited on Monday that a lot of impact of rate hikes is still in the pipeline. It is likely that the US inflation will continue easing further as higher interest rates will keep the Consumer Price Index (CPI) under pressure.

On the Canadian Dollar front, investors are awaiting the release of Canada’s inflation data. As per the preliminary estimates, Canada’s core CPI is seen softening to 3.9% from the former release of 4.3%. Headline CPI is seen declining to 3.7% vs. the prior release of 4.3%. In-line, Canada's inflation report will allow the Bank of Canada (BoC) to continue to its current monetary policy.

Meanwhile, the Bank of Canada (BoC) Financial System Survey (FSS), conducted between February 21 and March 10, showed that confidence in the resilience of the Canadian financial system was at its highest since the first FSS in 2018.

• EUR/USD stays defensive after bouncing off five-week low.
• Bullish chart formation, upbeat oscillators favor Euro buyers to confirm falling wedge and aim for March 2022 peak.
• Nearly oversold RSI, multiple filters to the south prod EUR/USD bears as the key data/events loom.

EUR/USD picks up bids to print mild gains around 1.0880 during early Tuesday as it defends the previous day’s rebound from a multi-day low ahead of the key European and the US catalysts. In doing so, the Euro pair remains firmer inside a two-week-old falling wedge bullish chart formation, bouncing off the stated pattern’s lower line of late.

That said, the major currency pair recovered from the lowest level in five weeks the previous day as it printed the first daily gain in four. With this, the EUR/USD portrayed a two-week-long falling wedge bullish pattern as the oversold RSI (14) favored the buyers. Adding strength to the recovery moves are the bullish MACD signals.

Hence, the EUR/USD buyers are likely to keep the reins, at least technically, as they approach the key 1.0940 resistance confluence comprising the top line of the stated falling wedge and the 200-bar Exponential Moving Average (EMA).

It’s worth noting that the 1.0900 round figure may act as an immediate resistance for the Euro buyers to watch.

In a case where the EUR/USD remains firmer past 1.0940, the theory suggests a run-up towards a March 2022 high of near 1.1185. It should be observed that the 1.1000 round figure and the yearly high of around 1.1090 may act as buffers during the pair’s run-up towards 1.1185.

Alternatively, the aforementioned wedge’s lower line, close to 1.0830, may join the nearly oversold RSI (14) line to restrict the short-term EUR/USD downside.

Following that, the mid-March swing high of 1.0760 will be in the spotlight as a break of which could give control to the EUR/USD bears.

EUR/USD: Four-hour chart

Trend: Further upside expected

• GBP/USD inverse head and shoulders in the making on the 4-hour chart. 
• GBP/USD bulls could be about to move in again around the 1.2500s. 

As per the prior analysis, GBP/USD Price Analysis: Bulls looking for the deceleration in supply, eye 1.2500, whereby the pair was running into a potential area of support as the following technical analysis illustrated:

GBP/USD daily chart

GBP/USD updates

The price has rallied to the intended target area, a 38.2% Fibonacci, but could there be more to come? 

GBP/USD H4 chart

From a 4-hour chart´s perspective, the price is potentially rounding out an inverse head and shoulders pattern with the right hand should in the early phases. A correction into a 38.2% Fibonacci area, around the 1.2500 level, could be in order for the session ahead. A break of 1.2535-50 opens the risk of a significant move toward the 1.2580s. 

Early Tuesday morning in Asia, at 01:30 GMT, the Reserve Bank of Australia (RBA) will release its minutes of the latest monetary policy meeting held in May.

The Australian central bank surprised markets by announcing a 0.25% rate hike earlier in the week, after pausing its 10-time rate hike trajectory in the previous monetary policy meeting. However, the policymakers have been trying to convince markets that they can defend the hawkish rate lift cycle, which in turn makes today’s RBA Minutes more important for the AUD/USD pair traders.

Apart from looking at the catalysts that helped RBA to surprise markets in the last monetary policy meetings, the prospects of the policy pivot will also be important for the AUD/USD pair traders to watch in today’s RBA Monetary Policy Meeting Minutes.

How could the minutes affect AUD/USD?

AUD/USD grinds higher after bouncing off a two-week low the previous day. In doing so, the Aussie pair cheers the broad US Dollar weakness, as well as the hawkish hopes from the RBA Minutes, not to forget upbeat PBOC updates. Adding strength to the upside momentum is the dovish Fed talks and downbeat US data.

Given the recent divergence between the RBA and the Fed’s actions, today’s RBA Minutes will be closely watched for linkages on future moves of the Aussie central bank. Should the RBA manages to defend its recent hawkish play, as well as suggest some more in the pipeline, the AUD/USD prices may have further upside to trace.

Technically, a clear bounce off the 12-day-old ascending support line directs AUD/USD bulls toward the 200-DMA hurdle of around 0.6720.

Key Notes

AUD/USD bulls flirt with 0.6700 ahead of RBA Minutes, China/US data amid US debt ceiling jitters

AUD/USD Price Analysis: Bulls are holding the fort, eye 0.6720

About the RBA minutes

The minutes of the Reserve Bank of Australia meetings are published two weeks after the interest rate decision. The minutes give a full account of the policy discussion, including differences of view. They also record the votes of the individual members of the Committee. Generally speaking, if the RBA is hawkish about the inflationary outlook for the economy, then the markets see a higher possibility of a rate increase, and that is positive for the AUD.

• EUR/GBP has gauged an intermediate cushion around 0.8680 ahead of UK Employment and Eurozone GDP.
• Labor shortages and higher food price inflation have been major factors for double-digit UK inflation.
• MNI reported on Monday that the ECB will most likely raise key rates once or twice more in this tightening cycle.

The EUR/GBP pair is building a base after finding an intermediate cushion around 0.8680 in the Asian session. The cross is attempting a recovery after a perpendicular sell-off in the past two trading sessions.

The Pound Sterling is stealing the show as United Kingdom’s inflation is not softening despite consistent interest rate hike announcements from the Bank of England (BoE). UK’s inflation is still in the double-digit figure and BoE policymakers have admitted that they underestimated the strength and persistence of UK inflation.

Investors should know that BoE Governor Andrew Bailey hiked interest rates by 25 basis points (bps) to 4.5% last week. Labor shortages due to early retirement and higher food price inflation have been major factors, which are accelerating inflationary pressures.

Going forward, UK Employment data will remain in the spotlight. Investors would like to ascertain how tight UK labor market conditions are getting further. As per the consensus, the three-month Unemployment Rate is seen unchanged at 3.8%. Average Earnings excluding bonuses are expected to accelerate to 6.8% from the former release of 6.6%. This could fuel inflationary pressures further as more funds in the hands of households would trigger the overall demand. Claimant Count Change is seen declining by 10.8K.

On the Eurozone front, investors are keeping focus on the preliminary Gross Domestic Product (GDP) data. The street is anticipating a steady growth rate and the economy would manage to avoid recession ahead. Apart from that, developments over the interest rate guidance will remain in action. MNI reported on Monday that the European Central Bank (ECB) will most likely raise key rates once or twice more in this tightening cycle.

• Gold price struggles to defend the week-start corrective bounce amid mixed sentiment.
• Anxiety ahead of the top-tier United States data, debt ceiling talks prod XAU/USD buyers.
• US Dollar bears take a breather amid hawkish Federal Reserve talks.
• Upbeat China data, likely deadlock in the US debt ceiling negotiations tease the Gold buyers.

Gold Price (XAU/USD) prints mild losses around $2,015 as markets kick-start the key Tuesday on a cautious note. Also challenging the XAU/USD’s week-start corrective bounce are the mixed updates from the United States data and Federal Reserve (Fed) talks, not to forget unclear statements from the US policymakers ahead of the key debt ceiling talks scheduled for 19:00 GMT.

Gold price rises amid softer US Dollar, cautious optimism and China updates

Gold price licks its wounds, despite the latest retreat, after snapping a two-week uptrend in the last. In doing so, the precious metal benefits from the downbeat US Dollar and hopes for more demand from China, one of the key XAU/USD consumers. Also underpinning the Gold price upside could be the scheduling of the US debt ceiling negotiations after postponing the talks on Friday.

That said, the United States NY Empire State Manufacturing Index since April 2020, to -31.8 for May, joined mixed Fed talks to also weigh on the US Dollar.

Even so, the Federal Reserve (Fed) signals have been mostly upbeat as Atlanta Fed President Raphael Bostic told CNBC on Monday that there is still a long distance to go on inflation and added that they may have to "go up on rates," as reported by Reuters. On the contrary, Chicago Federal Reserve Bank President Austan Goolsbee said in an interview with CNBC on Monday that a lot of impact of rate hikes is still in the pipeline. Furthermore, Minneapolis Fed President Neel Kashkari stated that signaled that the Fed has a long way to go to get inflation to 2.0%.

Elsewhere, the People's Bank of China’s optimism also underpins the Gold price upside. That said, PBOC keeps the one-year Medium-term Lending Facility (MLF) rates unchanged at 2.75%, per the latest update. Additionally, the Chinese central bank also released its quarterly economic report stating that China's economy isn’t experiencing deflation and that economic growth is set to rebound sharply.

Furthermore, the White House announced a meeting between President Joe Biden and Republican House of Representatives Speaker Kevin McCarthy to overcome the looming US default. Ahead of the event, the US policymakers appear somewhat optimistic about extending the debt ceiling limit before the June expiry.

Against this backdrop, Wall Street closed with mild gains and the US Treasury bond yields dribbled in a positive territory. That said, the US Dollar Index (DXY) snapped a two-day uptrend while retreating from the five-week high.

Fears of US default weigh on XAU/USD amid pre-data anxiety

While the aforementioned catalysts allowed the Gold price to remain firmer, the market’s cautious mood recently prod the XAU/USD bulls.

It’s worth noting that the pre-data anxiety ahead of the key US fiscal talks and China’s Retail Sales and Industrial Production for April, as well as the US Retail Sales for the said month, appear to weigh on the Gold price.

More importantly, the latest comments from United States House Speaker Kevin McCarthy saying, “I don’t think we’re in a good place,” also seem to weigh on the Gold price, via fears of deadlock on the US debt ceiling extension as Republicans may stick to their demand.

Moving on, crucial statistics from China and the US may entertain the Gold traders before the key US debt ceiling talks. In case the US policymakers offer a positive surprise to the markets, the odds of witnessing a rally in the Gold price can’t be ruled out.

Gold price technical analysis

Gold price prods lower line of a two-month-old bullish channel as the XAU/USD traders brace for the key United States Retail Sales and debt ceiling negotiations among the US policymakers.

Given the steady Relative Strength Index (RSI) line, placed at 14, as well as the sluggish signals from the Moving Average Convergence and Divergence (MACD) indicator, the Gold price is likely to grind lower.

However, the 200-SMA adds strength to the $2005 support, making it the key for the XAU/USD bears to break before taking control.

Even if the Gold price drops below $2005, the $2,000 round figure may act as an extra filter towards the south before directing the XAU/USD towards the mid-April swing low of around $1,970.

On the flip side, a two-week-old descending resistance line, around $2,027 by the press time, guards the short-term Gold price recovery.

Following that, the previous monthly high of near $2,048 may check the XAU/USD run-up before directing the bulls to the recently flashed record top near $2,080.

It’s worth noting that the top line of the stated bullish channel, near $2,098 at the latest, precedes the $2,100 round figure to challenge Gold buyers afterward.

Overall, the Gold price is likely to grind higher unless sustaining the $2,000 breakdown.

Gold price: Four-hour chart

Trend: Pullback expected