Forex-novosti i prognoze od 23-05-2022

• Silver extends pullback from a two-week top, pressured around intraday low of late.
• Confirmation of a bearish chart pattern, downbeat MACD signals favor sellers.
• 50-SMA, monthly act as intermediate halts during the theoretical slump towards $20.00.

Silver (XAG/USD) remains on the back foot around the daily bottom, keeping the pullback from a fortnight high, as sellers flirt with $21.75-70 during Tuesday’s Asian session.

In doing so, the silver prices tease bears by confirming the one-week-old rising wedge bearish chart pattern.  Bearish MACD signals also back the rising wedge confirmation and add strength to the downside hopes.

That said, the 50-SMA level of $21.48 and the $21.00 threshold may entertain silver sellers ahead of directing them to the monthly low of $20.45.

It’s worth noting that the XAG/USD weakness past $20.45 will aim for the stated wedge confirmation’s theoretical target surrounding $20.00.

On the flip side, corrective pullback needs to cross the 61.8% Fibonacci retracement of May 05-13 downside, around $22.20, to restore the silver buyer’s confidence.

Following that, the upside momentum will aim for the monthly high near $23.30.

Silver: Four-hour chart

Trend: Further downside expected

Reuters reports that Kansas City Federal Reserve Bank President Esther George on Monday said she expects the US central bank to lift its target interest rate to about 2% by August, with further action dependent on how both supply and demand are affecting inflation.

"Fed policymakers have emphasized a commitment to act expeditiously to restore price stability, and I expect that further rate increases could put the federal funds rate in the neighborhood of 2% by August, a significant pace of change in policy settings" George said in remarks prepared for delivery to an agricultural symposium put on by the Kansas City Fed.

"Evidence that inflation is clearly decelerating will inform judgments about further tightening."

."The central bank’s job is to prevent persistent imbalances from feeding into inflation and unmooring inflation expectations," George said.

''The Fed's interest rate hikes can only reduce demand and cannot influence supply factors that are also heavily impacting inflation,'' she said.

"The evolution of its efforts alongside other factors will affect the course of monetary policy, requiring continuous and careful monitoring."

US dollar under pressure

Meanwhile, the European Central Bank is getting attention which is resulting in a bid in the euro, weighing on the US dollar. The dollar index, DXY, fell on Monday while the euro rallied after the European Central Bank indicated a move from negative interest rates.

• AUD/USD consolidates recent gains around multi-day top, renews intraday low of late.
• Australia’s S&P Global Manufacturing PMI for May came in softer but Services PMIs rose past market consensus.
• Risk-on mood, hopes from new government previously favored bulls.
• US activity data, Fed’s Powell and headlines from Quad, as well as concerning China, will be important for fresh impulse.

AUD/USD holds lower ground near the intraday low after downbeat Australia activity data allowed the bulls to take a breather after refreshing two-week top. That said, the Aussie pair remains pressured around 0.7090 by the press time of the initial Asian session on Tuesday.

That said, Australia’s preliminary readings of the S&P Global Manufacturing PMI for May dropped to 55.3, versus 57.8 expected and 58.8 prior, whereas the Services counterpart improved from 52.2 forecast to 53.0, compared to 56.6 prior (revised). As a result, the Composite PMI also eased to 52.5 from 55.9 prior.

Also allowing the quote to pare recent gains is the downbeat prints of the S&P 500 Futures, printing 0.65% intraday losses by the press time, despite the Wall Street benchmarks’ gains.

Comments from San Francisco Federal Reserve Bank President Mary Daly seem to have triggered the latest risk-off mood. “I think that we can weather this storm, get the interest rate up...price stability restored and still leave Americans with jobs aplentiful and with growth expanding as we expect it to," said the policymaker during an interview with Fox News on Monday.

Previously, the risk-on mood joined a lack of bullish bias to drag the US Dollar Index (DXY) to a two-week low. In doing so, the US Dollar Index (DXY) extended the first weekly loss in seven as mixed covid signals from China, mostly positive, join the repeated Fedspeak around a 50 bps rate-hike, contrary to the recently hawkish comments from the ECB policymakers. Also weighing on the greenback were the headlines from Japan where US President Joe Biden mentioned that he is considering reducing tariffs on China. In addition to the softer USD, hopes from the Labour Party, as they retake control in Australia after nine years, also favored AUD/USD buyers earlier.

Moving on, risk catalysts like headlines from Quad Summit in Tokyo and covid updates from China can entertain AUD/USD traders ahead of the US preliminary readings of the S&P Global Manufacturing and Services PMIs for May. . Also, Fed’s Powell is always crucial to move the markets and can do so if refrained from the usual support for a 50 bps rate hike trajectory.

Technical analysis

A daily closing beyond a seven-week-old descending trend line, around 0.7070 by the press time, keeps AUD/USD buyers hopeful of challenging the monthly high surrounding 0.7265.

• The AUD/JPY begins the week on the right foot and is gaining some 0.64%.
• In the FX space, the market mood is mixed as safe-haven peers get buoyant and risk-sensitive currencies stalled.
• AUD/JPY Price Forecast: Bullish above 90.76 and bearish below the aforementioned, as it would open the door for a re-test of 87.30.

The AUD/JPY records minimal losses of 0.18% as the Asian session begins. On Monday, the cross recorded gains close to 0.90%, on a positive market mood, following a dismal week, particularly for US equities. At the time of writing, the AUD/JPY is trading at 90.63.

Sentiment shifted from positive to mix as Asian equity futures fluctuated post-Wall Street close. On Monday, the mood was positive due to some reports which stated that the US could consider lifting some trade tariffs on China, which was cheered by investors. That, along with increasing concerns that the US could be hit by a recession and optimism about global economic growth, kept market players shifting toward riskier assets.

On Monday, the AUD/JPY opened near the day's lows at around 90.18. Later, the cross soared and reached a daily high above the 91.00 mark but retreated somewhat and settled at approximately at 90.76.

AUD/JPY Price Forecast: Technical outlook

The AUD/JPY is trading around crucial support recorded on March 31 at 90.76. From the market structure perspective, failure at the previously mentioned level would open the door towards a re-test of the March 31 swing low at 87.30. Furthermore, the Relative Strength Index (RSI) slope shifted horizontally beneath the 50-midline, meaning that sellers could be exerting downward pressure on the pair.

Therefore, the AUD/JPY bias is neutral-downwards, and its first support would be the 90.00 mark. Break below would expose the May 19 swing low at 88.99, which, once cleared, would send the AUD/JPY aiming towards the confluence of the March 31 swing low and the 100-day moving average (DMA) at around 87.23-30.

Nevertheless, if AUD/JPY traders reclaim 90.76, that would open the door for a test of a downslope trendline. That said, the cross-currency pair's first resistance would be the March 31 swing low-turned-resistance at 90.76. A breach of the latter would send the AUD/JPY to 91.00, followed by the 50-DMA at 91.57 and the downslope trendline around the 92.00 area.

Key Technical Levels

• The DXY is consolidating around 102.00 and seeks more losses on a positive market tone.
• Fed’s Powell is expected to dictate the interest rate elevation in his speech.
• A softer US PMI is the outcome of rising interest rates. 

The US dollar index (DXY) is moving sharply lower as positive market sentiment has underpinned the risk-perceived currencies and safe-haven assets are losing traction. The asset has surrendered around 2.80% after hitting a 19-year high of 105.00 on May 13. The asset has tumbled below its crucial support of 102.35 and is expected to extend its losses after violating the round-level support of 102.00.

US PMI

On Tuesday, investors will keep an eye on the release of the S&P Global Composite PMI, which is seen at 55.5, a tad lower than the prior print of 56. In a detailed manner, Manufacturing and Services PMI are expected to land at 57.9 and 55.4 respectively. A little underperformance is expected by the market participants as higher interest rates by the Federal Reserve (Fed) have trimmed the scale of economic activities in the US economy. Due to the unavailability of dirt-cheap money, corporate are channelizing their funds into more filtered investments and projects, which is dampening the manufacturing and services sector.

Fed Powell’s speech

The speech from Fed chair Jerome Powell on Tuesday will fade the obscurity over the interest rate decision by the Fed in its upcoming June monetary policy. As per the market consensus, a rate hike announcement by 50 basis points (bps) looks possible to contain the soaring inflation. Also, the status of balance sheet reduction will be keenly watched.

Key events this week: S&P Global PMI, New Home Sales, Durable Goods Orders, FOMC minutes, Initial Jobless Claims, Gross Domestic Product (GDP), Core Personal Consumption Expenditure (PCE), and Michigan Consumer Sentiment Index (CSI).

Major Events this week:  Fed Powell’s speech, European Central Bank (ECB)’s Christine Lagarde’s speech, Reserve Bank of New Zealand (RBNZ) interest rate decision.

• NZD/USD takes offers to renew intraday low, consolidates recent gains around 13-day top.
• New Zealand Q1 Retail Sales flashed -0.50% figures versus 8.3% prior growth.
• Firmer sentiment, repeated Fedspeak keeps US dollar on the back foot.
• First readings of S&P Global PMIs for May, speech from Fed Chairman Powell can entertain traders ahead of RBNZ.

NZD/USD stands on slippery grounds, snapping a three-day uptrend at a fortnight top, as New Zealand’s (NZ) Q1 2022 Retail Sales disappoints Kiwi bulls ahead of Wednesday’s key RBNZ. That said, the quote renews a daily low of around 0.6450 during the initial hour of Tuesday’s Asian session.

New Zealand’s first quarter (Q1) 2022 Retail Sales surprised kiwi bulls with a -0.5% QoQ figure versus the downwardly revised previous readings of 8.3% QoQ (from 8.6%). That said, Retail Sales ex Autos also dropped to 0.0% from 6.8% prior during the stated period.

The downbeat numbers raise allow NZD/USD bulls to better prepare for the Reserve Bank of New Zealand’s (RBNZ) widely anticipated rate hike of 50 basis points (bps).

It’s worth noting that a negative start of the day by the S&P 500 Futures, despite firmer closing of the Wall Street benchmarks, also weigh on the Kiwi prices of late.

On Monday, the NZD/USD rallied to a three-week high amid broad US dollar weakness, as well as optimism in the market during a light calendar. In doing so, the US Dollar Index (DXY) extended the first weekly loss in seven as mixed covid signals from China, mostly positive, join the repeated Fedspeak around a 50 bps rate-hike, contrary to the recently hawkish comments from the ECB policymakers. Also weighing on the greenback were the headlines from Japan where US President Joe Biden mentioned that he is considering reducing tariffs on China.

Looking forward, the preliminary readings of the S&P Global Manufacturing and Services PMIs for May will be crucial amid hopes of stabilization in the market’s confidence. Also, Fed’s Powell is always the key catalyst to move the markets and can do so if refrained from the usual support for a “normal” rate hike trajectory. Additionally, headlines from the Quad Summit in Tokyo and concerning the covid will also be important for NZD/USD traders to watch for fresh impulse.

Above all, tomorrow’s RBNZ Interest Rate Decision will be crucial as markets do expect a 50 bps move but data from New Zealand has been mixed of late.

Technical analysis

NZD/USD trades above the 21-DMA, around 0.6400 at the latest, for the first time in seven weeks. The weekly recovery move from a two-year low also gains support from the MACD and RSI (14) to direct buyers towards January’s low surrounding 0.6530.

Reuters reported that San Francisco Federal Reserve Bank President Mary Daly on Monday said the US economy has a lot of momentum and said the central bank can raise interest rates to where they are no longer stimulating economic growth without starting a recession.

"We really have a strong economy," Daly said in an interview on Fox News."I think that we can weather this storm, get the interest rate up...price stability restored and still leave Americans with jobs aplentiful and with growth expanding as we expect it to."

US dollar sinking

Meanwhile, the European Central Bank is getting attention which is resulting in a bid in the euro, weighing on the US dollar. The dollar index, DXY, fell on Monday while the euro rallied after the European Central Bank indicated a move from negative interest rates.

• GBP/USD bulls are in charge and looking for a break of key daily resistance.
• The weekly chart is being corrected with 1.2650 eyed. 

The price is making it's way higher within the correction of the weekly chart's bearish impulse. Having already mitigated some of the price imbalance in a 38.2% Fibonacci retracement so far, the bulls are staying with the course which leaves 1.2650 vulnerable in a 50% mean reversion. Thereafter, the golden 61.8% ratio will be eyed. 

GBP/USD weekly chart

On the daily chart, the bulls have broken the first layer of resistance that would now be expected to act as a support on a retest. If the bulls commit, then a break of 1.2650 would expose the void of bids between there and the 1.30s.

GBP/USD daily chart

US inflation expectations, as per the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, snapped a two-day downtrend with a U-turn from the lowest level since late February.

That said, the inflation gauge rose from 2.55% to 2.60% by the end of Monday’s North American trading session.

A drop in the US inflation expectations also joins the US dollar’s south-run, amid repeated chatters of a 50 bps rate hike from the Fed, keeping the greenback bulls away from the table.

The US Dollar Index (DXY) extends the first weekly loss in seven as mixed covid signals from China, mostly positive, join the repeated Fedspeak around a 50 bps rate-hike, contrary to the recently hawkish comments from the ECB policymakers. Also weighing on the greenback were the headlines from Japan where US President Joe Biden mentioned that he is considering reducing tariffs on China.

Amid these plays, Wall Street ended Monday on a positive note and the US Treasury yields also rose as traders turn cautiously optimistic prior to the key data/events.

Also read: Forex Today: Dollar continues to shed ground

• USD/CHF holds lower grounds after refreshing multi-day low.
• Risk-on mood, softer US dollar keep sellers hopeful ahead of a busy day.
• ECB vs. Fed drama, US President Biden’s jest to remove Trump-era tariffs on China underpin firmer sentiment.
• Preliminary readings of S&P Global PMIs for May, speech from Fed Chairman Powell will be crucial for immediate direction.

USD/CHF refreshed its monthly low to 0.9627, before consolidating losses near 0.9658, as the US dollar extends the previous week’s losses amid firmer sentiment. However, the Swiss currency (CHF) pair recently turned sidelined amid cautious sentiment ahead of the key US PMIs for May and a speech from Federal Reserve (Fed) Chairman Jerome Powell.

The US Dollar Index (DXY) extends the first weekly loss in seven as mixed covid signals from China, mostly positive, join the repeated Fedspeak around a 50 bps rate-hike, contrary to the recently hawkish comments from the ECB policymakers. Also weighing on the greenback were the headlines from Japan where US President Joe Biden mentioned that he is considering reducing tariffs on China.

That said, firmer prints of the US Chicago National Activity Index for April, to 0.47 versus 0.36 flashed in March, also eased the market’s pessimism and back sentiment suggesting no surprise rate hike from the Fed than already conveyed. On the contrary, the European Central Bank (ECB) President Christine Lagarde signaled an end to the negative rates by Q3, suggesting a lift in the benchmark rate in July, which in turn propelled the bloc’s currency and shortened the ECB vs. Fed divergence that drowned the greenback.

Amid these plays, Wall Street ended Monday on a positive note and the US Treasury yields also rose as traders turn cautiously optimistic prior to the key data/events.

That said, the preliminary readings of the S&P Global Manufacturing and Services PMIs for May will be crucial amid hopes of stabilization in the market’s confidence. Also, Fed’s Powell is always the key catalyst to move the markets and can do so if refrained from the usual support for a “normal” rate hike trajectory. Additionally, headlines from the Quad Summit in Tokyo and concerning the covid will also be important for USD/CFH traders to watch for fresh impulse.

Technical analysis

50-day EMA joins the 50% Fibonacci retracement of March-May upside, around 0.9615-05, to put a short-term floor under the USD/CHF prices. Meanwhile, recovery remains elusive until witnessing a clear break of the 21-day EMA level surrounding 0.9770.

• Gold price may witness a pullback towards $1,840.00 ahead of Fed Powell.
• The soaring market mood is responsible for the weakness in the DXY.
• To corner the galloping inflation, a jumbo rate hike in June looks likely.

Gold price (XAU/USD) has delivered a four-day winning streak after displaying a bullish reversal at around $1,800.00 last week. The precious metal is expected to turn sideways after a firmer responsive buying action as more market participants will connect with bulls for further upside.

A softer US dollar index (DXY) is the real catalyst behind the $40+ rally in gold prices. The DXY has eased around 2.80% after hitting a high of 105.00 despite rising odds of a 50 basis point (bps) interest rate hike by the Federal Reserve (Fed) in June. Mounting inflationary pressures in the US economy are compelling for one more rate hike by the Federal Reserve (Fed) in June. Also, the speech from Fed chair Jerome Powell on Tuesday may provide some insights into the likely monetary policy action in June.

The upbeat market tone is responsible for a sheer downside move in the DXY. Risk-sensitive currencies are gaining traction as DXY’s safe-haven appeal diminishes.

Gold technical analysis

On an hourly scale, XAU/USD is holding above 23.6% Fibonacci retracement (placed from April 18 high at $1,998.43 to May’s low at $1,804.90) at $1,837.60. Gold bulls are firmer above the 200-period Exponential Moving Average (EMA) at $1,840.40. The trendline placed from May’s low at $1,804.90 will act as major support for the counter. A pullback move is expected towards the above-mentioned trendline after a bullish reversal to near $1,840.00. The Relative Strength Index (RSI) (14) has shifted lower from the bullish range of 60.00-80.00 but is expected to find support at 40.00.

Gold hourly chart

• USD/CAD is balancing below 1.2800 amid carnage in the DXY.
• An underperformance is expected from US PMI numbers in all aspects.
• Fed’s Powell may dictate a hawkish tone for the likely monetary policy action in June.

The USD/CAD pair is falling gradually lower after facing multiple failed attempts while attacking the round-level barricade of 1.2800 on Monday. The asset is expected to tumble further towards May 5 low at 1.2722 as the US dollar index (DXY) is eyeing an establishment below 102.00 ahead of the US Purchase Managers Index (PMI) numbers and speech from Federal Reserve (Fed) chair Jerome Powell on Tuesday.

The DXY extended its losses on Monday after slipping below the crucial support of 102.35. A downside move of almost 2.80% has been recorded by the DXY from its 19-year high of 105.00. Going forward, investors’ focus will remain on the US PMI numbers.

The S&P Global Composite PMI is seen at 55.5, lower than the prior print of 56. While the Manufacturing and Services PMI are expected to land at 57.9 and 55.4 respectively. A little underperformance is expected by the market participants as higher interest rates are signaling lower economic activities due to liquidity squeeze from the market, which could bring more weakness in the greenback.

Also, the speech from Fed chair Jerome Powell will remain on the investor’s radar. The major discussion could be interest rate guidance for the upcoming monetary policies, especially in June, which is expected to be highly hawkish amid stable inflationary pressures at elevated levels.

On the loonie front, the monthly Retail Sales numbers will be on the investor’s radar, which is due on Thursday. The monthly Retail Sales are expected to climb sharply higher to 1.4% against the prior print of 0.1%. However, the monthly Retail Sales that exclude auto sales are seen at 2%, a little lower than the former figure of 2.1%.

• AUD/USD bulls testing critical resistance within a bearish territory. 
• The bears have not thrown in the towel just yet.

The price is breaking out of the downward trend in a rising wedge formation. While this is typically regarded as a bearish continuation chart pattern, the Aussie has a habit of defying gravity when correcting the trend and a break of the current resistance would be a significant development. There is a void between there and the 0.73 figure and the price imbalance could well be mitigated. 

AUD/USD H4 charts

On the other hand, the bears are moving in and repeated failures at this resistance level would be expected to leave the ball in their court. A subsequent break of the next term support would be expected to encourage the bears back to the table and a snowball effect gathering momentum could result in a downside continuation and restest of the counter trendline:

A break of the trendline and a run on sell stops would be expected to result in supply that could push the bulls back to the edge of an abyss at 0.6950:

AUD/USD daily chart

• NZD/USD begins the week with gains of almost 1%.
• The greenback remains under pressure on growing concerns that an aggressive Fed would cause a recession in the US.
• NZD/USD Price Forecast: Failure to reclaim 0.6500, and the RSI shifting downwards to tumble the major towards 0.6300.

The New Zealand dollar advances for the third straight day and begins the week on a higher tone, benefitted by a positive market mood, reflected by global equities finishing Monday’s session with gains. At the time of writing, the NZD/USD is trading at 0.6459.

Sentiment remains upbeat; the US dollar edges down

Wall Street finished Monday’s session with gains, further confirming risk appetite. The greenback trades softer, with the US Dollar Index tumbling close to 1% in the day and hovering around 102.074, a tailwind for the NZD/USD. Nevertheless, rising US Treasury yields, led by the 10-year benchmark note up 7.5 basis points, sitting at 2.860%, caped the rise of the NZD.

The buck remains on the defensive, on growing concerns that a further aggressive Federal Reserve could trigger a recession in the US. The US central bank struggles to drag inflation from around 8% to its 2% target. Reports that the US may consider lifting some trade tariffs on China was a piece of news cheered by traders, which turned to equities and lifted the major global indices.

Aside from this, the NZD/USD opened near the daily pivot point at 0.6390 and never looked back, rallying close to 1%, reaching a daily high at 0.6491 on Monday. Nevertheless, the major retreated afterward around the 20-hour simple moving average (SMA) at 0.6465.

An absent New Zealand economic docket left NZD/USD traders focused on market sentiment and US macroeconomic data. The US docket featured the Chicago Fed National Activity Index for April, which rose by 0.47,  higher than the  0.36 of the previous reading.

Of late, Atlanta’s Federal Reserve President Raphael Bostic said that the quick response in financial markets to tighten monetary policy offers hope that other parts of the economy may adjust more quickly.

In the week ahead, the New Zealand economic docket will feature Retail Sales for the first quarter, followed by the Reserve Bank of New Zealand (RBNZ) Interest Rate Decision and Business and Consumer Sentiment surveys.

On the US front, S&P PMIs, New Home Sales for April, and the Federal Reserve Chair Jerome Powell would be featured.

NZD/USD Price Forecast: Technical outlook

The NZD/USD is still downward biased, albeit starting the week with an almost 1% gain. The majority of the daily moving averages (DMAs) reside above the exchange rate, except for the 20-DMA at 0.6390, which tracks the trend in the near term. It’s worth noting that the Relative Strength Index (RSI) slope turned horizontally below the 50-midline at 49.19, which leaves the pair vulnerable to further selling pressure.

Therefore, the major could resume the downtrend before the RBNZ monetary policy meeting.

That said, the NZD/USD first support would be the 20-DMA at 0.6390. Break below would expose the May 20 daily low at 0.6363, followed by the May 19 daily low at 0.6290.

• EUR/USD bulls staying the course as the greenback slides. 
• Bulls are taking the hawkish comments from ECB governor and running with them. 

At 1.0687, the single currency is 1.2% higher on the day, rising from a 1.0556 low to a fresh corrective high of 1.0697. EUR/USD bulls have stayed the course as the US dollar continues to melt away from the highs made in its breakneck 10% surge. 

The flight to safety that has been one of the many factors that have been supporting the greenback has been pulled from under the bulls in recent days. After rising in all but two of the last 14 weeks, the dollar index made a 1.6% weekly fall on Friday and the bears have firmed in the opening sessions this week.

Investors had been turning hopeful that loosening lockdowns in China can help global growth and exporters' currencies. Additionally, an unexpectedly big rate cut in China last week has been taken as a signal that authorities are going to provide continued support which has reassured investors. 

Meanwhile, domestically, the European Central Bank president said the bank was likely to lift the euro area deposit rate out of the negative territory by end-September and could raise it further if it saw inflation stabilising at 2%. 

''This supports current market pricing for liftoff July 21 with a 25 bp hike, followed by another 25 bp September 8 that results in a zero deposit rate,'' analysts at Brown Brothers Harriman explained.

''Follow-up hikes on October 27 and December 15 are fully priced in that would take the deposit rate to 0.5% by year-end. To be clear, market pricing for the ECB has not shifted after Lagarde’s remarks and yet the euro got another leg higher.  At some point, the subdued ECB outlook should weigh on the euro but for now, the FX market is happy to take the dollar lower.''

EUR/USD technical analysis

On the charts, this has transpired into the potential for more downside in the greenback to follow shortly/ The DXY index has fallen below support at the start of this week:

The price is moving into a void of support on the daily chart which could lead to a move lower to test the prior highs near 101.00. 

As for the euro, this points to higher highs for the days ahead:

What you need to take care of on Tuesday, May 24:

The greenback weakened on the first trading day of the week, amid a better market mood. US President Joe Biden said to be studying cutting tariffs on Chinese imports, which could save up to $80 billion in taxes for the country. Biden also called on OPEC to raise oil production,  in the hopes it would help to cool down inflationary pressures.  His comments helped to keep stocks afloat throughout the day, despite persistent inflation and growth-related concerns.

The EUR/USD pair flirts with 1.0700, helped by European Central Bank President Christine Lagarde.  She said she expects the facilities program to end “very early” in the third quarter of the year, leaving policymakers in a position to exit negative interest rates by the end of the quarter. Also, this would allow a rate hike to take place in July, in line with forward guidance, according to Lagarde.  

GBP/USD trades around 1.2580, also holding on to intraday gains, despite worrisome Brexit news. The UK has been long supporting the case to modify the Northern Ireland Protocol amid the barriers it creates in Northern Ireland and aims to legislate against it within the upcoming weeks.

Commodity-linked currencies benefited from the better tone of equities. AUD/USD trades around 0.7100, while USD/CAD is in the 1.2780 region.

The Swiss Franc appreciated against the greenback, with the pair now at around 0.9660, while USD/JPY is pretty much unchanged on a daily basis, trading at around 127.80.

Gold posted a modest advance and finished the day at $1,854 a troy ounce. Crude oil prices edged marginally lower, with WTI changing hands at $110.30 a barrel.

May preliminary S&P Global PMIs for major economies are due on Tuesday.

XRP price prompts fear amongst investors as technicals signal another sell-off

• Gold (XAU/USD) begins the week on the right foot, up 0.54% in the week.
• A softer buck and concerns of the US falling into a recession courtesy of an aggressive Fed lifts the prospects of the yellow metal.
• Gold Price Forecast (XAU/USD): Bulls need to reclaim the 20-DMA, if not a re-test of the 200-DMA is on the cards

Gold spot (XAU/USD) advances for the fourth-straight trading day and begins the week with an upbeat tone but retreats at the 20-day moving average (DMA) at $1856.45. At $1854.78, XAU/USD reflects the weak appetite for the greenback, albeit higher US Treasury yields, which are pairing last Friday’s losses.

The market sentiment remains upbeat, one of the factors that weighed on the US Dollar, which is trading at four-week lows. The US Dollar Index is plunging almost 1% and clings to the 102.000 mark, a tailwind for Gold prices. The buck’s weakness is courtesy of growing concerns of a US economic slowdown that could trigger a recession, as the Federal Reserve hikes rates aggressively to bring inflation down from above 8%. Investors’ focus would be on Friday’s Personal Consumption Expenditure (PCE), the US Fed’s favorite gauge of inflation

In the meantime, US equities are higher as the New York session begins to wind down, though they remain at risk of resuming the ongoing bear market correction. That would carry on towards the Asian session, which could witness the second straight session with a positive appetite. Reports that the US may consider lifting some trade tariffs on China was a piece of news cheered by traders, which turned to equities and lifted the major global indices.

Elsewhere, Atlanta’s Federal Reserve President Raphael Bostic said that the quick response in financial markets to tighten monetary policy offers hope that other parts of the economy may adjust more quickly.

On Monday, XAU/USD began its week of trading, just shy of the R1 daily pivot around $1858, and rallied towards the daily high at $1865.34, $25 short from testing March lows at around $1889.91. Furthermore worth noting that once the daily high was reached, the yellow metal retreated below the 20-day moving average (DMA), and it is settling around the $1850 area.

Gold Price Forecast (XAU/USD): Technical outlook

XAU/USD is neutral biased once traders lifted the non-yielding metal above the 200-DMA at $1838.97, opening the door for further gains. However, although Gold is rallying for the fourth consecutive day, it remains exposed to further selling pressure. At the time of writing, the daily chart shows that XAU/USD bulls failed to reclaim the 20-DMA at $1856.46, a level that, once conquered, could open the door for a re-test of March’s low at around $1889.91.

If that scenario plays out, XAU/USD’s first resistance would be the 100-DMA at $1886.33. Break above would expose March’s low at $1889.91, followed by the $1900. Mark. On the flip side, XAU/USD’s first support would be the 200-DMA at 1838.97. Once cleared, the next support would be $1800, followed by the YTD low at $1780.18.

• The USD/JPY is almost flat in the day, down a minimal 0.01%.
• An upbeat market mood and higher US Treasury yields put a lid on the USD/JPY fall.
• USD/JPY Price Forecast: The bias is neutral-upwards, but a break below 126.90, could open the door for further losses.

The USD/JPY edges lower and records minimal losses of 0.01% in the North American session, courtesy of a positive mood and a weaker greenback. At the time of writing, the USD/JPY is trading at 127.84.

Sentiment remains upbeat, as US equities gain between 1.27% and 1.90%. The US Dollar Index, a gauge of the greenback’s value vs. a basket of peers, is down 0.87% and clings to the 102.000 mark, a headwind for the USD/JPY. However, rising US Treasury yields put a lid on the fall, as the 10-year Treasury yield is rising almost seven basis points, sitting at 2.853%.

In the FX space, the risk appetite keeps safe-haven peers downward pressured and risk-sensitive currencies like the AUD, the NZD, and the GBP, up.

On Monday, in the Asian session, the USD/JPY opened near the daily pivot point at 127.90. However, the pair dipped below the S1 pivot at 127.31, towards the daily lows at around 127.15. Nevertheless, the major bounced off the lows during the European session and printed the daily high at 127.85.

USD/JPY Price Forecast: Technical outlook

The USD/JPY remains neutral-upward biased from a daily chart perspective, albeit approaching April’s 26 swing lows at around 126.94, was unable to break support. Nevertheless, the pair could shift its bias to neutral if USD/JPY bulls fail to break the 20-DMA at 129.23, exposing the major to selling pressure.

The USD/JPY 1-hour chart shows that the pair is trapped between the 50 and 100-hour simple moving averages (SMAs) at 127.98 and 128.19, respectively, but it is upwards. Why? The 20-hour SMA resides below the exchange rate, while the Relative Strength Index (RSI) shifted bullish above the 50-midline. Therefore, the USD/JPY bias is upwards.

The USD/JPY’s first resistance would be the daily pivot at 127.90. Latter’s breach would send the pair above the 128.00 mark and aim towards the 100-hour SMA at 128.19. Once cleared, the next resistance would be the R1 pivot point at 128.28, followed by the confluence of the 200-hour SMA and the R2 pivot point at 128.67.

Key Technical Levels

The UK has been long supporting the case to modify the Northern Ireland Protocol amid the barriers it creates in Northern Ireland. Another issue comes from delay and prices rises amid checks requirements.

Last week, UK Foreign Secretary Liz Truss updated the local parliament, noting that their preference is to reach a negotiated solution with the EU.

However, the Union has refused to reopen the treaty and has threatened to use “all the measures at its disposal” is the UK takes unilateral action to override the Brexit deal.

The GBP/USD pair was  unaltered by the news. 

• The shared currency is extending its rally to two consecutive weeks and reached a new MTD high at 1.0691
• A hawkish ECB’s President Lagarde and risk appetite boost the EUR/USD.
• EUR/USD Price Forecast: Failure at 1.0700 would open the door for EUR/USD’s further downward pressure.

The EUR/USD is soaring and is closing to the 1.0700 mark, courtesy of the greenback trading in a softer tone, an upbeat market sentiment, and an additional “hawkish” boost provided by the European Central Bank (ECB) President Lagarde, saying that a rate hike on July, it’s possible. At the time of writing, the EUR/USD is trading at 1.0673.

Risk appetite and a hawkish ECB’s Lagarde lift the EUR/USD

As abovementioned, sentiment remains positive, as European bourses are closing with gains, while US equities lick their wounds and pare some of last Friday’s losses. China’s coronavirus crisis intensified during the weekend in Beijing, while conditions in Shanghai improved though it reported 570 new asymptomatic cases and 52 symptomatic.

The EUR/USD got a boost due to a weaker greenback. The US Dollar Index, a gauge of the greenback’s value against a basket of its rivals, is falling almost 0.80%, sitting at 102.218, a tailwind for the EUR/USD. On the contrary, US Treasury yields are rising, led by the 10-year benchmark note at 2.859%, gaining seven and a half basis points.

The ECB President Christine Lagarde crossed the wires, and she said that the ECB is likely to be in a position to exit negative interest rates by the end of the Q3 but pushed against 50-bps increases. She added that she expects net purchases to end early in the third quarter, allowing the ECB to hike rates at the July meeting.

During the day, other ECB policymakers spoke to the media. ECB’s Villeroy said that the Eurozone growth is resilient and stated that the ECB’s main focus would be to bring inflation back to 2%. According to Bloomberg, some ECB sources said that ECB President Lagarde’s plan to raise rates bothered some hawkish policymakers at the ECB who want a faster option.

During the European session, the EU docket featured IFO May Surveys on its different indexes, which unexpectedly rose more than expected, demonstrating the upbeat morale of German businesses, though maintaining investors’ spirits higher.

Meanwhile, the US economic docket featured the Chicago Fed National Activity Index for April, which rose by 0.47,  higher than the  0.36 of the previous reading, and further, Fed speaking, with Atlanta’s Fed President, Raphael Bostic, crossing the wires.

EUR/USD Price Forecast: Technical outlook

The EUR/USD daily chart depicts the pair as downward biased, despite reclaiming the 20-day moving average (DMA), which currently sits at 1.0530. Nevertheless, the rally appears to be overextended, as it is above the top band of the Bollinger’s band indicator at 1.0673, but the Relative Strength Index (RSI) above the 50-midline is aiming higher, with enough room before reaching overbought conditions.

Upwards, the EUR/USD’s first resistance would be the 1.0700 mark. Break above would expose the 50-DMA at 1.0772, followed by 1.0800. On the other hand, the major’s first support would be the 1.0600 figure. A breach of the latter would expose the 20-DMA at 1.0529, followed by the 1.0500 mark.

• Mexican peso rises versus the US dollar for the ninth time out of the last ten days.
• USD/MXN stays bearish, about to test critical support at 2022 lows.
• The 19.90 area is not the immediate resistance.

 The USD/MXN continued its decline on Monday and dropped to 19.77, reaching the lowest level since April 19. The outlook points to a test of the year-to-day low at 19.72. A daily close below 19.70 would point to the next strong support around 19.50.

Despite falling constantly during the last two weeks, technical indicators in the daily chart favor the downside, with the RSI pointing south and above 30. Momentum is firm in negative territory. The Mexican peso has in front the 19.70 area that could be hard to break. If it fails to break lower a rebound seems likely.

In the short-term, USD/MXN could likely moved sideways between 19.90 and 19.70. The 19.90 zone has become the immediate resistance. Above the next level to watch is 20.05. If the dollar rises above the 20-day Simple Moving Average, today at 20.19, the bearish outlook would be negated.

USD/MXN daily chart

• Swiss franc remains among the top performers in the currency market.
• ECB open doors to positive interest rates by end of Q3.
• USD/CHF keeps looking for support, bearish outlook.

After a short-lived recovery on Friday, the USD/CHF resumed the downside on Monday. Recently it printed a fresh monthly low at 0.9626. It is hovering around 0.9650, about to post the sixth daily loss out of the last eight days.

A broad-based correction of the US dollar triggered the slide of USD/CHF last week. The negative momentum intensify further with recent comments from Swiss National Bank officials warning about inflation.

On Monday, Andrea Meachler, a board member of the SNB said the central bank won't hesitate to raise interest rates if inflation remains outside of the target. Also on Monday, Christine Lagarde, president of the European Central Bank and other governing council members, suggested a possibility of positive interest rates by the end of the third quarter.

The dollar weakened further amid an improvement in market sentiment at the beginning of the week. The DXY is falling 0.87%, trading at 102.10, the lowest level since April 26.

The USD/CHF continues to look for support. Below 0.9625, the next barrier might be seen at 0.9595 and then 0.9525. Now the immediate resistance is located at 0.9695, followed by 0.9735.

More levels

• The GBP/USD snaps three days of consecutive weekly losses and begins with gains for the second straight week.
• Sterling rallies on risk appetite, a weaker greenback, and a more “hawkish” than expected BoE Governor Bailey.
• GBP/USD Price Forecast: Failure at 1.2600 to leave the major exposed to further selling pressure.

The British pound is extending its recovery after posting its first weekly gain in five and begins the beginning week on the right foot on Monday. At 1.2578, the GBP/USD reflects the upbeat market mood as European and North American investors shrug off concerns of an economic slowdown, as shown by equities edging up amidst a busy week with central bankers taking center stage.

The GBP/USD rallies in a favorable mood, and a soft US dollar

Additionally, as shown by its US Dollar Index, the greenback remains defensive, falling 0.82% and sitting at around 102.173, breaking below analysts’ so-called strong 103.000 level, a tailwind for the GBP/USD. Contrarily, US Treasury yields grind higher four basis points, sitting at 2.828%, regaining some strength after last week’s 4.69% fall.

Meanwhile, the GBP/USD opened the week near the 1.2470s area and, due to favorable market sentiment, rallied 100-pips, reclaiming the 1.2500 mark and closing at the 1.2600 price level, last seen on May 5.

An absent UK economic docket left the Bank of England’s (BoE) Governor Andrew Bailey as the catalyst for the day and sounded very “hawkish” aligned to most MPC members. He said that the central bank is ready to hike rates if needed and added that policymakers can and “must” take actions needed to return inflation to target over a period that avoids unnecessary volatility

Bailey said he rejected the argument that the BoE’s response let demand out of hand, thus stoking inflation.

Elsewhere, on the US front, the economic docket features the Chicago Fed National Activity Index for April, which rose by 0.47,  higher than the  0.36 of the previous reading, and further, Fed speaking, with Atlanta’s Fed President, Raphael Bostic, crossing the wires.

 GBP/USD Price Forecast: Technical outlook

According to the daily chart, the GBP/USD remains under downward pressure, despite recovering some 400-plus pips after reaching a year-to-date low at 1.2155. On Monday, the major attempted a break above 1.2600 but failed. Also, the Relative Strength Index (RSI) at 50.58, its slope is beginning to aim horizontal, signaling that the upward move is fading.

Upwards, the GBP/USD first resistance would be 1.2600. Break above would expose May 4 daily high at 1.2638, followed by the April 26 daily high at 1.2772. On the other hand, the major first support would be 1.2500. Latter’s breach would send the pair tumbling towards 1.2400, followed by the May 17 daily low at 1.2315 and the YTD low at 1.2155.

Some of the more hawkish European Central Bank policymakers are annoyed at the rate-hike timeline outlined by central bank President Christine Lagarde, Bloomberg reported on Monday citing sources, given some had preferred a faster option. Lagarde effectively signalled in a blog post on Monday that the bank would bring rates out of negative territory by the end of September, which the irked hawkish ECB policymakers have taken to imply two 25 bps rate hikes, effectively ruling out the option of a 50 bps rate hike in July. 

• EUR/JPY is above 136.00 and eyeing last week’s highs following hawkish ECB commentary.
• The pair has formed a pennant and could break higher towards 140.00 should Eurozone yields kick on.

Hawkish interest rate guidance from European Central Bank President Christine Lagarde, who signaled that the bank is likely to have lifted interest rates out of negative territory by the end of September, boosted the euro against most of its G10 peers on Monday. That helped lift EUR/JPY to above 136.00 level, where it is now probing its 21-Day Moving Average, whilst bulls eye a test of last week’s highs in the upper 136.00s.

At current levels, around 136.10, the pair is trading with on-the-day gains of about 0.9%, with robust May German IFO survey data released earlier in the day likely contributing to the euro’s robust start to the week. Looking ahead, Eurozone business survey data remains in focus with the release of flash May Markit PMI survey data out on Tuesday. Survey data is being closely scrutinised at the moment with traders wanting to guage how the Eurozone economy is holding up amid the ongoing Russo-Ukraine war.

For now, ECB policymakers deem the Eurozone economy as still holding up well, with Bank of France head and European Central Bank governing council member Francois Villeroy de Galhau on Monday characterised growth as “resilient”, before saying that the deal on near-term rate hikes is probably done. Aside from Tuesday’s survey data, focus this week will remain on the various ECB and BoJ policymakers scheduled to speak. Given the policy divergence between the two, risks arguably remain tilted to the upside for EUR/JPY.

The pair is at present trapped within a pennant structure that has been in play since late April. A bullish breakout could see EUR/USD rally back towards annual highs in the 140.00 area, though such a move would likely need to be driven by further upside in Eurozone yields to drive the Eurozone/Japan rate differential higher.

Bank of France head and European Central Bank governing council member Francois Villeroy de Galhau said on Monday that a deal on rate hikes in the near term is probably done, reported Reuters. His remarks come after ECB President Christine Lagarde said in a Monday blog post that the ECB would likely lift rates out of negative territory by the end of September. 

Villeroy added that Eurozone growth remains resilient, with the main short-term problem being inflation. Because of a broadening of inflationary pressures, he continued, the ECB must normalise monetary policy to get inflation back to 2.0%. The ECB is set to normalise policy, he emphasised, not tighten it.  

Earlier in the day, the May German IFO survey came in stronger than expected.  

• Oil prices are a little lower on Monday despite the weaker US dollar and stronger global equity markets.
• WTI remains within recent ranges near $110 as traders mull China Covid-19 and EU Russian oil embargo developments plus demand.

Oil prices stabilized within recent ranges on Monday amid a fairly quiet start to the week so far as crude oil relevant newsflow is concerned, with benchmarks broadly failing to benefit from a rally in global equities and a decline in the US dollar. As a risk-sensitive asset, strength in equities tends to help oil prices, while a weaker US dollar increases demand for USD-denominated commodities (like oil), as it makes it cheaper for the holders of international currency.

Front-month WTI futures were last pivoting on either side of the $110 level, midway between last week’s highs in the $115 area and lows in the $105 area. At current levels near $109.50, WTI is down about $1.0 on the day, which is a small intra-day move by WTI standards. Oil traders remain focused on familiar themes, including the Covid-19 lockdown situation in China. According to China’s NHC, the overall situation in the country is improving, though Beijing reported a record number of infections on Sunday. Lockdowns across many of the country’s largest cities, including Shanghai and Beijing, have dented Chinese crude oil demand in recent weeks, a tailwind for crude oil prices.

Elsewhere, analysts also noted strength in the US market for gasoline as the nation approaches its peak driving season, as reflected by US refineries ramping up output, as supportive for crude oil prices on Monday. According to analysts at Reuters, the peak driving season in the US lasts from the end of May (Memorial Day weekend) until September (Labor Day).

Whilst there have been fears that the surge in gasoline prices since the 2021 peak driving season might dent demand this year, analysts have over the last few weeks been citing high-frequency US mobility data as showing that this has thus far not been the case. A report from the Federal Highways Agency last week showed that vehicle miles traveled hit a record high for April this year, and high-frequency data from TomTom and Google show traffic climbing over the last few weeks.

Looking ahead, analysts will remain on the lookout for any headlines about whether the EU is getting any closer to a deal on ending Russian oil imports. The latest reports from Bloomberg suggest this isn't the case. That could act as another headwind making it more difficult for WTI to return to/break above last week’s $115ish highs. For now, though, robust demand (outside of China) and weak supply (as output from Russia/smaller OPEC nations struggles) should keep prices underpinned above last week’s $105ish lows, with the 21 and 50-Day Moving Averages in the mid-$100s also lending support.

Bank of England (BoE) governor Andrew Bailey said on Monday that the central bank is prepared to raise interest rates again in order to bring inflation down, reported Reuters. Policymakers can and must take the actions needed to return inflation to target over a period that avoids unnecessary volatility, he added. 

The UK is facing a very big negative impact on real incomes caused by the rise in prices of imports, Bailey continued. Bailey added that he rejects the argument that the government's response to the Covid-19 pandemic and BoE's monetary policy let demand get out of hand and thus stoked inflation. 

Deadlocked talks between European Union (EU) nations aimed at reaching an agreement on an embargo of Russian oil imports could extend into June, Hungary has signaled according to Bloomberg sources. Hungary is at present the main roadblock to a deal that would see the EU phase out most of its Russian oil imports within the next few months, as it continues to prioritize domestic energy security. 

Analysts had previously touted an EU council summit meeting on 30-31 May as a god opportunity for leaders to come to an agreement on the embargo. The latest signals from Hungary will dampen expectations for a month-end breakthrough. 

• USD/CAD dropped to over a two-week low on Monday amid heavy USD selling bias.
• Modest pullback in oil prices undermined the loonie and helped limit the downside.
• Recovery beyond the 1.2800 mark might confront resistance near the 38.2% Fibo.

The USD/CAD pair came under some renewed selling pressure on Monday and dropped to over a two-week low, around the 1.2770 region amid broad-based US dollar weakness. That said, a modest intraday pullback in crude oil prices undermined the commodity-linked loonie and helped limit any further losses, at least for the time being.

The USD/CAD pair was last seen trading just a few pips below the 1.2800 round-figure mark, still down nearly 0.40% for the day and remains at the mercy of the USD price dynamics. 

From a technical perspective, bulls, so far, have managed to defend the 50% Fibonacci retracement level of the 1.2459-1.3077 strong move up. The said support should now act as a pivotal point, which, if broken decisively, will set the stage for an extension of the recent sharp pullback from the highest level since November 2020.

The USD/CAD pair might then accelerate the downfall towards testing intermediate support near the 1.2720-1.2715 region before eventually dropping to sub-1.2700 levels, or the 61.8% Fibo. level. The latter coincides with the 100-day SMA and is followed by the very important 200-day SMA, around the 1.2660-1.2665 zone.

Some follow-through selling would suggest that the USD/CAD pair has topped out in the near-term and prompt fresh technical selling. The subsequent decline has the potential to drag spot prices further towards the 1.2600 mark en-route the next relevant support near the 1.2560 horizontal zone.

On the flip side, attempted recovery back above the 1.2800 mark might now confront stiff resistance near the 38.2% Fibo. level, around the 1.2835-1.2840 region. Sustained strength beyond might trigger a short-covering bounce and allow bulls to reclaim the 1.2900 mark, though any further positive move seems elusive.

USD/CAD daily chart

Key levels to watch

• USD/TRY trades on the defensive below the 16.00 mark.
• Turkey Capacity Utilization improved to 78.0% in May.
• Turkey End Year CPI Forecast now seen at 57.92%.

USD/TRY trades in quite a volatile fashion always below the 16.00 mark at the beginning of the week.

USD/TRY shifts its focus to the CBRT

USD/TRY extends the choppy activity seen as of late, while further upside and a break above the key 16.00 barrier still remaining elusive for bulls.

The lira managed to regain traction and drag spot lower on the back of the generalized selling bias in the greenback and the consequent renewed inflows into the risk complex and the EM FX space.

In the domestic calendar, Turkey’s Capacity Utilization rose to 78.0% in May, while the

End Year CPI Forecast is now expected at 57.92% (from 46.44%). Additional data saw the Manufacturing Confidence down a little to 109.4 (from 109.7) in May.

In the meantime, the pair is expected to continue within the current consolidative theme ahead of the CBRT event on Thursday, where market consensus still expects the central bank to keep rates unchanged despite the rampant inflation.

What to look for around TRY

USD/TRY keeps the upside bias well and sound and trades at shouting distance from the 16.00 mark.

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

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

Key events in Turkey this week: Capacity Utilization, End Year CPI, Manufacturing Confidence (Monday) – Economic Confidence Index, CBRT Interest Rate Decision (Thursday).

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

USD/TRY key levels

So far, the pair is losing 0.13% at 15.8395 and a drop below 14.6836 (monthly low May 4) would expose 14.5458 (monthly low April 12) and finally 14.5136 (weekly low March 29). On the upside, the next barrier aligns at 15.9815 (2022 high May 20) seconded by 18.2582 (all-time high December 20) and then 19.00 (round level).

NZD/USD continues its strong upward advance, threatening to reach the May high at 0.6556/68. However, while below here, economists at Credit Suisse stay bearish as this region ideally holds further near-term strength.

Only a sustained break above o.6556/68 would signal a false breakout

“We stay with our bearish medium-term view whilst below 0.6556/68, with only a sustained move above here threatening to negate the broader NZD/USD weakness.” 

“Immediate support is thus seen at 0.6417/15 and then further below at the price low at 0.6310/.6288, a break below which is needed to weaken correction and put the market on track to retest the YTD low at 0.6227/13.”

“A stable close above the May high at 0.6556/68 would indicate a false breakout and see scope for sustained upside, with next notable resistance then seen at the 55-day moving average at 0.6684/90.”

• Gold is trading in the $1850s, up about 0.4% though lower versus early session highs in the $1860s.
• XAU/USD is trading over 3.5% higher versus last week’s lows amid a pullback in the US dollar.
• Key Fed events and US economic data present two-sided risks to the precious metal this week.

Spot gold (XAU/USD) has pulled back from earlier session highs in the $1860s per troy ounce after probing the 21-Day Moving Average at $1858, though prices are still higher by about 0.4% on the day (around $8.0) amid a soft start to the week for the US dollar. At present, XAU/USD is trading in the $1850s and is still in a bullish trend since its bounce from multi-month sub-$1790 lows printed this time last week. At current levels, gold is over 3.5% higher versus these lows.

The main driver of this recovery over the past week has been a weakening of the US Dollar Index (DXY), which has pulled sharply lower from multi-decade highs printed above 105.00 earlier in the month. Since these highs set ten days ago on 13 May, the DXY has dropped more than 2.5% to the low-102.00s. This drop came despite Fed policymakers sounding exceedingly hawkish last week in their intent to continue pressing ahead with rate hikes to tame rampant inflation, even in the face of a weakening economy/stock markets.

Given the Fed’s role as a key driver of upside in the buck over the last few months, analysts are not unsurprisingly questioning how much further this dollar pullback has to run. Surely dip-buyers will come back in at some point, they question. If there is a dollar recovery this week, that would be bad for XAU/USD.

This week's economic events arguably present two-sided risks for XAU/USD. On the one hand, there will be plenty of Fed speak as well as the release of the May meeting minutes and the tone is expected to be as hawkish as ever. On the other hand, US (and global) flash May PMIs on Tuesday plus Thursday’s second estimate of Q1 US GDP growth may combine to trigger fresh concerns about US (and global growth), which could offer silver some safe-haven support, especially if it is deemed as dampening long-term Fed tightening prospects.

S&P 500 posted a late bullish “hammer” reversal into the close on Friday to hold above the key 3855/15 support cluster. This reasserts the potential for further short-term consolidation over the next few days, but the broader risk is still biased lower, in the view of analysts at Credit Suisse.

Eventual break under 3855/15 can see support at 3505/00

“S&P 500 has resultantly formed a bullish ‘hammer’ candlestick reversal and with a short-term bullish momentum divergence now in place, and with US Bond Yields and the USD stabilizing, all this reasserts the potential for a short-term phase of consolidation.” 

“Key resistance is seen at the falling 13- day exponential average, now at 4002. Whilst below this level, this will just stay seen as a low-level consolidation, with medium-term downside momentum staying strong. Therefore, the risk of an eventual breakdown stays seen as elevated, with the next key support level at the cluster of price lows around 3723/3694 and eventually down to 3505/00. 

“Key resistance stays at the aforementioned 4002 13-day exponential moving average. A break above here would open up a deeper corrective recovery, with resistance then seen at 4091/4128.”

• NZD/USD gained strong positive traction on Monday and shot to over a two-week high.
• The risk-on impulse undermined the safe-haven USD and extended support to the kiwi.
• Expectations for an additional 50 bps rate hike by the RBNZ provided an additional lift.

The NZD/USD pair prolonged its recent strong recovery from a nearly two-year low touched earlier this month and gained traction for the third successive day on Monday. This also marked the sixth day of a positive move in the previous seven and lifted spot prices to over a two-week high during the mid-European session.

As China prepares to reopen at the beginning of June after a two-month lockdown, investors turned optimistic amid hopes that loosening COVID-19 restrictions would boost the global economy. This was evident from a generally positive tone around the equity markets, which dragged the safe-haven US dollar to a fresh monthly low and benefitted the risk-sensitive New Zealand dollar.

The kiwi was further underpinned by expectations that the Reserve Bank of New Zealand would increase the Official Cash Rate by an additional 50 bps on Wednesday. The central bank is also anticipated to provide a clear signal that further tightening is forthcoming. The combination of factors pushed the NZD/USD pair further beyond last week's swing high, around the 0.6415-0.6420 region.

Hence, the momentum could also be attributed to some technical buying, though stalled just ahead of the 0.6500 psychological mark. The said handle should now act as a pivotal point ahead of the key central bank event risk and the release of minutes of the latest FOMC meeting on Wednesday. This will play an important role in determining the next leg of a directional move for the NZD/USD pair.

The markets already seem to have fully priced in at least 50 bps Fed rate hike move over the next two policy meetings. Investors, however, will look for clues about the possibility of a jumbo 75 bps rate hike in June. Apart from this, important US macro data scheduled during the latter part of the week will influence the USD and further provide some meaningful impetus to the NZD/USD pair.

In the meantime, a goodish pickup in the US Treasury bond yields could lend some support to the buck. Moreover, absent relevant market moving economic releases from the US warrants some caution before placing fresh bullish bets around the NZD/USD pair. This makes it prudent to wait for sustained strength beyond the 0.6500 mark before positioning for any further appreciating move.

Technical levels to watch

• Silver has pulled back to the $22.00 area from an earlier failed test of the 21DMA at $22.20.
• XAG/USD is still up over 1% on the day and more than 7.5% versus recent lows in the mid-$20.00s.
• Dollar weakness is driving the ongoing rebound, though there could be a recovery this week amid more expected Fed hawkishness.

Spot silver (XAG/USD) has pulled back from earlier session highs in the $22.20 per troy ounce area after failing a test of the 21-Day Moving Average, though continues to trade with gains of about 1.2% on the day (over 25 cents) amid a continued weakening of the US dollar at the start of the week. For now, XAG/USD is holding onto the $22.00 level and the uptrend that has been in play over the past ten days that has seen the precious metal bounce more than 7.5% from multi-month lows in the mid-$20.00s remains intact.

The main driver of this recent recovery has been the US Dollar Index’s (DXY) sharp pullback from the multi-decade highs it printed above 105.00 earlier in the month. Since 13 May, the DXY has dropped more than 2.5% from these highs to the low-102.00s, despite Fed policymakers sounding exceedingly hawkish last week in their intent to continue pressing ahead with rate hikes to tame rampant inflation, even in the face of a weakening economy/stock markets.

Given the Fed’s role as a key driver of upside in the buck over the last few months, analysts are not unsurprisingly questioning how much further this dollar pullback has to run. Surely dip-buyers will come back in at some point, they question. If there is a dollar recovery this week, that would be bad for XAG/USD. Its failure to get above its 21DMA may prove pivotal (failure at a major moving average is often seen by technicians as a bearish sign.

This week's economic events arguably present two-sided risks for XAG/USD. On the one hand, there will be plenty of Fed speak as well as the release of the May meeting minutes and the tone is expected to be as hawkish as ever. On the other hand, US (and global) flash May PMIs on Tuesday plus Thursday’s second estimate of Q1 US GDP growth may combine to trigger fresh concerns about US (and global growth), which could offer silver some safe-haven support, especially if it is deemed as dampening long-term Fed tightening prospects.

• EUR/USD advances further north and flirts with 1.0700.
• Further up now aligns the 55-day SMA at 1.0788.

EUR/USD pushes higher and prints new May peaks just ahead of the 1.0700 mark on Monday.

Considering the pair’s ongoing price action, the continuation of the rebound appears likely in the very near term at least. That said, the next up barrier now appears at the 55-day SMA, today at 1.0788 before the 3-month resistance line around 1.0860.

The breakout of this area should mitigate the selling pressure and allow for a probable move to the weekly high at 1.0936 (April 21).

EUR/USD daily chart

• The Chicago Fed's National Activity Index rose to 0.47 in April from 0.36 in March. 
• It has remained stable in the mid-0.0s since the start of the year. 
• There was no market reaction to the latest Chicago Fed data.  

The US National Activity Index rose to 0.47 in April from 0.36 in March, data released by the Federal Reserve Bank of Chicago revealed on Monday. The National Activity Index is a monthly index designed to gauge overall economic activity and related inflationary pressure. The index has been relatively stable in the mid-0.0s since the start of the year, suggesting a modest but consistent growth rate.  

Market Reaction

There was no market reaction to the latest Chicago Fed data.  

Over the past five days, the New Zealand dollar is the second-best performing G10 currency after the Swiss franc. The guidance from the Reserve Bank of New Zealand (RBNZ) this week will be key. In the opinion of economists at Rabobank, the kiwi is vulnerable to lower rates.

The peak in RBNZ rates could be lower than previously expected

“If the RBNZ starts to signal the peak in rates is likely to be lower and come sooner, the NZD could be vulnerable.”

“Despite the improved tone of NZD/USD in recent sessions, we expect further upside may be difficult on a 1-to-3-month view.”

“We see the potential for further safe-haven demand to boost the USD in the month ahead. This view stems from concerns over the pace of global growth.”

“We see risk of another dip to the NZD/USD 0.63 area in the weeks ahead with a moderate recovery in the currency pair on a 6-month view dependent on a broad-based softening in the value of the USD.”

EUR/USD has held key support at 1.0341 and daily MACD has turned higher. Furthermore, the break above 1.0642 confirms a base and analysts at Credit Suisse look for a move to 1.0758/90.

EUR/USD looks likely to confirm a near-term base

“This morning’s break above the 23.6% retracement of the fall from February and May high at 1.0620/42 should confirm a near-term base and provide the platform for a deeper recovery to the 38.2% retracement, 55-day average and mid-April lows at 1.0758/90. 

“We expect a much tougher barrier at 1.0758/90 and for the medium-term downtrend to reassert itself from here, with medium-term momentum ultimately still very strong.” 

“Support moves to this morning’s breakout point at 1.0608/0599, with 1.0532 now needing to hold to maintain an immediate upside bias. A break below here and then 1.0460 can clear the way for a retest of 1.0350/41.”

Swiss National Bank governing board member Andrea Maechler said in an interview published in Swiss newspaper Bilan on Monday that the central bank won't hesitate to raise interest rates if inflation remains outside of target. 

"If the inflation we expect does not come down in the medium term to a range between 0% and 2%, we will not hesitate to tighten policy," Maechler said. 

The headline rate of annual Consumer Price Inflation (CPI) rose to 2.5% in April in Switzerland, data released earlier this month showed, above the bank's zero to 2.0% target range. The fact that the European Central Bank has announced to take its policy rate out of negative territory this year removes some pressure on the SNB to maintain rates at their present -0.75% level. 

EUR/CHF’s decline has paused around the 55-day moving average (DMA) at 1.0278. Nevertheless, analysts at Credit Suisse stay oriented lower and expect a test of 1.0189/69 in due course.

Resistance at 1.0360 set to hold to maintain the strong downward pressure

“With daily MACD turning lower and with the recent sharp drop in mind, we maintain our long-held bearish view and see scope for further downside, with support seen at 1.0263/53 initially, and then further below at the late April lows at 1.0189/69. 

“A closing break below the late April lows at 1.0189/69 would look to promote further weakness to 1.0133, ahead of the April low at 1.0086.”

“Resistance remains at 1.0360, which ideally holds to maintain the strong downward pressure. Whilst a break above here would likely look to test 1.0403 as well, only a move above the 200-DMA and recent high at 1.0480/0515 would threaten the medium-term downtrend, though our base case is that this level will continue to hold if reached.”

GBP/USD looks likely to see a deeper corrective recovery. Nonetheless, the broader view of the Credit Suisse analyst team stays bearish, with key resistance at 1.2633/51.

Support is seen at 1.2338/29

“Although our broader outlook stays negative, with daily MACD momentum having turned higher we continue to look for a corrective recovery/consolidation phase to emerge. “

“Beyond the next key resistance at the May high and 23.6% retracement of the entire fall from 2021 at 1.2633/51 would trigger an even deeper correction, with the next resistance at the 38.2% retracement of the 2022 at 1.2766, then the crucial 55-day average at 1.2843, where we would have greater confidence in a ceiling for a resumption of the broader downtrend.” 

“Support is seen at 1.2447/39 initially, with 1.2338/29 now needing to hold to maintain an immediate upside bias. A break would end the corrective recovery phase, with support seen next at 1.2218 and more importantly at 1.2167/57.” 

EUR/USD is trading at the highest since April 26 near 1.0680. Economists at BBH expect the pair to test the April 21 high near 1.0935 on a break past 1.0710.

Lagarde signals interest rate turnaround

“A break above 1.0710 would set up a test of the April 21 high near 1.0935.”

“European Central Bank President Christine Lagarde said the ECB is likely to exit negative rates by the end of Q3. This supports current market pricing for liftoff on July 21 with a 25 bp hike, followed by another 25 bp on September 8 which results in a zero deposit rate. Follow-up hikes on October 27 and December 15 are fully priced in that would take the deposit rate to 0.5% by year-end.”  

“To be clear, market pricing for the ECB has not shifted after Lagarde’s remarks and yet the euro got another leg higher. At some point, the subdued ECB outlook should weigh on the euro but for now, the FX market is happy to take the dollar lower.”

The US Dollar Index (DXY) is trading near 102.144, the lowest since April 26. A break under 101.08 would open up additional losses below 100 but the dollar is set to resume its uptrend eventually, economists at BBH report.

Pendulum of market sentiment is likely to swing back in the dollar’s favor

“Key level to watch is 101.80 as a break below would set up a test of the April 21 low near 99.818.”

“We still view this as a correction within the longer-term dollar rally but confess surprise at how far the dollar has fallen from the early May peak.”

“At some point, the pendulum of market sentiment is likely to swing back in the dollar’s favor but for now, the market is seeing very little resistance as it takes the dollar lower.”

“We believe that as the US outlook improves, yields will resume rising and that should help the dollar get some traction in the coming days.”

• USD/JPY edged lower on the first day of the week amid broad-based USD weakness.
• The risk-on impulse undermined the safe-haven JPY and helped limit further losses.
• The Fed-BoJ policy divergence also held back traders from placing fresh bearish bets.

The USD/JPY pair witnessed some selling on the first day of a new week, though managed to find some support ahead of the monthly low, around the 127.00 mark touched last Thursday. The pair remained on the defensive through the mid-European session and was last seen trading just a few pips above mid-127.00s.

The US dollar added to last week's heavy losses and dropped to its lowest level since April 26 amid a strong pickup in demand for the shared currency. Moreover, a 50 bps Fed rate hike move over the next two policy meetings is fully priced in the markets. The combination of factors dragged the USD Index to its lowest level since April 26, which, in turn, exerted some downward pressure on the USD/JPY pair. That said, a combination of factors acted as a headwind for the Japanese yen and helped limit any deeper losses, at least for the time being.

Investors turned optimistic amid hopes that loosening COVID-19 lockdowns in China would boost the global economy. This was evident from a generally positive tone around the equity markets, which tends to undermine the safe-haven Japanese yen. The risk-on flow was reinforced by a goodish pickup in the US Treasury bond yields. This, along with a big divergence in the monetary policy stance adopted by the Bank of Japan and the Fed, acted as a tailwind for spot prices. This, in turn, warrants caution before placing fresh bearish bets around the USD/JPY pair.

It is worth recalling that the BoJ has vowed to keep its existing ultra-loose policy settings and promised to conduct unlimited bond purchase operations to defend its near-zero target for 10-year yields. In contrast, the US central bank is anticipated to take more drastic action to bring inflation under control. Hence, the focus will remain on the minutes of the latest FOMC monetary policy meeting, due for release on Wednesday. This, along with key US macro data scheduled during the latter part of the week, would provide a fresh directional impetus to the USD/JPY pair.

In the meantime, the USD price dynamics might continue to play a key role in influencing spot prices amid absent relevant market moving economic releases from the US. Traders might further take cues from the broader market risk sentiment and the US bond yields to grab short-term opportunities around the USD/JPY pair.

Technical levels to watch

Economist at UOB Group Ho Woei Chen, CFA, reviews the latest decision by the PBoC to lower the 5-year LPR.

Key Takeaways

“The People’s Bank of China (PBoC)’s benchmark 5Y Loan Prime Rate (LPR) was fixed lower by a record 15 bps to 4.45% today (Bloomberg est: 4.55%), signaling stronger support for the real estate market. The rate was last cut by 5 bps in Jan. This could be followed by further measures to ease property market curbs.”

“The 1Y rate was unchanged at 3.70% (Bloomberg est: 3.65%), following decision by the PBoC to keep the 1Y medium-term lending facility (MLF) rate steady at 2.85% on Mon (16 May).”

“New loans have tumbled in Apr as a result of COVID curbs in a number of Chinese cities and persistent weak sentiment in the real estate market. Despite the cut in 5Y LPR, a recovery in credit demand could remain hampered by economic uncertainties in the near-term.”

“Domestic interbank liquidity has remained ample, leaving room for the PBoC to maintain a very measured pace of monetary policy easing. While the government may expect economic activities to bounce back quickly as COVID containment measures are being eased, we think a more aggressive monetary policy support would still be needed to bring full-year growth even close to 5%. Thus, there is room for the 1Y LPR to move lower to 3.55% by end-3Q22. As for the 5Y LPR, it has reached our target for 15 bps cut. Whether the 5Y rate will be further reduced depends on the outlook for the property market.”

• DXY comes under further pressure and flirts with 102.00.
• Immediately to the downside comes the 55-day SMA.

DXY extends further the leg lower and puts the 102.00 support to the test of Monday.

The index remains under scrutiny and therefore extra losses should not be ruled out for the time being. Against that, a breach of 102.00 should put the index en route to a probable visit to the 55-day SMA, today at 100.84.

Looking at the broader picture, the current bullish stance in the index remains supported by the 3-month line around 100.30, while the longer-term outlook for the dollar is seen constructive while above the 200-day SMA at 96.59.

DXY daily chart

• GBP/USD has extended on recent gains on Monday and is trading in the upper 1.2500s.
• BoE’s Bailey will be speaking soon after UK labour and inflation data last week boosted the case for more tightening.
• Cable is eyeing a test of monthly highs as UK & US PMIs, Fed meeting minutes, US GDP and US Core PCE data looms.

GBP/USD is on Monday benefitting from a wave of US dollar weakness and was last trading in the upper 1.2500s, its highest levels in more than two weeks and not far below monthly highs in the mid-1.2600s. Cable’s 0.7% gain on Monday has taken the pair’s rebound since mid-month lows in the mid-1.2100s to an impressive 3.5%.

Whilst the latest leg of strength is being attributed to US dollar weakness, with some citing optimism about China lockdown easings as spurring weakness in the safe-haven buck, sterling was supported last week after UK labour market and consumer price inflation supported the case for further tightening from the BoE, even as evidence continues to build that the UK economy is suffering amid its worst cost-of-living squeeze in decades.

BoE Governor Andrew Bailey will probably elaborate on some of these themes in a speech at 1615:GMT on Monday, which will be the main event of the day for GBP/USD traders. Focus then turns to UK and US flash PMI business survey data for May which will be released on Tuesday, ahead of a speech from Fed Chair Jerome Powell. Fed minutes, the second estimate of US Q1 GDP growth and US April Core PCE inflation data will then be released later in the week.

As a result, the themes of Fed tightening and high inflation will remain in focus, and some analysts doubt how legs the recent pullback in the US dollar has to run. GBP/USD is above its 21-Day Moving Average (in the mid-1.2400s) and if it can break above monthly highs, has a shot at testing its 50DMA just above 1.2800. But any further rally may be too much to ask given the comparative strength of the US economy versus the UK and the Fed’s more hawkish stance.

USD/IDR is expected to navigate within the 14,600-14,740 range in the near term, suggested Quek Ser Leang at UOB Group’s Global Economics & Markets Research.

Key Quotes

“We highlighted last Tuesday (17 May, spot at 14,645) that ‘upward momentum remains strong and USD/IDR could advance further to 14,680, possibly 14,700’. While our view for a stronger USD/IDR was not wrong as it surged to 14,736, we did not anticipate the sharp and swift pullback from the high.”

“The sharp pullback coupled with overbought shorter-term conditions suggests that USD/IDR is unlikely to strengthen much further. For this week, USD/IDR is more likely to trade sideways between 14,600 and 14,740.”

Belarussian President Alexander Lukashenko, who is widely viewed in the West as the country's dictator, has expressed concerns to Russian President Vladimir Putin about moves to dismember Ukraine, Reuters reported on Monday. 

Putin on Monday said that Russia will introduce the rouble as the primary currency to be used in the Russian-occupied Ukrainian region of Kherson. Analysts will view this as a step towards the annexation of the captured region into the Russian Federation, which Western analysts think will be finalised in a "sham" referendum.  

• EUR/JPY picks up extra pace and reclaims the 136.00 mark.
• Extra recovery should initially target the weekly high at 136.70.

EUR/JPY quickly leaves behind Friday’s pullback and manages to trespass the key barrier at 136.00 the figure on Monday.

The continuation of the ongoing bounce should initially target the weekly high at 136.69 (May 17). Further gains from here are expected to put the May high at 138.31 (May 9) back on the radar ahead of the 2022 peak at 140.00 (April 21).

In the meantime, while above the 200-day SMA at 131.20, the outlook for the cross is expected to remain constructive.

EUR/JPY daily chart

The Malaysian ringgit is expected to trade between 4.3670 and 4.4010 vs. the US dollar in the next weeks, suggested Quek Ser Leang at UOB Group’s Global Economics & Markets Research.

Key Quotes

“We highlighted last Tuesday (17 May, spot at 4.3890) that ‘while there is still chance for USD/MYR to move above 4.4000, rapidly waning upward momentum suggests that a sustained rise above this major resistance is highly unlikely’.”

“Our view was not wrong as USD/MYR rose to 4.4050 before pulling back. Upward momentum has waned further and USD/MYR is unlikely to strengthen from here. For this week, USD/MYR is more likely to trade sideways between 4.3670 and 4.4010. Looking ahead, if USD/MYR breaks clearly below 4.3670, it could signal the start of a deeper pullback in the weeks ahead.”

• A combination of supporting factors pushed AUD/USD to a two-week high on Monday.
• RBA’s hawkish signal acted as a tailwind for the aussie amid broad-based USD weakness.
• The risk-on impulse dragged the USD to a fresh monthly low and remained supportive.

The AUD/USD pair now seems to have entered a bullish consolidation phase and was seen oscillating in a range around the 0.7100-0.7110 area, or a two-week high.

Following Friday's modest downtick, the AUD/USD pair attracted fresh buying on the first day of a new week and was supported by a combination of factors. The Australian dollar continued drawing support from the Reserve Bank of Australia's hawkish signal that a bigger interest rate hike is still possible in June amid the upside risks to inflation. On the other hand, the risk-on impulse undermined the safe-haven US dollar and further benefitted the risk-sensitive aussie.

Investors turned optimistic amid hopes that loosening COVID-19 lockdowns in China could boost the global economy. This was evident from a generally positive tone around the equity markets, which drove flows away from traditional safe-haven assets and dragged the USD to a fresh monthly low. That said, hawkish Fed expectations could help limit any deeper USD losses.

The markets have fully priced in a 50 bps rate hike over the next two meetings, though expect that the US central bank would need to take more drastic action to bring inflation under control. This, along with an uptick in the US Treasury bond yields, supports prospects for the emergence of some USD buying, which, in turn, should cap the AUD/USD pair, at least for now.

In the absence of any major market-moving economic releases from the US, the broader risk sentiment and the US bond yields will influence the USD price dynamics. Traders will then look forward to the release of the flash PMI prints from Australia and the US on Tuesday for some meaningful impetus. The focus, however, will remain on Wednesday's release of the FOMC meeting minutes.

Technical levels to watch

According to Quek Ser Leang at UOB Group’s Global Economics & Markets Research, USD/THB appears well contained by the 34.00 region.

Key Quotes

“Last Tuesday (17 May), when USD/THB was trading at 34.62, we highlighted that ‘risk is shifting to the downside and a break of the rising trend-line support at 34.32 could potentially trigger a deeper pullback’. We added, ‘the major support at 34.00 is unlikely to come under threat this week’. USD/THB cracked the rising trend-line support on Friday and dropped to 34.24.”

“Downward momentum has improved and the risk for this week is still on the downside. However, the 34.00 level is a solid support and may not yield so easily. Overall, only a breach of 34.65 would indicate that the current downward pressure has eased.”

• A combination of factors prompted fresh selling around USD/CAD on Monday.
• Rising oil prices underpinned the loonie and exerted pressure amid a weaker USD.
• The prevalent risk-on mood dragged the safe-haven USD to a fresh monthly low.

The USD/CAD pair came under renewed selling pressure on Monday and dropped back closer to over a two-week low touched the previous session. The pair maintained its offered tone through the first half of the European session and was last seen hovering near the 1.2780-1.2785 region, down nearly 0.40% for the day.

As China prepares to ease COVID-19 lockdowns after two months, a tight global supply outlook acted as a tailwind for crude oil prices, which, in turn, underpinned the commodity-linked loonie. On the other hand, the risk-on impulse weighed on the safe-haven US dollar and exerted some downward pressure on the USD/CAD pair.

Investors turned optimistic amid hopes that loosening COVID-19 lockdowns in China could boost the global economy. This was evident from a generally positive tone around the equity markets, which drove flows away from traditional safe-haven assets and dragged the USD to a fresh monthly low on the first day of a new week.

That said, expectations would need to take more drastic action to bring inflation under control, along with an uptick in the US Treasury bond yields, should limit any further USD losses. This, in turn, warrants some caution for aggressive bearish traders ahead of the release of the latest FOMC meeting minutes on Wednesday.

Apart from this, important US macro data scheduled for release during the latter half of the week would influence the near-term USD demand and provide a fresh impetus to the USD/CAD pair. In the meantime, traders will take cues from the broader market risk sentiment and oil price dynamics for short-term opportunities amid absent economic data.

Technical levels to watch

• EUR/USD extends the upside and clinches new May highs.
• ECB’s Lagarde suggested July as a likely time to start raising rates.
• Germany Business Climate surprised to the upside in May.

Bulls regain the upper hand around the European currency and lifts EUR/USD to fresh monthly peaks in the 1.0680/85 band on Monday.

EUR/USD boosted by data, Lagarde

The recovery in EUR/USD gathered extra pace and retested the 1.0680 region following hawkish comments from Chairwoman Lagarde as well as a positive surprise in the German calendar.

Indeed, Germany’s Business Climate improved to 93 for the current month (from 91.9), while President Lagarde hinted at a probable rate hike by the ECB in July. She also suggested that rates could be in the positive territory at the end of Q3 and noted that disinflationary dynamics that prevailed during last decade are unlikely to be seen again.

The renewed upside bias in the euro was also supported by the uptick in the German 10y Bund yields, which manage to reverse three consecutive daily pullbacks so far on Monday.

Later in the NA session, the Chicago Fed National Activity Index will be the sole release in the calendar seconded by the speech by Fed’s Bostic.

What to look for around EUR

The ongoing recovery in EUR/USD now targets the key barrier at the 1.0700 yardstick.

Despite the pair’s current upside impulse, the broader outlook for the single currency remains in the negative territory for the time being. As usual, price action in spot should reflect dollar dynamics, geopolitical concerns and the Fed-ECB divergence.

Occasional pockets of strength in the single currency, however, should appear reinforced by speculation the ECB could raise rates at some point in the summer, while higher German yields, elevated inflation and a decent pace of the economic recovery in the region are also supportive of an improvement in the mood around the euro.

Key events in the euro area this week: Eurogroup Meeting, Germany IFO Business Climate (Monday) – Flash EMU, Germany PMIs, ECB Lagarde (Tuesday) – Germany Final Q1 GDP, GfK Consumer Confidence, ECB Lagarde (Wednesday).

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

EUR/USD levels to watch

So far, spot is up 1.14% at 1.0681 and faces the next hurdle at 1.0789 (55-day SMA) followed by 1.0936 (weekly high April 21) and finally 1.1000 (psychological level). On the downside, a breach of 1.0348 (2022 low May 13) would target 1.0340 (2017 low January 3 2017) en route to 1.0300 (round level).

Responding to US President Joe Biden’s comments on Taiwan, China's Foreign Ministry spokesman came out with a warning, citing "no one should underestimate the firm resolve, staunch will and strong ability of the Chinese people in defending national sovereignty and territorial integrity."

When asked during a press briefing on Monday in Tokyo whether the US would be willing to get involved militarily to defend Taiwan, Biden said “yes — it’s a commitment we made,” per Bloomberg.

Biden added, “we agree with the One-China policy, we signed onto it and all the attendant agreements made from there. But the idea that it could be taken by force, just taken by force, is just not — it’s just not appropriate. It will dislocate the entire region and be another action similar to what happened in Ukraine.”

Market reaction

AUD/USD shrugs off the renewed US-Sino spat over Taiwan, as it surges past 0.7100 amid an extended sell-off in the US dollar across its main competitors. The aussie is up 1.14% on the day.

FX Strategists at UOB Group Quek Ser Leang and Peter Chia suggested USD/CNH could grind lower to the 6.6500 level in the short-term horizon.

Key Quotes

24-hour view: “USD dropped sharply to 6.6724 last Friday before rebounding to close at 6.6975 (-0.46%). The rebound amidst oversold conditions suggests that USD is likely to consolidate and trade sideways for today, expected to be between 6.6720 and 6.7150.”

Next 1-3 weeks: “Our latest narrative was from last Wednesday (18 May, spot at 6.7470) where we indicated that USD is in the early stages of a pullback. We highlighted that support is at 6.7000 followed by 6.6700. USD dropped to 6.6724 on Friday before rebounding. Despite the rebound, it is premature to expect an end to the pullback. As long as 6.7550 (‘strong resistance’ level) is not breached, USD could break 6.6700. The next support is at 6.6500.”

• Gold continued scaling higher on Monday and climbed to a near two-week high.
• Broad-based USD weakness was seen as a key factor that underpinned the XAUUSD.
• The risk-on mood, rising US bond yields might cap any further gains for the metal.

Gold kicked off the new week on a positive note and build on its recent goodish rebound from the $1,786 region, or the lowest level since late January touched last Monday. The XAUUSD extended its steady intraday ascent through the first half of the European session and climbed to a nearly two-week high, around the $1,863 zone in the last hour.

Given that at least 50 bps Fed rate hike move over the next two meetings is already priced, investors continued to unwind bets for any further US dollar gains. In fact, the key USD Index dropped to a near one-month low, which, in turn, was seen as a key factor that benefitted the dollar-denominated gold. That said, a combination of factors might keep a lid on any further gains for the precious metal, warranting caution for aggressive bullish traders.

Hopes that loosening COVID-19 lockdowns in China could boost the global economy remained supportive of the risk-on impulse. This was evident from a generally positive tone around the equity markets and reinforced by an uptick in the US Treasury bond yields, which could act as a headwind for the traditional safe-haven gold. Apart from this, expectations for a more aggressive policy tightening by the Fed might further contribute to capping the XAUUSD.

Investors seem convinced that the US central bank would need to take more drastic action to bring inflation under control, along with the worsening global economic outlook. Hence, the market focus would remain glued to the release of the minutes from the latest FOMC monetary policy meeting on Wednesday. Traders will further take cues from important US macro data due during the latter half of the week before placing aggressive directional bets.

In the meantime, the USD price dynamics will play a key role in influencing intraday movement for gold prices. Apart from this, the broader market risk sentiment and the US bond yields would be looked upon for some short-term opportunities around the XAUUSD amid absent relevant market moving economic releases from the US.

Technical levels to watch

• USD/CHF is flirting with monthly lows below 0.9700 as DXY sinks.
• Risk-off flows dominate amid China and Europe's optimism.
• The pair eyes more downside as daily RSI pierces into the negative zone.

USD/CHF is back in the red this Monday after Friday’s temporary reversal, as bears track the unrelenting decline in the US dollar across the board.

Optimism that loosening lockdowns in China could help global growth and an unexpected improvement in the German business morale lifted the overall market mood and weighed heavily on the safe-haven US dollar.

The dollar also takes the hit from the pre-FOMC minutes investors’ repositioning, shrugging off the rebound in the US Treasury yields.

From a short-term technical perspective, USD/CHF has breached the 0.9700 support once again, with more losses likely in the offing, as the 14-day Relative Strength Index (RSI) has crossed the midline for the downside.

Daily closing below that level is needed to validate the downside break from the horizontal trendline support that defended the pair in early February.

The upward-sloping 50-Daily Moving Average (DMA) at 0.9553 will be tested if bears refuse to give up control in the near term.

USD/CHF: Daily chart

On the flip side, if bulls fight back control, managing to resist above 0.9700, then a brief rebound towards the 0.9750 psychological level cannot be ruled out.

Further up, USD/CHF buyers could aim for the ascending 21-DMA once again, now at 0.9822.

Note that the previous week’s downward spiral yielded a daily closing below the 21-DMA for the first time since April 11.

USD/CHF: Additional levels to consider

EUR/USD has preserved its bullish momentum at the beginning of the week. As FXStreet’s Eren Sengezer notes, the next key resistance for the pair is located at 1.0650.

Euro bulls face tough test at 1.0650

“In case risk flows continue to dominate the financial markets in the second half of the day, EUR/USD should be able to keep its firm footing.”

“1.0650 (200-period SMA, static level) forms the next critical resistance for the pair. With a four-hour close above that level, additional gains toward 1.07 (psychological level, static level) could be witnessed.” 

“On the downside, 1.06 (psychological level) aligns as first support ahead of 1.0550 (static level, 20-period SMA). As long as the latter holds following a correction, the pair's bullish bias should remain intact.” 

Gold continues recovery movement. At the same time, silver is up too. Economists at Commerzbank note that the selling pressure on the yellow metal seems abated.

Silver to profit from the expectedly high demand from the photovoltaic industry

“Gold is finding support from the weaker US dollar. Furthermore, gold is apparently finding favour with ETF investors again.” 

“According to the CFTC’s statistics, speculative financial investors had withdrawn further in the week to 17 May, reducing their net long positions to their lowest level since last September. In our view, however, this should now have adjusted the market, meaning that the selling pressure generated by this group of investors should have abated significantly.”

“In the first four months of the year, China tripled its investments in solar power year-on-year to the equivalent of around $4.3 billion, according to the country’s National Energy Administration. Silver should profit from the expectedly high demand from the photovoltaic industry amid the decarbonisation drive and should increase in price accordingly in the long term.”

• GBP/USD gained traction for the third straight day and climbed to over a two-week high.
• The risk-on mood undermined the safe-haven USD and remained supportive of the move.
• Recession fears, Brexit woes might cap the upside ahead of BoE Governor Bailey’s speech.

The GBP/USD pair maintained its bid tone through the first half of the European session and was last seen trading near a two-and-half-week peak, just above mid-1.2500s.

The pair kicked off the new week on a positive note and prolonged its recent recovery move from a two-year low, around the 1.2155 region touched earlier this month. This marked the third successive day of a positive move - also the sixth in the previous seven - and was sponsored by the prevalent US dollar selling bias.

The markets already seem to have fully priced in at least 50 bps Fed rate hike move over the next two meetings. Apart from this, a generally positive tone around the equity markets dragged the safe-haven USD back closer to the monthly low, which, in turn, was seen as a key factor that extended support to the GBP/USD pair.

That said, a modest uptick in the US Treasury bond yields and the worsening global economic outlook should limit deeper losses for the buck. Investors remain worried that aggressive moves by major central banks to curb inflation, the Russia-Ukraine war and the latest COVID-19 outbreak in China could pose challenges to the global economy.

Furthermore, the UK-EU impasse over the Northern Ireland protocol (NIP) might hold back bulls from placing aggressive bets around the GBP/USD pair. In fact, the British government last Tuesday announced a bill that would effectively override parts of a Brexit deal, fueling fears about a trade war in the middle of the cost-of-living crisis.

From a technical perspective, acceptance above the 1.2500 psychological mark could be seen as a fresh trigger for bullish traders and supports prospects for additional gains. The fundamental backdrop, however, makes will be prudent to wait for a strong follow-through buying around the GBP/USD pair before positioning for any further appreciating move.

In the absence of any major market-moving economic releases, traders will take cues from the BoE Governor Andrew Bailey's scheduled speech later during the North American session. On the other hand, the broader market risk sentiment will influence the USD price dynamics and provide some meaningful impetus to the GBP/USD pair.

Technical levels to watch

“We are likely to be in a position to exit negative rates by the end of Q3,” European Central Banks (ECB) President Christine Lagarde said on Monday.

Further comments

Market reaction

The shared currency caught a 20-pips bid wave on Lagarde’s comments to hit fresh daily highs at 1.0635.

At the time of writing, EUR/USD is trading at 1.0621, still up 0.59% on the day.

• Data from Germany showed improvement in business confidence in May.
• EUR/USD continues to push higher during the European session.

The monthly survey conducted by Germany's Ifo Institute showed on Monday that the Business Climate Index improved to 93 in May from 91.9 in April, surpassing the market expectation of 91.4.

Additionally, the Current Assessment Index rose to 99.5 from 97.3 and the Expectations Index edged higher to 86.9 from 86.8.

Commenting on the data, Ifo economist Klaus Wohlrabe noted that there were no signs of a recession in Germany at the moment and added that the German economy was resilient.

On a concerning note, "demand for industrial products has dropped off significantly," Wohlrabe said. "There are no signs of supply bottlenecks easing in the industry; retail is also battling supply problems."

Market reaction

EUR/USD preserves its bullish momentum after this data and trades at its highest level since early May at 1.0633, rising 0.7% on the day.

• DXY starts the week on the offered stance near 102.60.
• US yields extend the corrective downside on Monday.
• Chicago Fed Index, Fedspeak next on tap in the docket.

The greenback extends the bearish move and drops to new 3-week lows in the 102.60/55 band when tracked by the US Dollar Index (DXY) on Monday.

US Dollar Index looks to risk trends, Fed

The index resumes the recent downtrend and quickly leaves behind Friday’s bullish attempt amidst muted activity in US yields and a prevailing risk-on sentiment at the beginning of the week.

Indeed, US yields hover around Friday’s closing levels, while the German 10y bund yields extend the downside momentum to the sub-0.95% region so far.

There are no changes to the macro backdrop around the US dollar, where speculation of the next moves by the Fed coupled with inflation fears and incipient concerns over a “hard landing” in the US economy continue to dictate the price action in the buck.

In the docket, the sole release on Monday will be the Chicago Fed National Activity Index seconded by the speech by Atlanta Fed R.Bostic (2024 voter, centrist).

What to look for around USD

The dollar starts the week in a negative fashion and well south of the 103.00 mark. In the meantime, and supporting the buck, appears investors’ expectations of a tighter rate path by the Federal Reserve and its correlation to yields, the current elevated inflation narrative and the solid health of the labour market. On the negatives for the greenback turn up the incipient speculation of a “hard landing” of the US economy as a result of the Fed’s more aggressive normalization.

Key events in the US this week: Chicago Fed National Activity Index (Monday) – Flash PMIs, New Home Sales, Fed Powell (Tuesday) – MBA Mortgage Applications, Durable Goods Orders, FOMC Minutes (Wednesday) – Flash Q1 GDP, Initial Claims, Pending Home Sales (Thursday) – Core PCE, Personal Income/Spending, Final Consumer Sentiment (Friday).

Eminent issues on the back boiler: Speculation of a “hard landing” of the US economy. Escalating geopolitical effervescence vs. Russia and China. Fed’s more aggressive rate path this year and 2023. US-China trade conflict. Future of Biden’s Build Back Better plan.

US Dollar Index relevant levels

Now, the index is losing 0.38% at 102.63 and faces the next contention at 102.35 (low May 5) followed by 100.85 (55-day SMA) and then 99.81 (weekly low April 21). The break above 105.00 (2022 high May 13) would open the door to 105.63 (high December 11 2002) and finally 106.00 (round level).

• Silver regained positive traction on Monday and climbed back closer to last week’s swing high.
• Mixed technical indicators on hourly/daily charts warrant caution for aggressive bullish traders.
• Sustained break below the $21.25-$21.20 region will negate prospects for any meaningful gains.

Silver attracted fresh buying on Monday and inched back closer to last week's swing high, albeit struggled to capitalize on the move beyond the $22.00 round-figure mark.

From a technical perspective, the emergence of dip-buying and acceptance above the 23.6% Fibonacci retracement level of the $28.22-$20.46 downfall favours bullish traders. Moreover, oscillators on hourly charts have been gaining positive traction and add credence to the constructive outlook.

That said, technical indicators on the daily chart - though have been recovering from the negative territory - are yet to confirm a bullish bias. This makes it prudent to wait for a subsequent strength beyond the 100-period SMA on the 4-hour chart before positioning for any further gains.

The XAG/USD might then surpass an intermediate hurdle near the $22.30 area and accelerate the momentum towards testing the next relevant hurdle near the $22.65 zone. The latter coincides with the 38.2% Fibo. level, which if cleared would suggest that spot prices have bottomed out.

On the flip side, weakness below the 23.6% Fibo. level resistance breakpoint now seems to find support near Friday's swing low, around the $21.60 area. Any further pullback is more likely to find decent support near the $21.25-$21.20 area, which should act as a strong base for the XAG/USD.

A convincing break below would negate prospects for any further positive move and prompt aggressive technical selling. The XAG/USD would then turn vulnerable to weakening further below the $21.00 mark and aim to challenge the YTD low, around the $20.45 area touched earlier this month.

Silver 4-hour chart

Key levels to watch

The US Dollar Index stays on the back foot. Nonetheless, economists at ING expect DXY to find support in the 101.00/50 region.

Still feeling the long squeeze

“We think that the USD long-squeeze may add some extra pressure to the greenback in the coming days, but we see a higher probability this week that the dollar will find some stability or show signs of rebounding given the still supportive monetary and growth outlook for the US.”

“The 101.00-101.50 area could represent the bottom of the dollar correction.”

EUR/USD is pressing the 1.06 resistance. However, economists at ING expect the dollar to find some stability, stalling the pair’s race higher around the 1.07 level.

Rally may soon run out of steam

“We think the upside room for EUR/USD is shrinking and with the dollar potentially stabilising or mildly rebounding, the rally may start to look quite tired as it approaches the 1.0700 mark.”

“Beyond the very short-term, a return to 1.0500 appears likely.”

Further downside pressure could drag USD/JPY to the 127.00 area in the next weeks, commented FX Strategists at UOB Group Quek Ser Leang and Peter Chia.

Key Quotes

24-hour view: “Last Friday, USD traded sideways within a relatively narrow range between 127.52 and 128.29 before closing largely unchanged at 127.85 (+0.04%). The movement is likely part of an ongoing consolidation phase. In other words, USD could continue to trade sideways, expected to be within a range of 127.35/128.35.”

Next 1-3 weeks: “USD dropped sharply to 127.01 last Thursday before rebounding. While downward momentum has eased somewhat, there is room for USD to retest the 127.00. A breach of this level is not ruled out but at this stage but any further decline is expected to face solid support at 126.50.  Overall, only a breach of 128.90 (‘strong resistance’ level) would indicate that the current downward pressure has eased.”

The pound has enjoyed a solid rebound, both against the dollar and the euro. However, economists at ING note that the downside risks remain material for the pound.

Shrugging off the downside risks for now

“Downside risks remain material for the pound, both due to a potential forced dovish re-pricing of BoE rate expectations (currently at 2.20% for year-end) and a resurgence of Brexit-related concerns.”

“Risks may take time to materialise and the pound may retain some good momentum this week, especially against the euro, and EUR/GBP may break below 0.8400.”

Economists at Barclays Research adopt a bullish bias on CHF in the near-term. They expect the Swiss National Bank (SNB) intervention to only be able to limit franc appreciation.

EUR/CHF to trade at the lower end of its recent range near-term

“We expect EUR/CHF to trade at the lower end of its recent range near term, as global risk aversion increases with three of the world’s biggest economies facing increased growth risks, for different reasons.” 

"Last week’s CHF6.5bn increase is a notable jump from previous weeks’ average additions of CHF1-2bn. However, more forceful SNB intervention is only likely to slow but not reverse any CHF appreciation, especially as EUR/CHF remains at the higher end of its recent 1.02-1.05 range."

AUD/USD is up already more than 1% on Monday. Nonetheless, Australia's election result should be no game-changer for the aussie – which is set to trade above 0.71 on the back of risk-on sentiment, economists at ING report.

Not many implications from change in government

“The result of the election in Australia does not appear to be a straightforward positive or negative for the AUD, also considering it was in line with projections. The Labor Party leader, Anthony Albanese, was sworn in as Prime Minister and appears on track to secure a fully-fledged majority in the parliament.”

“Although it is possible that Labor will represent a slightly more fiscally supportive government than its predecessors, we don’t see many implications for financial markets from this election result.” 

“AUD remains strictly tied to China-related sentiment (which has improved lately) and global risk dynamics. For now, AUD/USD should be able to hold above 0.71, although some material downside risks persist.”

Economists at the Bank of America Global Research discuss their expectations for the June European Central Bank (ECB) policy meeting. In their view, the central bank is unlikely to try to talk up the common currency.

Market is already pricing the end of ECB QE in June

“We are waiting for the long-overdue ECB hawkish pivot in June, but we are not sure it will be enough to support the EUR.” 

“The market is already pricing the end of ECB QE in June, then 4 hikes this year and almost 4 more next year. we agree with the market for this year, but expect only 2 hikes next year.”

"We don't expect the ECB to try to talk the EUR up. The weak EUR is the symptom of the ECB's excessively loose monetary policies, rather than the cause of high inflation. In any case, the weak EUR/USD reflects more USD strength than EUR weakness.”

EUR/USD regained its traction and climbed above 1.06. Economists at Credit Agricole CIB Research see limited scope for EUR downside in the near-term.

ECB will emphasize rate hikes

"Focus this week will be on the Eurozone PMIs and the German Ifo for the month of May. More evidence that the Eurozone business sentiment gauges, in particular, continue to point at relative robust economic expansion from here could help ease further the worst of market recession fears. The data could further allow the ECB to focus on the task of bringing inflation under control and the speeches by a number of Governing Council members should confirm that." 

"We further continue to expect that, as part of the policy normalisation, the ECB will emphasize rate hikes and thus help stabilise the EUR by keeping its short-term fair value supported."

The USD has corrected lower over the past week with weakness broad-based. Economists are not yet convinced that the tide has turned convincingly against a stronger USD, however, the correction lower could extend further in the near-term.

A setback for the USD

“We are not convinced yet that there has been a significant shift in fundamentals to justify a sustained reversal lower for the USD.” 

“Many of the drivers behind USD strength remain in place including a Fed that is still committed to faster policy tightening and more acute downside risks to growth outside of the US. While we do expect both of these drivers to turn less supportive for the USD later this year, we believe it is premature for the USD to have already peaked out.”

NZD/USD has risen back above the 0.6450 level ahead of the Reserve Bank of New Zealand (RBNZ) policy meeting. However, economists at MUFG Bank expect the kiwi to remain under pressure unless we see a hawkish policy update.

Fundamental case for further policy tightening remains compelling

“The performance of the New Zealand dollar in response to this week’s policy meeting will likely depend upon whether the RBNZ signals that further larger 50bps hikes are likely at upcoming policy meetings. Without such a hawkish policy signal, the kiwi is vulnerable to disappointment.”

The fundamental case for further policy tightening in New Zealand remains compelling. The latest CPI and labour market reports both continued to reveal building inflation pressures. In particular, average hourly earnings have recorded their strongest rate of increase over the last two quarters to Q1 since Q3 2006. It keeps pressure on the RBNZ to keep tightening policy.”

The Reserve Bank of Australia (RBA) has turned more hawkish but with risks to the domestic outlook and slowing global growth, the RBA’s tightening path may still disappoint markets. The lack of positive catalysts offsets a potential downturn in risk appetite, which may lead to near-term AUD weakness, economists at HSBC report.

Potential downside ahead

“We think that the RBA is likely to be in ‘inflation fighting’ mode at least for the next few meetings, and expect 25bp hikes in June, July, and August, another in November, taking the cash rate to 1.35%.”

“Australia’s real wages are falling, which will weigh on consumer spending; the housing market is likely to cool more than previously thought and this, too, will weigh on economic growth. Considering also a backdrop of slowing global growth, we think it may be hard for the RBA to keep pace with the Fed. As such, we see AUD/USD declining in the months ahead.”

“Over the near-term, rebounds in risk appetite are likely to remain fragile amid persistently elevated geopolitical uncertainty and China’s COVID-19 situation. A hawkish outcome (i.e., a larger rate hike) at the RBA’s 7 June meeting also seems unlikely. Consequently, AUD/USD is vulnerable to a reversal lower.”

• USD/JPY attracted some dip-buying on Monday and was supported by a combination of factors.
• The risk-on mood undermined the JPY and acted as a tailwind amid a pickup in the US bond yields.
• The prevalent USD selling bias held back bulls from placing aggressive bets and capped the upside.

The USD/JPY pair recovered a major part of its early lost ground and climbed to the 127.75-127.70 area, back closer to the top end of its daily range during the early European session.

A combination of supporting factors assisted the USD/JPY pair to attract some dip-buying near the 127.15 area on Monday, though modest US dollar weakness kept a lid on any further gains. A generally positive tone around the equity markets undermined the safe-haven Japanese yen and extended support to the major. The risk-on flow was inforced by a goodish pickup in the US Treasury bond yields, which further inspired bulls and acted as a tailwind for spot prices.

On the other hand, the USD dropped to a two-and-half-week low as the markets already seem to have fully priced in at least a 50 bps Fed rate hike move over the next two meetings. This, in turn, held back bulls from placing aggressive bets around the USD/JPY pair. Apart from this, the worsening global economic outlook capped the optimistic move in the markets, which, in turn, warrants some caution before positioning for any meaningful upside for the major.

Investors remain worried that a more aggressive move by major central banks to constrain inflation could pose challenges to global economic growth. Adding to this, the Russia-Ukraine war and extended COVID-19 lockdowns in China have been fueling recession fears. That said, a big divergence in the monetary policy stance adopted by the Fed and the Bank of Japan should continue to help limit any deeper losses for the USD/JPY pair, at least for now.

In the absence of any major market-moving economic releases, the USD price dynamics, along with the US bond yields, will play a key role in influencing the USD/JPY pair's intraday momentum. Apart from this, traders will take cues from the broader market risk sentiment to grab some short-term opportunities on the last day of the week.

Technical levels to watch

Bank Indonesia (BI) will hold its monthly governor board meeting on 23-24 May. Here you can find the expectations as forecast by the economists and researchers of six major banks regarding the upcoming central bank's decision. 

The BI is expected to hold its benchmark seven-day reverse repurchase rate unchanged at 3.50%. Meanwhile, BI does not provide any rate guidance and is not expected to do so in the near future.

ANZ 

“BI’s upcoming rate decision is a close call, and we are in the minority calling for a 25bp hike. Our baseline scenario is for 175bps worth of hikes in the current cycle, with at least 100bps coming in 2022.”

TDS

“We expect BI to hike by 25bps in its 7-day reverse-repo rate. We think BI is uncomfortable with the recent spike in USD/IDR, a 2.7% move over a span of 4 weeks. Given its focus on FX stability, we think the rapid weakening of IDR against the USD, albeit partially attributed to the recent strength of the USD, could warrant a response from BI. The Bank is also likely mindful of the policy moves by key central banks (e.g., Fed) and other central banks in the region (e.g., RBI, BNM) as they embark on a quicker normalisation of policy settings to tackle inflation. Further, a stark monetary policy divergence between the Fed and BI could lead to greater capital outflows and place more pressure on the IDR. Coupled with a worsening inflation outlook, we think BI will kickstart the hiking cycle with a pre-emptive hike this month.”

Standard Chartered

“We expect BI to keep the 7-day reverse repo rate unchanged at 3.5% to support IDR stability. Still-modest core inflation (2.6% y/y in April) and an ample trade surplus should provide space to keep the policy rate steady for now. However, we acknowledge that weakening risk sentiment due to a hawkish Fed, persistently high commodity prices, and weakening growth momentum in China may increase the risk of BI making a pre-emptive move, following in the footsteps of other Asian central banks. Overall, we think BI’s policy statement will turn notably more hawkish, especially as the government is close to finalising its subsidy policy, which should provide more clarity on the inflation outlook. We continue to expect BI to hike in Q3 and see possible further RRR hikes as BI responds to higher inflationary pressure.”

ING

“BI will likely keep rates unchanged although expect BI Governor Perry Warjiyo to whip out a ‘hawkish pause’. A blowout trade surplus recorded in April gave BI some breathing room but the central bank may need to consider tightening in the near term. Expect BI to keep rates unchanged while setting the table for a rate hike at the June meeting.”

SocGen

“We expect BI to keep the policy rate at 3.5% at its May meeting but to embark on a tightening cycle from June when inflation will likely be within touching distance of BI’s upper tolerance level of 4.0% after having hit 3.5% YoY in April, a 52-month high.  We now bring forward our BI rate hike expectation from 3Q22 to 2Q22 and expect a 25bp hike in the 7-day reverse repo rate during the June meeting. Also, with average headline CPI growth likely to print at 4.6% YoY for 2H22, we expect two more rate hikes (50bp in 3Q22 and 25bp in 4Q22), taking the cumulative hike in 2022 to 100bp versus our earlier expectation of 50bp. We believe that if BI were to remain on hold in the upcoming meeting and deliver dovish forward guidance, the risk of IDR depreciation vs the USD could be exacerbated.”

BBH

“BI is expected to keep rates steady at 3.50%. However, nearly a third of the 20 analysts polled by Bloomberg look for a 25 bp hike to start the tightening cycle.  Headline inflation accelerated to 3.47% YoY in April, the highest since December 2017 and in the top half of the 2-4% target range. If there is no liftoff this week, then we think it is very likely at the next meeting on June 23.”

The Polish central bank is fearing another wave of a wage-price spiral. A fresh leg higher of inflation could expose the zloty to significantly higher volatility, economists at Commerzbank report.

Wage-price spiral

“Another round of minimum wage hike is planned during early H2. The government may imagine that it is necessary to offset higher living costs by raising wages, but this is also the perfect recipe for starting off a wage-price spiral, which central banks the world over fear.”

“While the Polish central bank (NBP) has been hiking rates in decent 100bps steps, this will likely not be able to keep up if inflation drivers were to take a fresh leg higher from here. And inability to keep up would mean exposing the zloty exchange rate to significantly higher volatility.”

• USD/RUB fades the previous day’s bounce off the lowest level since 2018.
• Central Bank of Russia tames uncontrolled run-up of the ruble as it surges to multi-month high.
• Risk-on mood drowns the US dollar, adding strength to the bearish bias for quote.

USD/RUB remains pressured for the fourth consecutive day around the 60.00 threshold, reversing the corrective pullback from the lowest level since 2018, heading into Monday’s European session.

The Russian ruble (RUB) pair refreshed its multi-year low the previous day as recovery in oil prices join a broad US dollar pullback amid cautious optimism in the markets. Also exerting downside pressure on the USD/RUB prices is Moscow’s recent policy of taking payments in ruble, which Germany also had to approve until finding any other solutions to the bloc’s geopolitical problems.

Recently, Reuters came out with the headlines quoting the Vedomosti daily as it cited two sources close to the government and one source close to the central bank. “The central bank buys foreign currency from export-focused companies through intermediaries, the sources said without disclosing details of the purchasing mechanism,” adds the news.

On the other hand, hopes that China will gradually overcome the covid-led challenges to the economic slowdown underpin the risk-on mood, as well as favor oil prices. Also keeping the US dollar on the back foot is the repetitive Fedspeak conveying 50 bps of rate hikes in the next few meetings.

Amid these plays, the US Dollar Index (DXY) renews a two-week low of around 102.55 while the S&P 500 Futures rise over 1.0% to 3,946 at the latest. Also portraying the risk-on mood is the US 10-year Treasury yields, up 4.8 basis points (bps) to 2.83% by the press time.

It’s worth noting that US President Joe Biden’s fresh push to the Sino-American tussles, during his visit to Japan, joins Ukraine’s rejection of ceasefire and any concession to Russia to keep the USD/RUB buyers hopeful.

Other than the risk catalysts, monthly PMIs, the Fed’s preferred inflation gauge, namely the US core PCE price index for April, as well as the Minutes of the latest Federal Open Market Committee (FOMC), will be crucial for the short-term USD/RUB directions.

Technical analysis

A downward sloping support line from late March, around $55.90 by the press time, offers intermediate bounces to the USD/RUB prices. The recovery moves, however, remain elusive until the quote stays below the 200-DMA level of 78.30 at the latest.

Here is what you need to know on Monday, May 23:

After having registered weekly losses for the first time since early March last week, the US Dollar Index stays on the back foot early Monday with the greenback struggling to find demand in the risk-positive market atmosphere. IFO sentiment data from Germany will be watched closely by market participants during the European session. Later in the day, the Federal Reserve Bank of Chicago will release its National Activity Index for April. Meanwhile, the annual meeting of the World Economic Forum gets underway in Davos, Switzerland.

With risk flows dominating the markets, the US stock index futures are up between 1% and 1.6% in the European morning. The benchmark 10-year US Treasury bond yield is up nearly 2% on the day above 2.8%. While speaking in Tokyo on Monday, US President Joe Biden reiterated that they were considering reducing tariffs on China and added that a recession in the US was "not inevitable."

Over the weekend, Reuters reported that Shanghai's central Jingan district, a key commercial area of the Chinese financial hub, will require all supermarkets and shops to shut and residents to stay home to carry out mass testing until Tuesday. Additionally, the city of Beijing reported 99 new coronavirus cases on Sunday, up from 61 on Saturday, reviving concerns over officials imposing tighter restrictions. Nevertheless, these developments don't seem to be having a significant impact on risk perception so far on the day.

EUR/USD regained its traction during the Asian trading hours and climbed above 1.0600 in the early European session. European Central Bank President Christine Lagarde said that a rate hike in July was likely but reportedly downplayed the idea of a 50 basis points rate increase amid uncertainty surrounding the economic outlook.

GBP/USD is trading at its highest level in more than two weeks above 1.2550. The data from the UK showed earlier in the day that the Rightmove House Price Index rose by 2.1% on a monthly basis in May. 

Despite the broad-based selling pressure surrounding the dollar, USD/JPY trades in a relatively tight range below 128.00 supported by rising US Treasury bond yields.

Gold continues to edge higher and trades slightly above $1,850 after having closed slightly above the 200-day SMA on Friday. 

AUD/USD is up already more than 1% on Monday and was last seen trading near 0.7120. Reserve Bank of Australia (RBA) Assistant Governor Christopher Kent said earlier in the day that they will let the assets they had purchased mature slowly and that they were not planning to sell their holdings. Nevertheless, the pair managed to preserve its bullish momentum despite these remarks.

Bitcoin staged a rebound over the weekend and closed the week slightly above $30,000. BTC/USD was last seen clinging to small daily gains at around $30,500 Ethereum reclaimed the critical $2,000 level on Sunday and seems to have gone into a consolidation phase near $2,050 early Monday.

Over the past month, GBP/AUD has ranged mostly from 1.73 to 1.79. Economists at Westpac expect the pair to edge lower towards 1.72 over the coming months on the back of aggressive Reserve Bank of Australia (RBA) tightening. 

GBP/AUD to spend some time above 1.78

“Markets are pricing in aggressive RBA tightening, to a cash rate above 2.5% by end-2022. The surge in AU yields has boosted its pickup versus GBP to multi-year highs. This yield support should weigh on GBP/AUD to around 1.72 in Q3 and beyond.”

“Near-term, the poor global risk mood including concern over Chinese growth suggests the pair spends some time above 1.78.” 

Rising interest rates and a stronger US dollar have weighed on gold prices recently. Nevertheless, a heavy sell-off in equity markets, amid deteriorating economic growth prospects, should see haven seekers return to gold, economists at ANZ Bank report.

Stronger USD weighing in gold prices

“A sell-off in financial markets failed to attract safe-haven flows toward gold in any meaningful quantities. Prices fell briefly below $1,800, amid rising yields and an appreciating US dollar. An aggressive Federal Reserve rate hike and economic growth concerns saw the US dollar hitting a multi-year high.”

“A deteriorating macro-economic outlook along with higher inflation should still be supportive for gold, and the rising risk of underperformance in equity market’s has enhanced its risk-diversifier appeal.”

Cable has managed a remarkable recovery over the course of recent sessions. However, over the coming months, economists at Rabobank expect that UK growth risks and a buoyant USD will be significant headwinds for the pound.

EUR/GBP: Potential for a gentle move towards 0.86 into the summer

“Textbooks suggest that the prospect of a more aggressive interest rate cycle from the Bank of England (BoE) is a positive near-term factor for the pound. However, insofar as this would increase the likelihood of a hard landing for the UK, upside potential for GBP on more rate rises could turn out to be limited.” 

“For cable, we see risk of another attempt back down to recent lows based in part on UK growth concerns but also on the back of USD strength.”

“On the back of growth risks in China, energy security concerns in Europe and a hawkish Fed we see the prospect of a stronger for longer performance by the safe-haven USD.”

“In anticipation of a July interest rate rise from the ECB, we see the potential for a gentle move towards EUR/GBP 0.86 into the summer, though upside potential in the currency pair is likely to be limited into year-end in view of recessionary risks faced by the eurozone.” 

FX option expiries for May 23 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

- EUR/USD: EUR amounts        

• 1.0400 2.6b
• 1.0450 1.25b
• 1.0600 963m

- GBP/USD: GBP amounts        

• 1.2465 224m

- USD/JPY: USD amounts                     

• 127.00 465m
• 128.00-05 490m
• 128.15-17 1.94m
• 128.25-30 365m
• 129.00 1.53b
• 129.80 750m
• 130.00 360m

- AUD/USD: AUD amounts  

• 0.7050 216m
• 0.7075-80 280m
• 0.7100 218m

- USD/CAD: USD amounts       

• 1.2850 300m

- NZD/USD: NZD amounts

• 0.6325 253m

- EUR/JPY: EUR amounts

• 139.56 2.27b

• Gold renews fortnight high amid risk-on mood, softer US dollar.
• DXY drops to fresh 12-day low despite challenges to market sentiment from Biden, China.
• Quad Summit, US data and FOMC Minutes will be crucial for fresh impulse. 
• Gold Price Forecast: Can XAUUSD extend beyond 21-DMA amid firmer yields?

Gold (XAU/USD) prices rise to a fresh high in two weeks as the softer US dollar joins cautious optimism during the early Monday morning in Europe. That said, the commodity poked 21-DMA while refreshing the multi-day high around $1,859, around $1,855 by the press time.

Although Beijing prints record daily new covid cases and Shanghai braces for more activity restrictions at least till Tuesday, market sentiment improved on Monday as overall Mainland China covid numbers has been declining since the last week. It’s worth noting that the COVID-19 figures recently dropped to 869 from 898 prior on a daily closing basis.

Also positive for the market sentiment is the repeated Fedspeak and news from the South China Morning Post (SCMP), suggesting easier quarantine policies in Shanghai. Additionally, PBOC rate-cut and mixed US data are some other catalysts that underpin the risk-on mood, which in turn favor the gold buyers.

On the contrary, inflation fears join the monetary policy tightening and its negative implications on the growth figures weigh on the risk appetite, favoring the XAU/USD sellers in turn. It should be noted that the geopolitical tensions also keep gold bears hopeful as the risk-off mood leads traders towards the US dollar, due to the greenback’s safe-haven status.

Recently, US President Joe Biden renewed the Sino-American tussles as he shows readiness to defend Taiwan during the pre-Quad Summit meeting in Japan. Elsewhere, Germany marks ways in which it can go ahead with the EU oil embargo on Russian imports and weigh on the risk appetite. Also drowning the mood is the latest escalation of military actions in Mariupol.

Against this backdrop, the US Dollar Index (DXY) renews a two-week low around 102.55 while the S&P 500 Futures rise over 1.0% to 3,946 at the latest. Also portraying the risk-on mood is the US 10-year Treasury yields, up 4.8 basis points (bps) to 2.83% by the press time.

Moving on, gold prices remain on the road to recovery but the further upside hinges on multiple geopolitical and economic issues comprising the covid, Quad meeting and Minutes of the latest Federal Open Market Committee (FOMC).

Technical analysis

Gold remains firmer past the 200-DMA while extending the previous week’s upside break of a monthly descending trend line amid firmer RSI and bullish MACD signals.

The precious metal buyers presently attack the 21-DMA hurdle surrounding $1,860, a break of which will direct XAU/USD towards the 61.8% Fibonacci retracement of December 2021 to March 2022 upside, around $1,875.

However, a major challenge for gold buyers is to stay beyond March’s low near $1,890.

Alternatively, the 200-DMA and the previous resistance line, respectively around $1,838 and $1,830, could restrict the short-term downside of gold before the yearly horizontal support around $1,785 gains the market’s attention.

Gold: Daily chart

Trend: Further upside expected

According to preliminary readings from CME Group for natural gas futures markets, traders scaled back their open interest positions by more than 5K contracts on Friday. In the same line, volume dropped by around 27.5K contracts after two consecutive daily builds.

Natural Gas appears capped by $8.50

Prices of natural gas charted an inconclusive session on Friday amidst shrinking open interest and volume, leaving the door open to some range bound theme in the very near term. On the upside, in the meantime, the commodity is expected to meet resistance around the $8.50 mark per MMBtu.

German Economy Minister Robert Habeck said on Monday, “Germany is ready to go ahead with Russia's oil embargo even without Hungary.”

Habeck said that he is "disappointed" that it is taking "so long" to agree on a proposal for an oil embargo against Russia.

These comments come after Reuters reported Sunday, citing sources, “Germany and Italy told companies they could open rouble accounts to keep buying Russian gas without breaching sanctions against Moscow following discussions with the European Union.”

Market reaction

EUR/USD is keeping its range around 1.0600, having quickly retraced from daily highs of 1.0613. The spot is up 0.34% on the day, as the US dollar extends its corrective slide.

Gold Price hit one-week highs at $1,858. Can XAUUSD extend beyond the 21-Daily Moving Average (DMA) hurdle at $1,859 amid firmer yields? FXStreet’s Dhwani Mehta reports.

Immediate support is seen at $1,838

“Markets continue to assess the impact of higher interest rates on global growth. Gold’s upside appears capped, as the Treasury yields stage a decent comeback.”

“Gold bulls look to scale the 21-DMA hurdle at $1,859 on a sustained basis. Daily closing above the latter is needed to confirm a bullish reversal, exposing the additional upside towards the horizontal 100-DMA at $1,885. Ahead of that the $1,870 round figure could challenge the bearish commitments.”

“The immediate support is seen at the flattish 200-DMA at $1,838. If sellers manage to find a strong foothold below the latter, then a steep drop towards the $1,800 area cannot be ruled out. The additional declines could test strong support at $1,787.”

• NZD/USD extends the previous gains as USD remains heavy.
• RBNZ is on track to hike OCR by 50 bps at its May policy meeting.
• Mixed Chinese headlines limit NZD bulls as traders turn cautious.

NZD/USD is sitting at three-week highs of 0.6467, having entered a consolidative mode heading into the European open.

The rally in the kiwi pair could be linked to a combination of factors, as we step into the Reserve Bank of New Zealand (RBNZ) policy meeting week.

NZD bulls remain hopeful amid expectations of a 50 bps rate hike due to be delivered by the RBNZ this Wednesday. The latest report released by the New Zealand Institute of Economic Research (NZIER) revealed, “the majority view amongst Shadow Board members was that the Official Cash Rate (OCR) should be increased by 50 basis points at the May meeting.”

The major also derived its strength from the broad-based US dollar decline, as investors continued cutting their bullish bets on the buck, extending the overdue correction from two-decade highs.

Further, the regime changes in Australia, with the Labor Party-led government now in power, also fuelled optimism around the Antipodeans. Meanwhile, New Zealand PM Jacinda Ardern is reported to lead a trade delegation to the US this week.

more to come ...

• USD/CAD extends the previous day’s pullback from 21-DMA, taking rounds to two-week low.
• Bearish MACD signals, descending RSI line direct sellers towards monthly support.
• Convergence of the 50-DMA, 100-DMA appears a tough nut to crack for bears.

USD/CAD stays on the back foot around the intraday low, surrounding a fortnight bottom, as bears cheer Friday’s pullback from the 21-DMA heading into Monday’s European session. That said, the Loonie pair drops to 1.2800 by the press time.

In addition to the sustained trading below 1.2800, bearish MACD signals and downward sloping RSI (14) line also keeps USD/CAD bears hopeful to revisit an ascending support line from April 26, around 1.2760 at the latest.

It’s worth noting, however, that the pair’s weakness past 1.2760 appears elusive as the 50-DMA and the 100-DMA will challenge the sellers around the 1.2700-2690 area.

Also acting as a downside filter is the 61.8% Fibonacci retracement (Fibo.) of April-May upside, around 1.2650.

Meanwhile, recovery moves need to cross the 21-DMA hurdle surrounding 1.2870 to recall the USD/CAD buyers.

Following that, an upward trajectory towards a 23.6% Fibo level near 1.2915 can’t be ruled out.

However, the 1.3000 psychological magnet may test USD/CAD bulls ahead of directing them towards the monthly peak of 1.3076.

USD/CAD: Daily chart

Trend: Further weakness expected

A recession in the United States is not inevitable, President Joe Biden said while speaking in Tokyo on Monday.

Additional quotes

Market reaction

The US dollar is licking its wounds near 102.70 vs. its major peers, unfazed by these above comments.

In the opinion of FX Strategists at UOB Group Quek Ser Leang and Peter Chia, AUD/USD could see its gains accelerated on a close above 0.7135.

Key Quotes

24-hour view: “While AUD closed largely unchanged at 0.7052 (+0.06%) last Friday, it traded on a firm note during early Asian hours. Upward momentum is beginning to build and AUD could rise above 0.7105. However, the next resistance at 0.7130 is not expected to come under threat. Support is at 0.7050 followed by 0.7025.”

Next 1-3 weeks: “AUD traded on a firm note in early Asia hours and moved above last week’s high of 0.7072. Upward momentum is beginning to build and the risk from here is tilted to the upside towards 0.7135. Looking ahead, AUD has to close above this level before a sustained advance is likely. Overall, only a breach of 0.7000 would indicate that the current upward pressure has eased.”

CME Group’s flash data for crude oil futures markets noted open interest went down for the fourth consecutive session on Friday, now by nearly 3K contracts. Volume followed suit and shrank for the second session in a row, this time by around 328.1K contracts, the largest single-day drop since March 16.

WTI keeps targeting $116.60

Prices of the WTI charted modest losses at the end of the week amidst diminishing open interest and volume. That said, the resumption of the uptrend appears likely with bulls targeting the March 24 high at $116.61.\

• Copper prices pare daily gains amid fresh challenges to demand.
• China’s covid conditions join fears of global economic slowdown to probe bulls.
• Quad Summit, US data and FOMC Minutes to direct short-term moves.

Copper prices on COMEX ease from a 12-day high as market sentiment dwindles amid mixed clues during early Monday. That said, the Copper futures on COMEX retreat to $4.30 heading into the European session, following the initial run-up to refresh a multi-day high around $4.33.

Reuters detailed copper price moves on LME and SFE as, “Benchmark three-month copper on the London Metal Exchange (LME) was up 0.5% at $9,471 a tonne, as of 0418 GMT,” whereas, “The most-active June copper contract on the Shanghai Futures Exchange rose 0.3% to 71,950 yuan ($10,758.06) a tonne by noon break.”

It’s worth noting that the hopes of further support measures from China to overcome covid-led economic slowdown, as well as battle inflation woes, keep the copper buyers hopeful. On the same line is the overall reduction in Mainland China’s new daily covid cases, eased to 869 from 898 prior at the latest.

However, a jump in Beijing’s virus numbers and Shanghai’s activity restrictions seem to probe the red metal off late. Beijing reports the record of new covid cases on Monday, which in turn renewed expectations of fresh lockdowns and weigh on the market sentiment. ''The city reported 99 cases for Sunday, up from 61 on Saturday,'' said Bloomberg. During the weekend, Reuters reported that Shanghai's central Jingan district, a key commercial area of the Chinese financial hub, will require all supermarkets and shops to shut and residents to stay home until at least Tuesday.

Elsewhere, repeated Fedspeak and a lack of major data/events renewed optimism earlier but inflation fears join geopolitical concerns surrounding the Russia-Ukraine crisis to weigh on the market sentiment, as well as commodity prices.

Moving on, Quad Summit will act as an immediate catalyst as US President Joe Biden will meet the national leaders of Australia, Japan and India, signaling hopes of pushing China towards more liberal conditions of trade and politics. Following that, the US core PCE price index for April, the Fed’s preferred inflation gauge, joins the second reading of the US Q1 2022 GDP and preliminary PMIs for May to entertain copper traders.

Technical analysis

Despite the recent pullback, COMEX copper prices hold onto the previous day’s upside break of a one-month-old descending trend line, around $4.25, which in turn keeps the buyers hopeful.

Cable’s upside momentum could revisit the 1.2580 zone in the next weeks, suggested FX Strategists at UOB Group Quek Ser Leang and Peter Chia.

Key Quotes

24-hour view: “GBP closed at 1.2496 last Friday (+0.20%) before edging above 1.2500 during early Asian hours. While upward momentum has not improved by much, there is scope for GBP to edge higher even though the major resistance at 1.2580 is unlikely to come into the picture (there is another resistance at 1.2545). Support is at 1.2475 followed by 1.2450.”

Next 1-3 weeks: “Despite moving above the resistance at 1.2500, upward momentum in GBP has not improved by much. However, GBP could edge higher to 1.2580. Barring a surge in momentum, a sustained rise above 1.2580 is unlikely. On the downside, a break 1.2400 would indicate that the current mild upward pressure has eased.”

Considering advanced prints from CME Group for gold futures markets, open interest extended the downtrend and shrank by nearly 61.K contracts on Friday. Volume, in the same line, reversed two consecutive daily builds and dropped by around 29.6K contracts.

Gold: Another test of the 200-day SMA looks likely

Friday’s uptick in prices of gold was accompanied by shrinking open interest and volume, showing that short covering was behind the daily gains. That said, the continuation of the uptrend looks out of favour in the very near term with a potential visit to the 200-day SMA around $1,835 on the cards.

• GBP/JPY stays mildly bid during three-day uptrend, stays inside fortnight-old symmetrical triangle.
• Steady RSI hints at further recovery towards 100-SMA, 38.2% Fibonacci retracement.
• Monthly resistance line, 200-SMA act as extra filters to the north.

GBP/JPY buyers attack the 160.00 threshold inside a two-week-long symmetrical triangle heading into Monday’s European session.

In doing so, the cross-currency pair approaches a convergence of the 100-SMA and 38.2% Fibonacci retracement of April 20 to May 12 downside, near 160.50, amid a steady RSI (14) line.

It should, however, be noted that the GBP/JPY upside past 160.50 appears difficult as a downward sloping trend line from late April and the 200-SMA, respectively near 161.20 and 162.30 in that order, will challenge the bulls.

Also acting as an upside filter is the aforementioned triangle’s resistance line surrounding 161.60.

Meanwhile, pullback moves may target the stated triangle’s support line, at 158.90 by the press time, before revisiting the latest swing low of 157.88.

If at all the GBP/JPY bears keep reins past 157.88, the monthly low around 155.90 should gain the market’s attention before convincing the bears.

GBP/JPY: Four-hour chart

Trend: Further recovery expected

FX Strategists at UOB Group Quek Ser Leang and Peter Chia noted further upside in EUR/USD should meet strong support around 1.0645 in the next weeks.

Key Quotes

24-hour view: “EUR rose to 1.0593 last Friday before easing off to close at 1.0560 (-0.25%). The underlying tone appears to have improved and the bias for today is for EUR to test last week’s high near 1.0605. For today, we do not expect a sustained rise above this level. Next resistance is at 1.0645. On the downside, a breach of 1.0530 (minor support is at 1.0550) would indicate that the current mild upward pressure has eased.”

Next 1-3 weeks: “EUR rose to a high of 1.0607 last Thursday (19 May). The advance appears to be part of corrective rebound that has room to extend further. However, any advance is expected to face solid resistance at 1.0645. The rebound phase is deemed intact as long as EUR does not move below 1.0500 (‘strong support’ level).”

• Asian equities fade early session gains as Beijing reports record high daily new covid cases, Shanghai pushes for more restrictions.
• Government change in Australia fails to gain any major attention.
• RBNZ, Quad Summit in Tokyo and risk catalysts are in focus this week.

Market sentiment remains mixed during early Monday as covid headlines from China battle mixed Fedspeak and a light calendar to portray a sluggish Asian session. Amid these plays, the MSCI’s index of Asia-Pacific shares ex-Japan drops 0.75% intraday but Japan’s Nikkei 225 prints 0.75% daily gains by the press time.

That said, China’s Beijing reports the record new covid cases on Monday, which in turn renewed expectations of fresh lockdowns and weigh on the market sentiment. ''The city reported 99 cases for Sunday, up from 61 on Saturday,'' said Bloomberg.

During the weekend, Reuters reported that Shanghai's central Jingan district, a key commercial area of the Chinese financial hub, will require all supermarkets and shops to shut and residents to stay home until at least Tuesday.

It’s worth noting, however, that Mainland China's new coronavirus cases eased to 869 from 898 prior.

Amid these plays, China’s headline equity benchmarks are around 1.0% whereas Hong Kong’s Hang Seng declines 1.7% by the press time.

Pessimism in China also weighs on equities in South Korea, Indonesia and India whereas Australia’s ASX 200 and New Zealand’s NZX 50 managed to stay defensive.

That said, ASX 200 might have cheered the Labour Party’s first victory in nine years, as well as Reserve Bank of Australia (RBA) Assistant Governor Christopher Kent’s hints of a gradual downsizing of the RBA’s balance sheet.

On a broader front, the US 10-year Treasury yields rise by around 3.5 points (bps) to 2.82% whereas the S&P 500 Futures add near 1.0% gains, to 3,940 at the latest.

Although headlines surrounding the covid, geopolitics and inflation are the keys for market players of late, chatters about the Fed and the Quad leader’s discussion in Tokyo will also be important for near-term directions.

• WTI prints three-day uptrend, grinds higher after piercing short-term key hurdle.
• Firmer RSI conditions, sustained trading beyond 50-HMA strength bullish bias.
• Buyers need validation from $111.30 to challenge monthly high.

WTI crude oil remains on the front foot for the third consecutive day, edging high around $110.35 during early Monday morning in Europe.

In doing so, the black gold extends the previous day’s upside break of the 50-HMA to rise past the one-week-old descending trend line.

The firmer RSI (14) line, not overbought, also backs the latest breakouts and keeps WTI buyers hopeful.

However, a horizontal area comprising multiple levels marked since May 17, around $111.30, appears a tough nut to crack for short-term oil buyers.

Following that, a run-up towards the monthly high of $115.53 can’t be ruled out.

On the contrary, pullback moves may initially aim for the previous resistance line and the 50-HMA, respectively around $109.90 and $108.50, before convincing WTI sellers.

Even so, the latest swing low surrounding $103.00 and the $100.00 psychological magnet will challenge the energy benchmark sellers.

WTI: Hourly chart

Trend: Further recovery expected

• USD/INR takes offers to renew intraday low, stays inside weekly trading range near all-time high.
• Indian government offers fuel tax cuts to tame eight-year high inflation at home.
• Risk-on mood, repeated Fedspeak weighs on the US dollar.

USD/INR drops to an intraday low of around 77.65 as bears cheer the Indian government’s relief measures to tame inflation woes. Also keeping the pair sellers hopeful is the firmer sentiment that weighs on the US dollar.

That said, the Indian Finance Minister Nirmala Sitharaman announced a cut of eight rupees per liter on the excise duty on petrol and six rupees per liter for diesel to help quell inflationary pressures, per Reuters. “It will have a revenue implication of around one trillion rupees per year,” she added.

The news also has its negative implications as markets fear an expansion in the fiscal deficit and further worries for the INR.

Also keeping the USD/INR bears hopeful are comments from Barclays expecting 50 basis points (bps) of a rate hike in June and a 25 bps lift in the benchmark rates from the Reserve Bank of India (RBI).

On the other hand, Beijing’s record news covid cases and Shanghai’s push for more tests battle the repeatedly softer daily new covid numbers from Mainland China to favor the risk-on mood. That said, Mainland China's new coronavirus cases eased to 869 from 898 prior. Additionally favoring the risk-on mood, which in turn weighs on the US dollar, is the news conveying repeated comments favoring a 50 bps rate hike from the Fed.

While portraying the mood, the US 10-year Treasury yields rise by around 2.5 points (bps) to 2.81% whereas the S&P 500 Futures add near 1.0% gains, to 3,940 at the latest, by extending recovery from the one-year low marked during the last week.

Looking forward, risk catalysts may entertain USD/INR amid a light calendar on Monday. However, the US core PCE price index for April, the Fed’s preferred inflation gauge, joins the second reading of the US Q1 2022 GDP and preliminary PMIs for May to entertain traders. Also important will be the Minutes of the latest Federal Open Market Committee (FOMC), as well as signals from China, Russia and the Quad Summit in Tokyo.

Technical analysis

USD/INR seems struck inside a one-week-old trading range between 77.30 and 77.75. Given the overbought RSI (14) conditions, the Indian rupee (INR) pair may witness further downside targeting March’s high of 77.17.

• EUR/USD is testing bearish commitments at the 1.0600 barrier.
• The US dollar selling remains unstoppable amid mixed markets.
• German IFO survey eyed amid a quiet start to the Fed minutes week.

EUR/USD is consolidating the latest gains below 1.0600, as the selling interest around the US dollar remains unabated amid a cautious market mood.

The dollar is extending its corrective decline from two-decade highs reached against its major rivals, as investors continue repositioning ahead of Wednesday’s FOMC May meeting’s minutes.

Asia opened the week on a firmer footing, despite the tech sell-off on Wall Street last Friday, as investors cheered hopes for China’s growth rebound amid the reopening optimism.

Although the optimism was met with the news of record covid cases reported in Beijing, which revived the lockdown concerns. Also, China witnessed tech selling, weighing negatively on the market’s risk perception.

The shared currency finds some support from the recent hawkish ECB commentary, with policymakers hinting towards a July rate hike. Over the weekend, ECB President Christine Lagarde said the first increase in interest rates in more than a decade may come in July. Lagarde, however, downplayed the idea of a half-point move amid growth fears.

On the other hand, the further upside in EUR/USD seems to be capped by the rise in the US Treasury yields, as traders continue to thrive on the hawkish Fed expectations. The world’s most powerful central bank still remains ahead of the curve even though hopes for a 75 bps June rate hike fade.

Looking ahead, the pair now awaits the German IFO Survey for May, with the headline Business Climate index expected to arrive at 91.4 vs. 91.8 previous. The US docket remains data-light, with all eyes on the broader market sentiment.

EUR/USD: Technical levels to consider

• GBP/USD takes the bids to refresh 12-day high amid risk-on mood.
• UK PM Johnson, BOE’s Pill hints at fiscal, monetary tools to calm down bears.
• US warns the UK about no transatlantic deal if it scraps NIP.
• Upbeat sentiment underpins recovery moves but comments from BOE’s Bailey, Brexit news will be crucial for fresh impulse.

GBP/USD remains firmer around a fortnight's high, extending the previous week’s rebound, as British policymakers sound hopeful of overcoming the Brexit and inflation-led economic hardships. Also keeping the cable buyers hopeful is the broad US dollar weakness amid a lackluster start of the week. That said, the quote takes the bids to 1.2545 during the mid-Asian session on Monday.

Be it UK PM Boris Johnson or Bank of England (BOE) Chief Economist Huw Pill, both of them tried to appease GBP/USD buyers by shrugging off fears that the policymakers are running out of resources to battle the fears emanating from Brexit and the Russia-Ukraine crisis.

That said, UK PM Johnson said on Friday, “in the months ahead we are going to have to do what we did before, we're going to use our fiscal firepower that we built up, that we have, to help," per Reuters. On the other hand, BOE’s Pill mentioned Friday that they still have some way to go in policy tightening, as reported by Reuters.

Elsewhere, mixed concerns over China’s covid conditions and repeated Fedspeak, backing the 50 bps rate hike, seem to allow the global markets to consolidate recent losses. The same weigh on the US Dollar’s safe-haven demand and drowns the US Dollar Index (DXY) to 102.70, down 0.31% intraday at the latest.

Alternatively, the European Union’s (EU) agitation towards the UK’s readiness to alter the Northern Ireland Protocol (NIP) spreads as US House Speaker Nancy Pelosi recently warned Britain of having no transatlantic trade deal with the UK if it repeals NIP. “She warned of no Transatlantic trade deal if the UK risks Good Friday Agreement,” said the UK Daily Mail.

Amid these plays, the US 10-year Treasury yields rise by around 2.5 points (bps) to 2.81% whereas the S&P 500 Futures add near 1.0% gains, to 3,940 at the latest, by extending recovery from the one-year low marked during the last week.

Looking forward, Bank of England (BOE) Governor Andrew Bailey is up for a speech at the Oesterreichische National Bank Annual Economic Conference, in Vienna. The BOE Boss will speak on an interesting subject titled, "Monetary policy, policy interaction and inflation in a post-pandemic world with severe geopolitical tensions."  Hence, the odds are brighter that Bailey traces the recent clues from Johnson and Pill to keep the GBP/USD firmer.

Additionally, headlines concerning Brexit, inflation and Russia will also be crucial for the near-term GBP/USD directions.

Technical analysis

A clear upside break of the 21-DMA, around 1.2440 by the press time, directs GBP/USD towards the monthly high surrounding 1.2640.

• Gold Price rallies to one-week highs above $1,850 as US dollar wilts.
• Positive US Treasury yields cap the upside in XAUUSD amid cautious optimism.
• Acceptance above $1,859 is critical to unleashing further recovery.

Gold Price is kicking off a new week on the right footing, extending the previous week’s recovery momentum amid notable US dollar supply. The dollar keeps correcting lower, despite the cautious optimism, driving XAUUSD to fresh weekly highs above $1,850. Although the inverse relationship between Gold and the US Treasury yields is back in play and could cap the further upside. The Treasury yields are rallying on the hawkish Fed outlook while heading towards Wednesday’s FOMC Minutes. Growth and inflation fears continue to affect the market’s risk perception, eventually impacting the dollar and gold trades.

Also read: Gold, Chart of the Week: XAU/USD bulls take charge to challenge critical resistance

Gold Price: Key levels to watch

The Technical Confluences Detector shows that the Gold Price has stalled its recovery momentum, having run into a strong barrier at $1,859, which is the convergence of the Bollinger Band one-day Middle, pivot point one-day R2 and the previous high four-hour.

Acceptance above the latter will unleash the additional upside towards the pivot point one-week R1 at $1,870. The pivot point one-day R3 also aligns at that price level.

The previous month’s low of $1,872 will be the level to beat for XAU bulls should the renewed upside extend.

On the downside, strong support appears at the pivot point one-month S1 at $1,848, below which the $1,843 neighborhood will get tested.

That demand area is the confluence of the Fibonacci 38.2% one-day, SMA10 four-hour and the previous low four-hour.

The intersection of the Fibonacci 61.8% one-day and SMA200 one-day at $1,838 will come into play.

The last line of defense for gold bulls is seen around $1,834, where the Fibonacci 23.6% one-week coincides with the SMA10 one-day and the previous day’s low.

Here is how it looks on the tool

About Technical Confluences Detector

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

• AUD/USD is consolidating the latest upswing below 0.7100.
• Optimism over Australian political change battles China’s covid woes, tech selling.
• The aussie recaptures 21-DMA, daily closing above it is critical.

AUD/USD is off three-week highs at 0.7096, although preserves a major portion of early gains led by a change in Australia’s political scenario.

The aussie breathed a sigh of relief, as the Australian Federal election resulted in a clear winner on Saturday, with the centre-left Labor Party close to winning a majority in parliament. The Labor Party ended a nearly 10-year rule of conservative government over the weekend.

However, concerns over higher global interest rates induced tech selling seeped into the Chinese markets as well, fuelling a sense of caution. Adding to this, Beijing reported record new cases, earlier on, reviving renewed lockdown concerns and tempering the risk-on market profile.

Looking ahead, the broader market sentiment will continue to drive the US dollar price action, which will also impact the AUD valuations.

Technically, AUD/USD has found a strong foothold above the bearish 21-Daily Moving Average (DMA) at 0.7044 after a down day seen on Friday.

Buying resurgence will take out the 0.7100 level, opening doors for a test of the May 6 highs of 0.7135.

The next stop for bulls is envisioned at the 0.7150 psychological barrier.

The 14-day Relative Strength Index (RSI) is inching higher to test the midline, justifying the ongoing upbeat momentum in the spot.

For the uptrend to extend, AUD bulls need a daily closing above the falling trendline resistance, which coincides with the 21-DMA.

AUD/USD: Daily chart

A failure to resist above the latter, bears will jump back into the game, dragging the aussie back towards Friday’s low of 0.7002.

Further down, powerful support awaits near 0.6950, which will be the line in the sand for AUD optimists.

AUD/USD: Additional levels to consider

• USD/CNH pares intraday losses around 12-day low as Beijing reports record new covid cases.
• Shanghai’s central Jingan district requires all supermarkets and shops to shut and residents to stay home until Tuesday.
• PBOC rate cut, overall reduction in mainland numbers and repeated Fedspeak seem to defend the bears.
• US inflation, PMI and growth numbers will be important for fresh impulse.

USD/CNH picks up bids to 6.7030 as fresh covid numbers renew China’s virus woes during Monday’s Asian session. Also keeping USD/CNH buyers hopeful are the concerns over the next moves concerning the Fed and the PBOC, as traders witness mixed numbers of late.

That said, China’s Beijing reports the record new covid cases on Monday, which in turn renewed expectations of fresh lockdowns and weigh on the market sentiment. ''The city reported 99 cases for Sunday, up from 61 on Saturday,'' said Bloomberg.

During the weekend, Reuters reported that Shanghai's central Jingan district, a key commercial area of the Chinese financial hub, will require all supermarkets and shops to shut and residents to stay home until at least Tuesday.

It’s worth noting, however, that the Mainland China's new coronavirus cases eased to 869 from 898 prior.

Elsewhere, the People’s Bank of China’s (PBOC) rate cut contrasts the Fed’s rate hike bias and underpins the USD/CNH bullish trajectory, even as repeated Fedspeak favoring 50 bps joined the mixed US data weighed on the quote the last week.

China’s news seems to weigh on the risk appetite but the optimists keep the reins of late. That said, the US 10-year Treasury yields rise by around 1.5 points (bps) to 2.80% whereas the S&P 500 Futures add near 1.0% gains, to 3,940 at the latest, by extending recovery from the one-year low marked during the last week.

Moving on, the US core PCE price index for April, the Fed’s preferred inflation gauge, joins the second reading of the US Q1 2022 GDP and preliminary PMIs for May to entertain traders. Also important will be the Minutes of the latest Federal Open Market Committee (FOMC), as well as signals from China, Russia and the Quad Summit in Tokyo.

Technical analysis

Although 21-DMA defends USD/CNH bulls around 6.7000, a convergence of the 10-DMA and weekly resistance line, around 6.7600, challenges the pair’s short-term recovery.

“China's economic growth track has decelerated too fast, and the country should restore the normal life and production as soon as possible to stabilize employment,” the Economic Weekly reported, citing Yu Yongding, a former advisor to the PBOC.

Key quotes

“China should boost consumption and investment through expansionary fiscal and monetary policies, while repairing the supply chain.”

“Getting back to normal orders is the top priority, and higher prices can be tolerated as long as inflation is within a reasonable range.”

Related reads

• Beijing sees record new covid cases, reviving lockdown concerns

• USD/JPY remains on the back foot around monthly low, renews daily bottom of late.
• Sustained trading below 200-SMA, absence of oversold RSI keeps sellers hopeful.
• Monthly horizontal support gains the seller’s attention, fortnight-old descending trend line adds to the upside filters.

USD/JPY takes offers to refresh intraday low around 127.50 during Monday’s Asian session. In doing so, the yen pair justifies Friday’s U-turn from the 200-SMA while fading the previous bounce off the one-month-old horizontal support.

In addition to the failure to cross the 200-SMA, downbeat RSI (14), not oversold, also underpins the bearish bias targeting the 127.00-126.95 support zone.

However, 50% and 61.8% Fibonacci retracements of the USD/JPY pair’s run-up during the late March to early May period, respectively around 126.30 and 125.10, could challenge the pair sellers afterward.

On the contrary, a clear upside break of the 200-SMA, around 128.25 by the press time, won’t recall the bulls as a downward sloping trend line from May 09, close to 128.95 at the latest, will test the USD/JPY run-up.

Also acting as an upside filter is the 129.00 threshold, a break of which could propel the quote towards the monthly peak of 131.34.

Overall, USD/JPY has further downside room but the bears have a long road to travel to retake control.

USD/JPY: Four-hour chart

Trend: Further downside expected

On top of the reports from earlier, Shanghai district to require all shops to shut, residents to stay home, Bloomberg is now reporting that  Beijing hs reported a record number of Covid cases during its current outbreak, reviving concern the capital may face a lockdown as authorities seek to stamp out community spread of the virus.

''The city reported 99 cases for Sunday, up from 61 on Saturday.''

While the total is still low, the spike is one of the biggest since the outbreak started,'' the report warns. 

This will be reviving lockdown concerns and will potentially reverberate through financial markets weighing on risk appetite and currencies, such as the Aussie, that trades as a proxy. So far, however, the bulls are taking on critical 4-hour resistance vs. the US dollar in the open and have tallied up over 0.60% in gains on the session. 

• Market sentiment improves as China favors bulls during a quiet session, rejecting inflation, interest rate concerns.
• US Treasury yields snap two-day downtrend around 2.80%.
• S&P 500 Futures gain 1.0% as it extends recovery from yearly low.
• Preliminary readings of May’s PMIs, FOMC Minutes will be crucial, updates from China and Quad Summit should be eyed too.

Global markets remain optimistic during Monday’s Asian session as traders move past rate and inflation fears amid firmer clues from China. Also keeping buyers hopeful is the recently mixed US data and repeated Fedspeak.

While portraying the mood, the US 10-year Treasury yields rise by around three basis points (bps) to 2.81% whereas the S&P 500 Futures add over 1.0% gains, to 3,940 at the latest, by extending recovery from the one-year low marked during the last week.

Be it repetitive calls of the Fed’s 50 bps rate hike or mixed data rejecting the need for heavily fuelled monetary policy tightening, not to forget China and Japan’s easy money, traders had all to justify the latest gains after multiple days of pessimism.

St Louis Fed President and outspoken hawkish FOMC member James Bullard was the latest Fed policymaker who reiterated support for the 50 bps move, joining Chairman Jerome Powell. The chatters have been boring of late and seem to have priced in, which in turn makes it a dull affair for the risk-takers who once cheered these faster rate hikes as the key challenge to markets. Also keeping the traders hopeful are the recently mixed US data, namely Retail Sales and Inflation, which raised doubts about the faster rate hikes.

It’s worth noting that a reduction in China’s covid numbers and the People’s Bank of China’s (PBOC) rate cut also underpins the risk-on mood in Asia. On the same line is the Bank of Japan’s (BOJ) concern for easy money, as well as the policymakers’ readiness to intervene if needed amid challenges to global growth emanating from the Russia-Ukraine crisis and the skyrocketing inflation.

Looking forward, the US core PCE price index for April, the Fed’s preferred inflation gauge, joins the second reading of the US Q1 2022 GDP and preliminary PMIs for May to entertain traders. Also important will be the Minutes of the latest Federal Open Market Committee (FOMC), as well as signals from China, Russia and the Quad Summit in Tokyo.

• AUD/NZD carving out the downside at the start of the week. 
• All eyes turn to the RBNZ and markets keep second-guessing the RBA.

Bith the Australian dollar and kiwi are in favour at the start of the week in a risk on open and in the face of a weaker US dollar. The Aussie is enjoying some correctives at the start of the week, taking on a 4-hour resistance as the US dollar continues to limp. The currency had been on the front foot following stronger than expected inflation data in the Consumer Price Index last month and expectations of a committed central bank to hike rates further. 

However, the recent wage and employment data may not have met Governor Lowe’s threshold of there needing to be “a very strong argument” for the RBA to “deviate” from moves of 25bp in coming months, analysts at ANZ Bank argued. 

''Especially when the minutes from the May meeting highlighted “that the Board meets monthly”, so has “the opportunity to review the setting of interest rates again within a relatively short period of time.” 

''Still, we think the option of a 40bp move will be considered at the RBA’s June meeting before a move of 25bp is chosen.''

Nevertheless, the RBA minutes were insightful and there is a stronger case for the 40bos move in a recent note written by analysts at Westpac:

''The RBA May Board meeting which provided useful insights into some changes in the thinking of the Board. Essentially the Board recognises its inflation challenge while indicating that it will not be dependent on the Wage Price Index (WPI) alone as its guide to developments in the labour market.''

''It also highlighted that other central banks are moving quickly to a neutral stance of monetary policy. That is significant given that the Governor has repeatedly pointed out that Australia’s inflation challenge is not as severe as in other countries.''

''That observation is not supported by the current forecasts. The RBA expects underlying inflation to reach 4.6% by year’s end whereas the FOMC sees core PCE inflation at 4.1%. For these reasons, we do not see the slightly lower than expected WPI for the March quarter as being a swing factor in its decision on June 7. We still expect the RBA to raise the cash rate by 40 basis points.''

RBNZ in focus

Meanwhile, there will be a focus on the Reserve Bank of New Zealand. Analysts at TD Securities explained that both Consumer Price Inflation (6.9% YoY) and sectoral core inflation (4.2% YoY) were elevated in the first quarter and hint at the urgency needed from the RBNZ to constraint inflation expectations.

''The Bank seems content with its 'stitch in time' approach to policy and didn’t push back on market pricing which leads us to conclude that the Bank will go ahead with another 50bps hike.''

Australia’s new Prime Minister Anthony Albanese said on Monday that the relationship between Australia and China will remain difficult.

His comments come during his swearing-in, a few hours before his travel to join a summit with the US, Japanese and Indian leaders, known as the Quad, later this Monday.

Albanese's Labor Party defeated Scott Morrison's conservative government in a general election on Saturday.

Market reaction

AUD/USD preserves most of its early gains, as it keeps its range below 0.7100, up 0.75% on the day.

In recent trade today, the People’s Bank of China (PBOC) set the yuan (CNY) at 6.6756 vs. the estimated 6.6934 and prior 6.748.

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

• AUD/JPY climbs to near 90.60 as RBA sees a modest pace in the quantitative easing program.
• The RBA raised its cash rates by 25 bps as a measure to contain the soaring inflation.
• Japan’s CPI numbers have increased to 2.5% on annual basis.

The AUD/JPY pair has displayed a firmer upside move after remaining lackluster in the early Tokyo session. The risk barometer remained in a minor range of 90.18-90.44 and now has climbed strongly to near 90.60 after Reserve Bank of Australia (RBA)’s Christopher Kent commented that the central bank is in no hurry to kick-start its balance sheet reduction process.

The recent surge in the price pressure forced the RBA to elevate its interest rate by 25 basis points (bps) for the very first time after the Covid-19 pandemic in May’s monetary policy announcement. The move was completely unexpected as the RBA did mention in their comments that the central bank is not seeing rate hikes sooner.

As RBA has paddled up its rate cycle, the market participants started thinking that the RBA will also initiate its balance sheet reduction program to speed up the inflation-controlling process. Now, the RBA has dictated that the central bank is in no mood to bank upon quantitatively easing vigorously.

RBA Christopher Kent dictated that the Bank will continue to be able to maintain effective control over the cash rate as it withdraws monetary policy stimulus in the period ahead,' as per Reuters.

Meanwhile, higher-than-expected inflation numbers in Tokyo are expected to cut the sheer size of stimulus packages provided by the Bank of Japan (BOJ) to spurt the growth rate. Annual Japan’s National Consumer Price Index (CPI) figure at 2.5%, significantly higher than the estimates of 1.5% and the prior print of 1.2.

• NZD/USD takes the bids to refresh a two-week high, prints three-day uptrend.
• Clear break of the 21-DMA, previous resistance line from April favor buyers.
• RSI, MACD also underpin bullish bias targeting monthly high.

NZD/USD extends the previous week’s recovery from a two-year low towards refreshing a fortnight high during Monday’s Asian session. That said, the Kiwi pair takes the bids to renew the multi-day top around 0.6450 by the press time.

In doing so, the quote crosses the previously key resistance level around 0.6410, comprising the 21-DMA and a downward sloping trend line from April 05.

The upside momentum also gains support from the bullish MACD signals and upward sloping RSI (14), not overbought.

As a result, the latest NZD/USD run-up eyes the monthly peak surrounding 0.6570. However, the 0.6500 threshold may offer an intermediate halt during the rise.

Alternatively, pullback moves below the 0.6410 resistance-turned-support, could once again drag the quote towards the weekly support line, around 0.6230 by the press time.

It should be noted, however, that NZD/USD weakness past 0.6230 will make it vulnerable to testing the monthly low near 0.6220 and raise doubts about the latest recovery moves.

NZD/USD: Daily chart

Trend: Further upside expected

• DXY reverses Friday’s corrective pullback from two-week low.
• Repeated Fedspeak, firmer sentiment weigh on the greenback.
• Recovery in Treasury yields fails to probe the bears as stock futures rise over 1.0%.
• Monthly PMIs, FOMC Minutes will be crucial for fresh impulses.

US Dollar Index (DXY) takes offers to refresh its intraday low near 102.75, fading the previous day’s rebound from a fortnight low during Monday’s Asian session.

The greenback gauge flashed the biggest weekly loss since January, not to forget snapping a six-week uptrend, as the market’s risk-on mood joins the repeated comments from the US Federal Reserve (Fed) officials.

The firmer mood could be linked to improving covid conditions in China, recently mixed data from the US and expectations that the global leaders will be able to tackle the growth fears with coordinated measures. A reduction in China’s covid numbers and an absence of historic US statistics join optimism by the major policymakers ahead of this week’s Quad Summit in Tokyo to favor a risk-on mood.

On the contrary, escalating fears of the Russia-Ukraine crisis and the divide between the West and Moscow seem to keep the DXY bulls hopeful.

That said, The DXY weakness ignores recently firmer US Treasury yields, up to three bps around 2.81% by the press time, by justifying the 1.0% gain of the S&P 500 Futures.

Moving on, preliminary prints of May month’s PMIs and Minutes of the latest Federal Open Market Committee (FOMC) will be crucial for clear directions. Risk catalysts, however, can offer intraday directions.

Technical analysis

Sustained trading below the 21-day EMA, around 103.00 by the press time, directs DXY towards the monthly low surrounding 102.30.

• USD/CAD bears take control at the start of the week ahead of key events.
• Risk appetite has improved and bulls are running out of steam.

USD/CAD is under pressure at the start of the week, losing the 1.28 level at the time of writing and down some 0.26%. The pair has fallen from a high of 1.2842 and has made a low of 1.2799 so far. The greenback has lost steam and ended its worst week since early February on the backfoot vs. a basket of rival currencies on Friday. In the open, the DXY index is down over 0.2% despite the fears of the impact of soaring inflation and Russia's invasion of Ukraine.

Risks to growth from aggressive monetary tightening, led by the Federal Reserve and China's strict lockdowns to quash a COVID-19 outbreak, the dollar's appeal as a haven was eclipsed by rising equities. Asian shares jumped on Friday after China cut a key lending benchmark to support a slowing economy and Wall Street followed suit. 

The S&P 500 turned marginally higher having briefly entered bear-market territory intraday. The S&P 500 closed at 3,901.36 while the Dow Jones Industrial Average also ended the day slightly higher, at 31,261.90. West Texas Intermediate crude oil futures rose by $1.02 to $113.23 a barrel, supportive of commodity-linked currencies such as CAD. Meanwhile, MSCI's broadest index of Asia-Pacific shares outside Japan was 0.04% higher in the open and Australian shares gained 0.2% while Japan's Nikkei stock index was 0.85% higher.

The week ahead

Meanwhile, for the week ahead, Retail Sales are expected to should rise by 1.0% in March on another large contribution from gasoline stations, although core sales (ex. autos/gas) and retail volumes should paint a much weaker picture, analysts at TD Securities said. ''Motor vehicles should weigh on the headline, leaving ex-auto sales up 2.0%, while furniture/building materials will face headwinds from a softening housing market.''

From the Fed, markets will be tuned in for the minutes of the prior board meeting and 50bps rate hike. ''Fed officials have continued to communicate their intent to bring inflation under control amid a push to get policy to neutral,'' analysts at TD Securities explained. ''Chair Powell has reiterated the Fed's guidance of consecutive 50bp hikes in June/July and the May meeting minutes are likely to provide colour about these discussions. A few Fed officials have hinted at slowing the pace of hikes after reaching neutral.''

• Gold defends the first weekly gain in five inside short-term bullish chart formation.
• Repeated Fedspeak, risk-on mood weigh on the US dollar ahead of FOMC Minutes.
• Yields, stock futures print gains amid mixed clues, quiet session in Asia. 
• Gold Weekly Forecast: XAU/USD starts reacting to US yields but bulls remain hesitant

Gold (XAU/USD) picks up bids towards an intraday high as bulls benefit from the downbeat US dollar, as well as a firmer mood, during a quiet Asian session on Monday. That said, the precious metal snapped a four-week downtrend while bouncing off the two-year low at the latest as the greenback bulls took a breather amid mixed data and repeated chatters of a 50 bps rate hike, as well backed by the optimism in China.

Multiple Fed policymakers, including Chairman Jerome Powell, refrained from a 75 bps rate hike calls while defending their previous projections of the half a percent increase in the Fed rate during the next few meetings. The same joins mixed US data and cautious optimism in the market to weigh on the US dollar.

Shanghai’s gradual unlocking and the mainland’s reduction in the covid cases, as well as the virus-led deaths, underpin optimism for the gold buyers, due to China’s status as one of the world’s largest gold consumers.

That said, the US Dollar Index (DXY) flashed the biggest weekly loss since January, not to forget snapping a six-week uptrend, down 0.22% on a day near 102.80 by the press time.

The DXY weakness ignores recently firmer US Treasury yields, up to three bps around 2.81% by the press time, by justifying the 1.0% gain of the S&P 500 Futures.

Given the risk-on mood and the downbeat US dollar, the gold price may extend the latest recovery moves. Though, the monthly PMIs and Minutes of the latest Federal Open Market Committee (FOMC) will be crucial for clear directions.

Technical analysis

A clear upside break of the monthly falling channel joins firmer RSI (14) keeping the gold buyers hopeful inside a one-week-old rising channel formation.

However, the 100-SMA level surrounding $1,852, quickly followed by the stated weekly channel’s upper line near $1,860, restricts short-term XAU/USD upside.

On the contrary, pullback moves remain elusive beyond the support line of the aforementioned channel, at $1,825 by the press time.

Gold: Four-hour chart

Trend: Further upside expected

• USD/CHF is facing barricades around 0.9750 on softer DXY.
• A holiday-truncated week for the Swiss economy will keep investors on the sidelines.
• Fed policymakers are advocating for two more jumbo rate hikes this year.

The USD/CHF pair is displaying back and forth moves in a narrow range of 0.9742-0.9749 in the Asian session. The pair is trading lackluster amid subdued performance from the US dollar index (DXY). On a broader note, the asset is juggling a little wider range of 0.9697-0.9767 from the last week after a sheer downside move from 1.0050, recorded last week.

The DXY has fallen like a house of cards last week after failing to cross the round-level resistance of 105.00. Federal Reserve (Fed) policymakers are expecting that the Fed would announce two more 50 basis points (bps) rate hikes consecutively in June and July. After that, the Fed will follow its traditional approach of elevating interest rates by 25 bps and will maintain a certain interest rate to keep inflation under control.

The necessity of spurting the interest rates is very much high as inflationary pressures amid soaring commodity and fossil fuel prices are impacting the paychecks of the households.

Meanwhile, the Swiss franc is looking stronger against the greenback on the soaring market mood. Risk-sensitive currencies are gaining traction as the safe haven loses appeal. This week, Swiss ZEW Survey Expectations will remain in focus. The catalyst is expected to land at -39.3, better than the prior print of -51.6. Also this week, the Swiss markets will remain closed on Thursday on account of Ascension Day.

• EUR/USD retreats from intraday high within an immediate trend widening pattern.
• Sustained trading beyond 200-HMA, firmer RSI keeps buyers hopeful.
• One-week-old ascending trend line adds to the upside filters before the monthly high.

EUR/USD pares intraday gains inside a bullish megaphone as buyers struggle to extend the previous week’s recovery moves amid a sluggish Asian session on Monday.

Even so, the above-50 status of the RSI (14) joins the major currency pair’s ability to stay beyond the 200-HMA to underpin the bullish bias.

That said, the latest pullback remains elusive until staying beyond the stated megaphone’s support line, near 1.0525.

Also acting as immediate support is an upward sloping trend line from May 13, close to 1.0515, as well as the 200-HMA level of 1.0490.

Meanwhile, 1.0590 and the recent swing high of the 1.0600 may entertain buyers before the weekly resistance line, close to 1.0640 at the latest, will test the upside further.

In a case where EUR/USD remains firmer past 1.0640, the odds favoring the pair’s run-up towards the mid-April low near 1.0755 can’t be ruled out.

EUR/USD: Hourly chart

Trend: Further upside expected