Forex-novosti i prognoze od 24-05-2022

• Silver remains on the front foot around 12-day high, up for the third consecutive day.
• Clear break of 21-DMA, bullish MACD signals direct buyers towards one-month-old resistance line.
• Bears need a downside break of $21.00 to retake control.

Silver (XAG/USD) pierces the 21-DMA while extending the previous day’s run-up to a fortnight high during Wednesday’s Asian session. That said, the bright metal rises to $22.15 at the latest.

Not only a break of the short-term key moving average but bullish MACD signals also underpin the upside bias for the commodity prices.

That said, a descending trend line from April 29, around $22.40, appears immediate key resistance for the quote to cross.

Following that, a run-up towards the $23.00 threshold and late April swing high close to $23.60 can’t be ruled out.

However, an area comprising the 50-DMA and the 100-DMA around $23.70-80, appears a tough nut to crack for the XAG/USD bulls afterward.

On the contrary, pullback moves may have to defy the DMA breakout, around $22.00 by the press time, to direct silver prices towards a two-week-long horizontal rea near $21.20-10.

In a case where the metal remains weak past $21.10, also conquers the $21.00 threshold, it can plummet to the $20.00 psychological magnet.

Silver: Daily chart

Trend: Further upside expected

New Zealand (NZ) markets remain cautious ahead of the key Reserve Bank of New Zealand (RBNZ) Interest Rate Decision, up for publishing at 02:00 AM GMT on Wednesday.

While portraying the mood, the benchmark 10-year Treasury yields drop to the lowest level since April 18, down 0.30% around 3.443% at the latest. On the same line is New Zealand’s key equity index NZX 50 which extends the previous day’s losses, down 0.11% intraday by the press time.

The reason for the latest pessimism in the market, despite the widely anticipated rate hike of 50 basis points (bps) to the Official Cash Rate (OCR) of 1.5%, could be linked to the recently downbeat NZ Q1 2022 Retail Sales.

It’s worth noting that the mostly priced-in rate hike gives rise to a view that any disappointment, either via softer rate action or from the Rate Statement, will have larger repercussions.

Read: Reserve Bank of New Zealand Preview: Will they step up their tightening game?

• USD/CAD holds onto the previous day’s rebound from three-week low, sidelined of late.
• 200-SMA, monthly support line and 50% Fibonacci retracement constitute strong support, 100-SMA guards recovery moves.
• Steady RSI suggests further grinding towards the south.

USD/CAD defends the bounce off the 1.2770 key support, taking rounds to 1.2815-20 during Wednesday’s Asian session. In doing so, the Loonie pair seesaws between the 100-SMA and 200-SMA amid steady RSI conditions.

Hence, the quote is likely to remain sidelined until either breaking the 100-SMA level of 1.2880 or the 1.2770 support confluence including the 200-SMA, together with the one-month-old ascending trend line and 50% Fibonacci retracement of April 21 to May 12 upside.

Even if the USD/CAD prices manage to cross the 110-pip trading range, a three-week-old horizontal area and 61.8% Fibo. will challenge the momentum around 1.2920 and 1.2685 in that order.

It’s worth noting that the quote’s moves past the aforementioned range are likely to create havoc.

That said, the nearly two-week-long consolidation of gains and the recent US dollar weakness suggest short-term favor to the bears. However, a clear downside break of the 1.2685 support seems less likely.

On the contrary, an upside break of the 1.2920 hurdle won’t hesitate to renew the monthly peak, around 1.3080 by the press time.

USD/CAD: Four-hour chart

Trend: Sideways

• A breakdown of an H&S formation at 127.00 has weakened the greenback bulls.
• The 50- and 200-EMAs have displayed a Death Cross formation, which adds to the downside filters.
• RSI’s bearish range shift is compelling for more downside going forward.

The USD/JPY pair is attempting a pullback towards the round-level resistance of 127.00 after a vertical downside move to a low of 126.48 on Tuesday. The pair witnessed a steep fall on Tuesday after slipping below a two-day low of 127.09. An imbalance move from the previous auction area of 127.09-128.32 has dampened the demand for the greenback.

A breakdown of the Head and Shoulder chart pattern on an hourly scale is underpinning the Japanese yen against the greenback. The breakdown of an H&S pattern denotes a prolonged inventory distribution from institutional investors to retain participants. A decisive slippage below the round level support of 127.00 has marked the trigger of the H&S breakdown.

The death cross, represented by the 50- and 200-period Exponential Moving Averages (EMAs) at 130.00 is signaling a confirmed bearish bias in the counter.

Meanwhile, a range shift has been displayed by the Relative Strength Index (RSI) (14) from 40.00-60.00 to the bearish range of 20.00-40.00 which advocates more downside.

Investors should attempt shorts after a pullback towards the 50-EMA at 127.38 for a downside move to Tuesday’s Low at 126.48, followed by the round-level support at 125.00.

Alternatively, the greenback bulls could regain strength if the asset oversteps Thursday’s high at 128.95, which will drive the asset towards May 17 high at 129.78. A breach of the latter will expose the asset to recapture its multi-year high at 131.28.

USD/JPY hourly chart       

Early Wednesday morning in Asia, Reuters conveyed three ballistic missile launches from North Korea after US President Joe Biden left the region following a trip in which he agreed to boost measures to deter the nuclear-armed state. “South Korea's Joint Chiefs of Staff said the three ballistic missile launches were fired in the space of less than an hour from the Sunan area of the North's capital Pyongyang,” the news adds.

The North Korean act was in direct violation of the US and South Korea's warning to the hermit kingdom as the news mentioned, “US and South Korean officials had warned that North Korea appeared ready for a weapons test, possibly during Biden's visit.”

However, US Military said, per Reuters, “We aware of multiple North Korean missile launches, but they are not a direct threat to US soldiers, territory, or allies.”

On the contrary, Japan's Defense Minister Nobuo Kishi stated that North Korean missile launches are unacceptable.

Market reaction

Although the geopolitical threats from North Korea are less important for now, considering the Russia-Ukraine crisis and growth fears, S&P 500 Futures paused the day-start advance around 3,960, up 0.40% intraday, following the news.

• The Swiss franc continues its two-week rally vs. the greenback, surging almost 1.50% in two days.
• A weaker US Dollar and a dismal mood increased appetite for the CHF, so the USD/CHF falls.
• USD/CHF Price Forecast: After falling close to 500-pips, bulls find the 0.9550 as a solid demand zone to step in, capping the ongoing pullback.

The USD/CHF continues its free-fall, courtesy of a softer greenback amidst investors’ negative mood, which caused global equities to fall and the buck to lose the 102.000 mark. At the time of writing, the USD/CHF is trading at 0.9605, recording minimal gains of 0.13% as the Asian session begins.

On Tuesday, the market sentiment remained sour throughout the day. US equities finished with losses, except for the Dow Jones. The US Dollar Index, a gauge of the greenback’s value vs. a basket of peers, edged lower, recording a fresh four-week low at around 101.768, down so far in the week almost 1.30%.

USD/CHF Price Forecast: Technical outlook

Tuesday’s session left the USD/CHF trading above the 50-day moving average (DMA) at 0.9558. It’s worth noting that the confluence of Bollinger’s band lower band with the previously-mentioned moving average is a zone that could find some buyers stepping in as the greenback remains in an uptrend. Nevertheless, the two-week pullback weighed on the USD/CHF, which has fallen almost 500 pips from the YTD high at the parity; however, the RSI, albeit in bearish territory, begins to aim higher, meaning the major might consolidate before resuming upwards/downwards.

Upwards, the USD/CHF first resistance would be the 0.9700 mark. If USD/CHF bulls reclaim the aforementioned, a re-test of the 20-DMA at 0.9823 is on the cards, but firstly, a break above the 0.9800 mark is needed before extending the pair’s rally.

On the flip side, the USD/CHF first support would be 0.9600. Break below would expose the confluence of the 50-DMA and Bollinger’s band lower band around 0.9558. Once cleared, the next demand zone would be March 16, 0.9533 daily high.

Key Technical Levels

• AUD/NZD grinds higher after bouncing off two-week low.
• Market’s risk-aversion takes a pause amid quiet start of the key day.
• RBNZ’s likely 50 bps rate hike seems already priced-in and hence a disappointment will be more interesting to watch.

AUD/NZD renews intraday high around 1.01015 as it battles the key hurdle after bouncing off a fortnight low the previous day. That said, the cross-currency pair cheers mildly optimistic market sentiment ahead of the Reserve Bank of New Zealand (RBNZ) Interest Rate Decision.

Global markets began the week on firmer footing before portraying a risk-off day on Tuesday, recently picking pace again, as traders seek confirmations of mixed signals from the major central banks amid inflation growth fears. Even so, softer yields and the US dollar seem to underpin the run-up in Antipodeans. It’s worth noting that the New Zealand Dollar (NZD) seems to have been weighed down of late, despite hawkish expectations from today’s RBNZ, as the widely anticipated 50 bps rate hike is likely already priced-in.

Also weighing on the AUD/NZD prices could be the recent comments from China suggesting more stimulus and efforts tame covid as the nation struggles to justify growth potential.  Additionally, a more disappointing outcome of the New Zealand Q1 Retail Sales, -0.5% QoQ versus 8.3% prior, compared to the slightly softer Aussie PMIs also weighs on the quote.

Against this backdrop, the S&P 500 Futures rise half a percent after mixed closing on the Wall Street whereas the US 10-year Treasury yields dropped the most in a week to refresh a one-month low of around 2.717%.

Looking forward, comments from RBA Assistant Governor (Economic) Luci Ellis could offer intermediate clues to the AUD/NZD traders ahead of the key RBNZ.

Read: Reserve Bank of New Zealand Preview: Will they step up their tightening game?

Technical analysis

AUD/NZD bounces off a 10-week-old ascending trend line, around 1.0985, to challenge the weekly resistance line and the 21-DMA near 1.1015.

• EUR/USD bulls take a breather after rising to one-month high during a two-day uptrend.
• Hawkish ECB speak, mixed US data and repeated Fed comments underpin the run-up.
• Risk-aversion failed to propel the US dollar amid doubts over growth, inflation.
• US Durable Goods Orders for April, German data and risk catalysts are extra burden on the market watchers.

EUR/USD dribbles around a one-month high, after rising for the last two consecutive days to Wednesday’s Asian morning, as the US dollar selling pauses ahead of the key catalyst, as well as amid a risk-off mood. That said, the major currency pair seesaws around 1.0730-35 by the press time.

Fears of slowing housing growth and hawkish comments from the European Central Bank (ECB) officials could be termed as the key factors that recently propelled the EUR/USD prices. On the same line were the repetitive Fedspeak and an absence of impressive data from elsewhere. It’s worth noting that the risk-aversion couldn’t lift the US dollar on downbeat Treasury yields ahead of today’s Minutes of the latest Federal Open Market Committee (FOMC).

US New Home Sales for April marked the biggest monthly fall in nine years with 16.6% MoM figures and sparked concerns over the growth of the world’s largest economy, especially at the time when inflation fears are mounting. The same weighed down the US Treasury yields and the US Dollar Index (DXY) as Fed policymakers keep repeating the 50 bps rate hike concerns. It’s worth noting that the US preliminary activity numbers for May also came in softer and exerted additional downside pressure on the greenback.

That said, the US 10-year Treasury yields dropped the most in a week to refresh a one-month low around 2.717% while the DXY extended the week-start fall towards late April bottom near 101.70. Elsewhere, the Wall Street benchmarks closed mixed, after an initially downbeat performance.

Not only the USD weakness but the economic optimism among the European policymakers and upbeat data from Germany also weighed on the EUR/USD prices. On Tuesday, the European Central Bank (ECB) President Christine Lagarde joined Vice President of the European Commission Valdis Dombrovskis to portray the economic resilience of the bloc. Further, German PMI was firmer for May while the Eurozone numbers were softer-than-expected. It should be noted that some of the ECB policymakers have recently spread direct comments on the 50 bps rate hike in July and offered notable strength to the Euro.

That said, the EUR/USD traders may pay attention to the qualitative catalysts ahead of the European morning and hence a risk-off mood may consolidate some of the pair’s latest gains. However, German GfK sentiment figures, GDP data and a speech from ECB President Lagarde will be crucial to watch afterward. Following that, the US Durable Goods Orders for April and FOMC minutes will be important. Should the US data keep coming softer, the EUR/USD pair will justify the technical breakout to please buyers.

Read: FOMC May Minutes Preview: Will the Fed have to sell MBS?

Technical analysis

A daily closing beyond the previous support line from early March, around 1.0710, directs EUR/USD prices towards the 50-SMA hurdle surrounding 1.0765 ahead of challenging a downward sloping resistance line from February, near 1.0845.

• AUD/USD is looking to recapture a fortnight high at 0.7127 as investors await FOMC minutes.
• A likely underperformance from US Durable Goods Orders may diminish the appeal of the greenback.
• The Manufacturing PMI data of aussie remained vulnerable while in line numbers are displayed by the US.

The AUD/USD pair has surpassed 0.7110 as investors are awaiting the release of the Federal Open Market Committee (FOMC) minutes on Wednesday. The pair struggled to surpass 0.7120 on Tuesday and is attempting to elevate itself above the fortnight high at 0.7127.

The asset prices on Tuesday were mostly dictated by the global Purchase Manager Index (PMI) numbers. The antipodean reported the Manufacturing PMI at 55.3, significantly lower than the estimates of 57.8 and the prior print of 58.8 while Services PMI landed at 53, higher than the forecasts of 52.2 but lower than the prior release of 53.5.

While the US Manufacturing PMI remained in line with the estimates of 57.5 and Service PMI tumbled to 53.5 against the expectation of 55.2.

Going forward, the market participants will focus on the release of the FOMC minutes. The FOMC minutes will dictate the ideology of Federal Reserve (Fed) policymakers behind the announcement of 50 basis points (bps) interest rate hike. Also, the guidance on the upcoming monetary policy meetings will be meaningful to watch.

Apart from the FOMC minutes, the US Durable Goods data hold significant importance. The US Census Bureau is expected to report the monthly Durable Goods Orders at 0.6% against the prior print of 1.1%. Also, the core Durable Goods Orders that exclude defense goods are expected to land at 0% vs. 1.4% reported earlier.

• The GBP/JPY paired Monday’s gains and some more, down 1.31%.
• Sentiment remains negative as Wednesday’s Asian session begins.
• GBP/JPY Price Forecast: To further extend its current losses towards 157.99 and beyond.

Risk-aversion is back for the second consecutive trading day in the week and weighs on the GBP/JPY, which plummets 200 pips as the North American session winds down. At the time of writing, the GBP/JPY is trading at 159.03.

Sentiment remains sour due to US Federal Reserve tightening monetary conditions as the central bank scrambles to bring inflation down. US S&P Global PMIs showed mixed readings, but investors’ concerns about a difficult US economic scenario cloud the outlook. Meanwhile, market players sought safe-haven protection and sold off assets that had the risk word attached to them.

On Tuesday, the GBP/JPY opened near the daily highs at 160.98 and tumbled shy of a solid supply zone around 160.01-41. Initially, the cross stabilized around the 160.30-60 area. However, once it broke below an upslope trendline near 160.50, it exerted further downward pressure until it broke below 160.02, accelerating the downtrend and reaching a fresh weekly low at 157.99.

GBP/JPY Price Forecast: Technical outlook

Once Tuesday’s trading session is in the rearview mirror, the GBP/JPY shifted neutral-downward biased, as shown by the daily chart. Despite the long-term daily moving averages (DMAs) residing below the exchange rate, price action in the 1-hour chart depicts a successive series of lower highs (LH) and lower lows (LL). Hence, a downward move towards the previously tested 157.99 weekly low is on the cards.

That said, the GBP/JPY first support would be May 19 swing low at 158.75. Break below would expose the May 24 daily low at 157.99, followed by the May 16 swing low at 157.42.

Hourly chart

Key Technical Levels

• Gold is making headway into key daily resistance.
• Risk sentiment is sour and supportive of the yellow metal.

The gold price has been moving higher on Tuesday as the US dollar gave way to the bears yet again, sliding to a one-month low following hawkish rhetoric from the European Central Bank President Christine Lagarde. The governor said the eurozone interest rates will likely be in positive territory by the end of the third quarter. Consequently, the markets moved out of the greenback and spread the demand across its rivals.

Against a basket of other major currencies (DXY), the dollar was down 0.362% at 101.646, its lowest since April 25. The greenback also weakened further after data showed US business activity slowed moderately in May. S&P Global said its flash US Composite PMI Output Index, which tracks the manufacturing and services sectors, showed the pace of growth was the slowest in four months. US New-Home Sales also slowed to a 591,000 annual rate in April from a downwardly revised 709,000 rate in March, below the 749,000-rate expected.

Additionally, negativity returned to risk markets and major equity market indexes ended mixed Tuesday as Snap (SNAP) said it expects second-quarter revenue to miss its own guidance. The Dow Jones Industrial Average managed to end 0.2% higher at 31,928.62. The S&P 500 declined 0.8% to 3,941.48 while the tech-heavy Nasdaq Composite fell by 2.4% to 11,264.45. Investors moved into bonds instead and this sent the US 10-year yield lower by 10.1 basis points to 2.76% after reaching its lowest intraday level since mid-April earlier in the session.

Gold supported on growing economic concern

''Gold traders are increasingly questioning the Fed's willingness to hike into a recession, as growing economic concern is breathing life into the gold market. Upside flow from CTAs along with renewed growth in ETFs have supported the recovery,'' analysts at TD Securities argued.

''In turn, the improving momentum has seen the nearest trigger within trend-following models flip toward further upside should prices break north of $1900/oz, rather than a whipsaw lower. Nonetheless, the recovery in the yellow metal is still on shaky ground as Fed Chair Powell signalled a willingness to sacrifice some economic growth in an effort to tame inflation, suggesting the Fed is comfortable with more pain before taking the foot off the break, which should ultimately still weigh on precious metals.''

Gold technical analysis

Gold is trapped between daily support and resistance still but is making headway.  However, the W-formation is a reversion pattern that could leave the price trapped in the sideways channel for the days ahead. If, however, there is a break one way or the other, of the current support and resistance, then the price imbalances to $1,883 on the upside and $1,780 to the downside could be mitigated. 

• Oil prices are trading directionless as an underperformance from Global PMI numbers renews demand worries.
• The US PMI remained in line with estimates while Europe and the UK PMI displayed subdued performance.
• Re-opening of Shanghai after severe lockdown measures will spurt the oil demand.

West Texas Intermediate, futures on NYMEX, is oscillating in a narrow range of $109.00-109.72 in the Asian session after an unexpected jump in oil inventories reported by the American Petroleum Institute (API). The weekly oil stockpiles rose to 0.567 million barrels against the previous figure of -2.445 million barrels.

A general underperformance reported in the global Purchase Managers Index (PMI) economic data by various nations has raised concerns over the demand of oil on a broad basis. The US Manufacturing PMI remained similar to consensus at 57.5 but lower than the previous release. Europe’s Manufacturing PMI landed lower at 54.4 than estimates and prior print. Also, the UK’s Manufacturing PMI remained lower at 54.6 than forecasts and former figures. Therefore, a general underperformance in the economic activities by developed nations has showcased a plunge in the aggregate demand and henceforth the demand for fossil fuels.

Going forward, oil bulls may get a sigh of relief as Shanghai is reopening after two-month severe lockdown restrictions to contain the spread of Covid-19. It is worth noting that China is the leading importer of oil and the reopening of Shanghai may spurt the oil demand going forward. Apart from that, the upcoming US summer season is expected to increase the demand of fossil fuels.

Meanwhile, Europe has not reached any meaningful decision regarding the embargo on Russian oil imports as Hungary is continuously opposing the sudden Russian oil ban to safeguard itself against the prompt supply shock.

• It is RBNZ day in the Asian session and the kiwi is quiet ahead of the event. 
• The MPS will be held against a backdrop of fragile global markets.

NZD/USD is down some 0.12% into the close on Wall Street in what has been a day of little activity for the pair, bounded by support and resistance, changing hands between 0.6423 and 0.6468 ahead of the Reserve Bank of New Zealand. 

''Equities and bond yields are also lower in the US, and general market volatility remains high, and as with last time, the MPS will be held against a backdrop of fragile global markets,'' analysts at ANZ Bank explained. 

''That does mean it has to compete with other factors for impact, but with fears of a hard landing at the core of what’s eating away at risk sentiment, as we’ve been saying for a while, if the RBNZ can strike the right balance between “we’ve got this” on inflation while signalling that it is cognisant of recession risks (not an easy job) while also preserving optionality, that’d likely be positive for the Kiwi.'' 

As for the greenback, the US dollar index has been on the backfoot and it hit nearly a one-month low while European Central Bank President Christine Lagarde said eurozone interest rates will likely be in positive territory by the end of the third quarter. The markets are starting to price in a higher interest rate regime around other central banks which is stripping the greenback of some demand. Against a basket of other major currencies (DXY), the dollar was down to 101.646, its lowest level since April 25.

Reuters reports that the greenback weakened further after data showed US business activity slowed in May as higher prices cooled demand for services while renewed supply constraints because of COVID-19 lockdowns in China and the war in Ukraine hampered production at factories.

''S&P Global said its flash U.S. Composite PMI Output Index, which tracks the manufacturing and services sectors, showed the pace of growth was the slowest in four months.''

• Despite retreating from weekly highs, the EUR/JPY is gaining 0.92% in the week,
• A negative market sentiment keeps safe-haven peers in the FX space buoyant.
• EUR/JPY Price Forecast: Rising wedge in the daily chart might lead the pair to tumble towards 132.00 unless EUR/JPY bulls reclaim 137.00.

The EUR/JPY edges lower after reaching fresh weekly highs at around 136.79 and daily lows just below the 50-DMA at 135.64, blamed on a dampened market sentiment that increased appetite for safe-haven peers. At the time of writing, the EUR/JPY cross-currency pair is trading at 136.16.

Dismal sentiment keeps the euro on the defensive

Risk aversion continued for the second consecutive day in the week. Global equities are trading lower on expectations that the US Federal Reserve will not achieve a soft landing as it tightens monetary conditions, aiming to tackle high inflation around quadruple its target. Furthermore, China’s coronavirus crisis, which spurred factory halts in April, particularly in Shanghai, clouds the economic outlook.

Elsewhere, the EUR/JPY pair opened near the daily high and tumbled as sentiment turned sour, aiming towards the 50-hour simple moving average (SMA) at 135.95, breaking on its way south, support levels like the daily pivot point at 136.05. However, the cross-currency is back above the central daily pivot point, though down in the day by some 0.37%.

EUR/JPY Price Forecast: Technical outlook

The EUR/JPY daily chart depicts the pair as upward biased. However, the cross advances steadily and will face a solid supply area around the 137.00 mark, which EUR/JPY bulls have been unable to conquer.

It’s worth noting that a rising wedge is forming, which, once broken, might open the door for further losses. That said, the EUR/JPY’s first support would be the 50-day moving average (DMA) at 135.64. A breach of the latter would open the door for a re-test of the rising wedge bottom trendline, around 134.80-135.10. Once cleared, the following demand zone would be the rising wedge target at 132.00, followed by the 200-DMA at 131.24.

What you need to take care of on Wednesday, May 25:

The American dollar remained weak on Tuesday, despite the market mood being sour. The EUR/USD pair rallied beyond 1.0700 as more ECB officials vowed for a 50 bps rate hike. The GBP/USD pair, however, fell following softer-than-anticipated local data to end the day in the 1.2520 price zone.

S&P Global released the preliminary estimates of its May PMIs. Most European manufacturing and services indexes came in below the market’s expectation, except for the German ones, which were slightly better than April ones. The EU services PMI came down to 56.3 from 57.7 in the previous month, while the manufacturing index printed at 54.4, below the 54.9 expected.  

UK figures were also disappointing, as business activity slowed down to its weakest since early 2021, according to the official report. Finally, the company reported that the US manufacturing index slid to 57.5 as expected, while the services index contracted to 53.5 in the same period.

Meanwhile, inflation did not recede while the coronavirus-related lockdown in China exacerbated supply chain issues. In fact, JP Morgan downgraded China’s growth forecast to 3.7% from 4.3% in 2022, while other research institutes followed suit.

 The AUD/USD pair trades just below the 0.7100 level, while USD/CAD holds above 1.2800. Safe-haven currencies were sharply up, with USD/JPY down to 126.80.

Gold price trades near its weekly high at $1,869.71 a troy ounce, while crude oil prices posted modest gains. WTI is now changing hands at around $110.00 a barrel.

Asian and European indexes closed in the red. Wall Street spent most of the day in negative territory but managed to recover ground in the final hour of trading. The DJIA settled in positive territory, but its counterparts remained in the red.

Demand for safety boosted government bonds, with yields down to fresh weekly lows.

The Reserve Bank of New Zealand will announce its monetary policy decision and is expected to hike the main rate by 50 bps to 2%.

This is how low Bitcoin can go

• USD/CAD is losing some bids into the close on Wall Street but the loonie remains out of favour.
• Oil and shares have been on the backfoot while investors remain concerned over China's economy.

At 1.2824, USD/CAD is higher on the day so far as the commodity sector wobbles as fears about weak earnings and slowing economic growth punctured the recent mini-rally. Shares have been on the backfoot while investors remain concerned over China's economy.

At the start of the week, traders favoured the pledges of more stimulus from China's government but are now more concerned over the prospects of a prolonged lockdown in various regions of the nation that still struggle with the pandemic. "The government's dynamic zero-COVID policy will remain in place through 2022, preventing a return to normalcy and limiting the effectiveness of new fiscal and monetary stimulus measures," warned S&P Global. "Thus, real GDP growth will likely slow from 8.1% in 2021 to 4.3% in 2022." "New geopolitical, financial, or supply-side shocks could tip the world economy into recession."

Additionally, the price of oil is lower over the worries of not only a possible global recession but also China's COVID-19 curbs that have balanced tight global supply and US summer driving season demand. US crude prices have eased to $108.63 a barrel. Subsequently, the Canadian dollar has edged lower against its US counterpart on Tuesday.

As for data, Canadian factory sales rose 1.6% in April from March, largely driven by higher sales of petroleum and coal products, Statistics Canada said in a flash estimate. A separate flash estimate for the same month showed that wholesale trade rose 0.2%.

Overall, CAD could be in a better position compared to other growth currencies such as the antipodeans due to solid growth, commodity exposure, and domestic monetary tightening. However, ''markets are shifting into data-watching mode, and how this evolves will be relevant for broad USD dynamics over the tactical horizon, analysts at TD Securities argued and said that ''this is not a great setup for the CAD.''

• Silver (XAG/USD) modestly advances but faces strong resistance around $22.00; so far is up 1.25% in the week.
• Risk-aversion keeps precious metals buoyant while the greenback and US Treasury yields fall.
• Silver Price Forecast (XAG/USD): A daily close above $22.00 would open the door for further gains; otherwise, the downtrend would resume.

Silver (XAG/USD) registers gains but appears to be glued to the $22.00 mark, as XAG/USD bulls failed to record a daily close above the $22.00 area for four consecutive days, albeit a dampened market mood. At the time of writing, the XAG/USD is trading at $22.05.

Precious metals climb on the US weaker economic outlook

US equities keep illustrating a dampened market mood in tone with the Asian and European sessions. S&P Global PMIs revealed that Europe and the US presented mixed results, increasing investors’ concerns that Europe and the US might suffer a  possible economic slowdown. The supply chain issues continue, and higher costs from raw materials would keep inflationary pressures elevated.

Given the backdrop that the Federal Reserve is tightening monetary conditions in the US and is about to hike 50-bps in the June and July meetings, concerns about the US central bank achieving a soft or “softish landing,” as Fed Chair Powell said, look far to be done. That’s why market players keep the US stock market downward pressured and the US dollar softer.

The US Dollar Index, a gauge of the greenback’s value against a basket of its rivals, slides 0.24% and is down at 101.850. Failure to reclaim the 102.000 mark would open the door for a retest of April 21 swing low at 99.818. On the same note, the 10-year US Treasury yield grinds lower and loses almost ten basis points (bps), sitting at 2.761%, a tailwind for Silver prices.

Elsewhere, Atlanta’s Fed President Raphael Bostic crossed the wires, though he sounded less “hawkish” than usually. Bostic said that rate hikes won’t cause a recession and that the central bank can hike rates to deal with overly high inflation without sending the US economy into recession. He stated that the US central bank could pause rate increases in September to review how the economy performs.

Macroeconomic-wise, the US docket featured the US S&P Global PMIs for May, which illustrated mixed results, with the Services and Composite Indexes missing expectations while the Manufacturing PMI was unchanged. Furthermore, Richmond’s Fed Manufacturing Index plunged to -14 vs. 15 foreseen, adding to the Fed regional manufacturing reports showing deceleration or contraction.

Silver Price Forecast (XAG/USD): Technical outlook

XAG/USD is still downward biased, despite recording gains for the third day out of the last four. However, it’s important that XAG/USD traders, need to be aware that Silver has struggled at the $22.00 mark. Failure at the previously mentioned would resume the downtrend and open the door for further losses.

If that scenario plays out, the XAG/USD’s first support would be the May 19 pivot low at $21.28. Break below would expose the May 16 daily low at $20.84, followed by the YTD low at $20.45. However, if XAG/USD’s bulls accomplish a daily close above the $22.00 mark, that could allow further gains. The XAG/USD first resistance would be the psychological $23.00 mark. Once cleared, the next supply zones would be the May 5 swing high at $23.28, followed by a test of the 200-DMA at $23.57.

• EUR/USD staying the course, so far, towards a 50% mean reversion target area.
• However, the bearish head and shoulders are a topping pattern that currently features in the 15-min time frame. 

As per the start of the week's analysis, EUR/USD Price Analysis: Bulls are taking over through key daily resistance, the price has continued higher as the bulls hunt down key weekly resistance structure. 

Breaking daily resistance in the opening sessions on Monday, EUR/USD breached the 38.2% Fibonacci of the weekly bearish impulse on Monday and has subsequently moved higher into the 1.07 areas with eyes on mid-late April daily swing lows near 1.0770. The following illustrates the bullish bias over a series of time frames. 

EUR/USD weekly/daily charts, prior analysis

It was stated that ''the bulls are already penetrating the 38.2% Fibonacci and on the way to 1.07 the figure. A move towards the 50% and 61.8% ratios could be on the cards for the foreseeable future.''

As for the daily chart, the analysis noted ''the price imbalance on the daily chart leaves the aforementioned weekly ratios on the Fibonacci scale exposed towards 1.0770 and 1.0936.''

EUR/USD live market

The price is moving in on the aforementioned weekly supply zone and prior daily swing lows:

However, at this juncture, the weekly W-formation should be noted:

This is a reversion pattern and the price would be expected to revisit the neckline in due course. In the meantime, the daily impulse could be due for a meanwhile correction also:

EUR/USD M15 chart

The bearish head and shoulders are a topping pattern that currently features in the 15-min time frame. A break of the neckline near 1.0725 could spell trouble for the committed bulls. A break of 1.0705 will likely open the way for further supply to mitigate the price imbalance towards a 38.2% Fibonacci retracement of the daily bullish breakout impulse near 1.0665 that guards a 50% mean reversion to 1.0640. 

• Cable pares some of Monday’s gains and retraces towards the 1.2530s region.
• Risk-aversion and weaker than the expected UK PMIs weighed on the GBP/USD.
• GBP/USD Price Forecast: A daily close below 1.2600 to leave exposed the major to additional selling pressure.

The British pound shifted to the defensive as sentiment shifted sour and weighed by weaker than expected UK PMIs, which dragged the major from weekly highs at around 1.2600 towards the 1.2530s area. At 1.2536, the GBP/USD is trimming some of Monday’s gains and is down 0.40%.

The mood remains dampened, spurred by concerns about the US economy falling into a recession. The Federal Reserve is on a hiking cycle, tightening its monetary policy, which according to money market futures, would see the Fed hiking towards the 2.75-3% area by the end of the year.

Another factor that is weighing on is China’s Covid-19 crisis. Reports over the weekend illustrated that Beijing is struggling to cap the spread. Meanwhile, Shanghai, which was about to lift restrictions, witnessed another outbreak, though not as at the beginning of the last episode.

Elsewhere, the GBP/USD opened near the daily high around 1.2600 but fell and broke below the central and S1 daily pivot points, near the 1.2480s. Nevertheless, towards the end of the European session, the major is treading water and is aiming towards the 50-hour simple moving average (SMA) at 1.2542.

GBP/USD Price Forecast Technical outlook

From a technical perspective, the GBP/USD remains downward biased, despite bouncing 300 pips from the YTD low to current levels. The 1.2600 mark probes to be a solid resistance, as the GBP/USD bulls struggled twice to reclaim the figure, which would have opened the door for an upward move towards the May 4 swing high at 1.2638. However, a daily close below 1.2600 would leave the pair vulnerable to additional selling pressure, further validated by the RSI at 48.69, within the negative territory and aiming lower.

That said, the GBP/USD first support would be the psychological 1.2500 figure. A breach of the latter would expose July 2020 lows near 1.2479, followed by the May 17 daily low at 1.2313 and the YTD low at 1.2155.

Key Technical Levels

• AUD/USD is on the back foot despite a bruised US dollar. 
• Investors remain concerned over China's economy and COVID lockdowns.

At 0.7085, AUD/USD is trading down some 0.31%, sliding from a high of 0.7107 to a low of 0.7056.  

The Australian dollar eased on Tuesday as global stocks underperformed while investors remain concerned over China's economy and COVID lockdowns. At the start of the week, traders favoured the pledges of more stimulus from China's government over the prospects of a prolonged lockdown in various regions of the nation that still struggles with the pandemic. 

"The government's dynamic zero-COVID policy will remain in place through 2022, preventing a return to normalcy and limiting the effectiveness of new fiscal and monetary stimulus measures," warned S&P Global. "Thus, real GDP growth will likely slow from 8.1% in 2021 to 4.3% in 2022." "New geopolitical, financial, or supply-side shocks could tip the world economy into recession."

Meanwhile, with central banks in the picture, the US dollar's appeal has been hit due to other central bankers speaking out and carrying hawkish rhetoric.  The DXY index, which measures a basket of currencies vs. the US dollar printed a fresh one-month low on Tuesday after European Central Bank President Christine Lagarde said eurozone interest rates will likely be in positive territory by the end of the third quarter. This supported the euro in a correction higher and weighed on the greenback. 

RBA in focus

As for the Reserve Bank of Australia, consumer spending seems to have held up well to the Reserve Bank of Australia's (RBA) first hike in interest rates earlier this month. However, some of the data of late may not have met the mark. 

''The Wage Price Index (WPI) came in below expectations in the first quarter at a low 0.7% QoQ (0.65%), the same rate as in the fourth quarter 2021,'' analysts at ANZ Bank explained, adding that ''this suggests the RBA is likely to hike the cash rate another 25bp in June, rather than a larger 40 or 50bp hike.''

''The wage and employment data hasn’t, in our view, 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.''

''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.''

Meanwhile, markets are priced for quarter-point rises in the 0.35% cash rate in both June and July, and a half-point hike in August following what is likely to be another alarming inflation report.

Looking ahead, the RBA Assistant Governor Luci Ellis is due to speak and could expand on the central bank's own outlook for policy.

• The yellow metal is rallying in the week, gaining 1.07%.
• Gold advance is courtesy of a dismal sentiment, broad US dollar weakness, and falling US Treasury yields.
• Gold Price Forecast (XAU/USD): To hit a substantial resistance area around $1886-90, which once cleared would open the door for further gains; otherwise, Gold would tumble towards the 200-DMA.

Gold spot (XAU/USD) records solid gains and stays above the 20-day moving average (DMA), which lies at $1854.50, amidst a dismal market sentiment, falling US Treasury yields, and a weaker US dollar. At $1867.22, XAU/USD eyes to re-test the March 31 swing low-turned-resistance at around $1889.91.

Gold advances boosted by a softer greenback

Risk-aversion keeps riskier assets under pressure. Global equities are recording losses, while the non-yielding metal has seen an increase in flows towards its safe-haven status, while the greenback keeps tumbling, a tailwind for Gold prices. The US Dollar Index, a gauge of the buck’s value vs. a basket of peers, is falling 0.36%, down at 101.717.

Investors’ concerns that the US Federal Reserve would trigger a recession in favor of bringing inflation down weighed on the market mood. Additionally, China’s ongoing coronavirus crisis keeps the global economic outlook cloudy. According to the Global Times, Shanghai will allow convenience stores and drugstores to resume operations with a maximum occupancy of 50% before May 31 and 75% after June 1.

In the meantime, US Treasuries keep plunging, led by the 10-year Treasury yield, down 11 bps, sitting at 2.743%.

At the time of writing, Atlanta’s Fed President Raphael Bostic hit the wires. Bostic said he supports expeditious rate hikes to neutral but done  “with intention and without recklessness.” Further added that he does not see clear signs of a wage-price spiral.

The US economic docket featured the US S&P Global PMIs for May, which illustrated mixed results, with the Services and Composite Indexes missing expectations while the Manufacturing PMI was unchanged. Furthermore, Richmond’s Fed Manufacturing Index plunged to -14 vs. 15 foreseen, adding to the Fed regional manufacturing reports showing deceleration or contraction.

Gold Price Forecast (XAU/USD):  Technical outlook

XAU/USD remains neutral biased, despite exchanging hands above the 20 and the 200-day moving averages (DMAs), each at $1854.41 and $1839.36, respectively. The four-consecutive day rally continued, but the non-yielding metal will face substantial resistance levels around the 100-DMA and March’s 31 swing lows. If XAU/USD fails to reclaim the previously mentioned levels, Gold would aim south and re-test the 200-DMA.

Upwards, the XAU/USD’s first resistance would be the 100-DMA at 1886.84. Break above would immediately expose the March 31 swing low-turned-resistance at 1889.91, followed by the 1900 mark. On the flip side, the XAU/USD’s first support would be the 20-DMA at $1854.41, followed by the 200-DMA at $1839.36, and then the $1800 figure.

Federal Reserve's Raphael Bostic said rate hikes won’t cause a recession and that the central bank can hike rates to deal with overly high inflation without sending the US economy into recession.

He repeats that the Fed rates hikes can take some pause arguing that the Fed might need to pause rate increases in September to take stock of how the economy is performing.

Key comments

Will proceed 'with intention, without recklessness'.

Monetary policymakers must be mindful of uncertainties, proceed carefully in tightening policy.

US dollar remains pressured

The bruised US dollar was sold off to a fresh one-month low on Tuesday. Against a basket of its rivals (DXY), the dollar fell to 101.646, its lowest level since April 25.

• Demand for bonds is on the rise amid a deterioration in the global economic outlook.
• US stocks drop on Tuesday boosting further the yen.
• USD/JPY breaks range and extends retreat from multi-year highs.

The USD/JPY ended with days of consolidation with a sharp decline on Tuesday. The pair broke under 127.00 and tumbled to 126.34, the lowest level in a month. It remains near the lows, under pressure amid risk aversion.

The decline of USD/JPY gained momentum on the back of a weaker US dollar, lower yields and as stocks in Wall Street turned red. The Dow Jones is falling 0.83% and the Nasdaq drops by 2.78%. The US 10-year yield stands at 2.73%, a four-week low while the 30-year is back under 3%.

Economic data from the US came in below expectations (PMIs and New Home Sales) and weighed on the greenback. The DXY is falling 0.37%, trading at 101.70, the lowest in almost a month.

Analysts at MUFG Bank, see the USD/JPY pair with a bearish bias, moving in the range 122.00/129.50 during the next weeks.  “The main risk to our bearish outlook for USD/JPY would be if global growth concerns eased in the month ahead. A pick-up in China growth could be one potential trigger. The upward impact on global yields, commodity prices and a potential stabilization for global equity markets should encourage a higher USD/JPY even if the USD weakens more broadly. Yen weakness would be more evident though against high beta commodity currencies.”

If the USD/JPY extends the decline, below the 126.30 support line, 126.00 is the next target followed by 125.75 (April 11, 12 high). A recovery now would face an immediate resistance at the 127.00/05 area. Above the next one might be seen at 127.60 and then comes a downtrend line at 128.30.

Technical levels

A break lower in the EUR/USD pair to new lows remains plausible in a scenario of tighter financial conditions, explain analysts at MUFG Bank. They point out the scale of the sell-off of the dollar does highlight the limits to the bull-run from here and with so much Federal Reserve tightening priced, they still expect the US dollar to weaken more notably later in the year.

Key Quotes:

“We are sticking to our neutral bias for EUR/USD in the month ahead. The ECB’s recent hawkish policy shift has helped to provide some much-needed support for the EUR after it briefly tested and held support from the low in early 2017 at 1.0340. The EUR has since staged a relief rally moving back into the middle of our forecast range. The turnaround for the EUR has been reinforced by hawkish comments from President Lagarde signalling clearly that the ECB plans to speed up the pace of policy tightening in response to upside inflation risks.”

“The removal of negative rate policy should provide more support for the EUR going forward given that it has proved effective at helping to keep the EUR weak by encouraging record capital outflows into foreign bond markets while it has been in place. It was more normal for EUR/USD to trade above the 1.2000-level in the decade prior to the introduction of negative rates.”

“The EUR’s ability to extend its recent advance much further on the back of the normalization of ECB policy remains constrained by ongoing downside risks from the Ukraine conflict. It appears increasingly likely now that the conflict will prove more prolonged than initially hoped and thereby increases the risk of a longer period of disruption for the euro-zone economy that will both dampen growth and keep inflation higher for longer.”

• Canadian dollar among worst performers of the American session.
• US and Canadian bonds rise sharply.
• USD/CAD rises to the highest level since last Wednesday.

The USD/CAD broke to the upside after moving in a small range for hours and jumped to 1.2872, reaching the highest level since last Thursday. The pair remains near the highs, with the bullish momentum intact.

Weaker loonie, USD/CAD rebounds from weekly lows

The loonie dropped across the board during the American session amid risk aversion. It also lost ground versus AUD and NZD. The Dow Jones is falling 1.40% and the Nasdaq 3.40%. US and Canadian yields are falling, currently at multi-day lows.

The slide in equity prices offered some support to the dollar that was affected by weaker than expected US economic data. The S&P Global PMI came in below expectations. The S&P Global Composite dropped in May to the lowest in five months according to preliminary data at 53.8, down from 56 and below the 55.5 of market consensus. New home Sales fell 16.6% in April, worse than expectations. On Wednesday, the FOMC minutes will be released. In Canada, the next important economic report is due on Thursday with retail sales.

Resistance ahead at 1.2890

The USD/CAD is turning to the upside, bouncing from the lowest in two weeks. The pair found support above 1.2760 and now is looking to test the 1.2890 area. A consolidation above 1.2900 should strengthen the outlook for the dollar.

On the flip side, 1.2815/20 is the key support. If USD/CAD falls below, the recent low at 1.2764 would be exposed. Below the next support stands at 1.2714 (May 5 low).

Technical levels

• The common currency records gains in the week of 1.57%.
• Overall US Dollar’s weakness on concerns that the Fed would trigger a recession, a tailwind for the EUR/USD.
• EUR/USD Price Forecast: Failure to reclaim the 50-DMA at around 1.0767 would expose the major to selling pressure.

EUR/USD bulls are reclaiming the 1.0700 mark on Tuesday, courtesy of ECB policymakers expressing the need for the central bank to exit from negative rates by the third quarter of 2022, further emphasized on Monday by ECB President Christine Lagarde. At 1.0732, the EUR/USD gains for the second straight day.

US Dollar weakness extend for two days on investors’ concerns of a “possible” US recession

The greenback remains soft for the second day of the week and is trading below 102.000 the lowest level since April 26, on growing concerns that the Federal Reserve would not achieve a soft landing and trigger a recession. Meanwhile, May’s US S&P Global PMIs showed mixed results, with the Services and Composite Index missing expectations while the Manufacturing PMI came unchanged.

Later, Richmond’s Fed Manufacturing Index plunged to -14 vs. 15 foreseen, adding to the list of Fed regional manufacturing reports showing deceleration or contraction. Late at around 16:20, the Fed Chair Jerome Powell would cross the wires.

In the meantime, the US 10-year benchmark note follows the buck’s footsteps and is also down 13 bps, sitting at 2.726%.

During the Eurozone session, the EU docket witnessed the release of S&P Global PMIs, which showed mixed results. The EU Manufacturing and Services PMI missed expectations, though downtick minimally. The German Manufacturing PMI beat expectations, carrying on the support from Monday’s German IFO readings, which showed the resilience of businesses and consumers.

Further ECB speaking crossed the wires on Tuesday. ECB’s President Lagarde said, “I don’t think that we’re in a situation of surging demand at the moment. It’s definitely an inflation that is fueled by the supply side of the economy. In that situation, we have to move in the right direction, obviously, but we don’t have to rush and we don’t have to panic.” In the meantime, ECB’s Francois Villeroy added that “A 50 bp hike is not part of the consensus at this point, I am clear. Interest rate hikes will be gradual.”

Albeit Lagarde and Villeroy’s efforts to push back, additional ECB “hawks” crossed wires. ECB’s Holzmann said a 50 bps hike in July would be appropriate. Furthermore, ECB’s Kazakhs added to that list and commented that the central bank should not rule out 50 bps rate rises and look for hikes in July and September, and possibly another in Q4.

In the week ahead, the EU docket is packed and will feature German Gfk Consumer Confidence, German GDP, and France’s Consumer Confidence. On the US front, Durable Goods Orders, May’s FOMC Minutes, US GDP Growth Estimates, and the Fed’s favorite gauge of inflation, the Personal Consumption Expenditure (PCE).

EUR/USD Price Forecast: Technical outlook

The EUR/USD remains downward biased, despite the last couple of weeks’ price action, which formed a bottom after dropping from 2021 tops at around 1.2349. Nevertheless, the shared currency is still hovering around the April 2020 lows near 1.0727, which means that a daily close above the previously mentioned would open the door for further gains. Otherwise, the EUR/USD rally to the 1.0720s area would be seen as an opportunity for EUR/USD bears to add to their positions and aim for a re-test of the YTD lows at 1.0348.

Upwards, the EUR/USD’s first resistance would be the 50-day moving average (DMA) at 1.0767. Break above would expose the March 7 daily low at 1.0805, followed by the 1.0900 mark. On the flip side, the major’s first support would be 1.0700. A breach of the latter would expose April 2017 daily low at 1.0635, followed by the 20-DMA at 1.0535.

• A sharp drop in UK (and global) yields following weak UK and US PMI data has weighed heavily on GBP/JPY.
• The pair was last trading in the low 158.00s and eyeing a breakout to fresh monthly lows around 156.00.

UK government bond yields had already been on the back foot in the lead up to the start of the US trading session in wake of much weaker than expected UK PMI data for May released earlier in the day which triggered renewed fears about the UK’s increasingly fragile, inflation plagued economy, but that move lower accelerated in tandem with a drop in global yields after disappointing US Service PMI numbers, which triggered fears about a slowdown in the world’s most important/largest economy.

UK 10-year yields were last trading lower by more than 10 bps on the day, with similar drops seen in the US and, to a lesser extent owing to hawkish ECB commentary, the Eurozone. As a result, UK (and global)/Japan yields differentials have narrowed significantly on the day, weighing heavily on G10/JPY pairs owing to the yen’s sensitivity to rate differentials.

GBP/JPY was last trading close to one-week lows under the 158.50 mark, down about 1.6% or over 250 pips on the day and eyeing a break lower towards monthly lows in the 156.00 area. Technicians will note how the 21-Day Moving Average (at 160.40) has once again proven a solid level of resistance, as has been the case since late April. As global growth fears largely subsume fears about central bank tightening, thus sending yields lower, G10/JPY pairs like GBP/JPY remain at risk of further losses. Traders will likely be targetting a test of the 200DMA in the mid-155.00s in the coming weeks.

European Central Bank policymaker Martins Kazaks said on Tuesday that the bank should not rule out a 50 bps rate hike, and that he sees possible rate hikes in July, September and potentially one more in Q4, reported Reuters. 

His remarks come after fellow ECB policymaker Robert Holzmann called for a 50 bps move in July,, ECB's Francois Villeroy de Galhau said a 50 bps rate hike isn't yet consensus at the bank and ECB President Christine Lagarde reiterated that the bank will take rates out of negative territory in Q3. 

• NZD/USD has pared some intra-day losses after weak US Service PMI data, but is still lower in the 0.6450 area.
• NZD was weighed by softer than expected New Zealand Retail Sales growth figures, which come ahead of Wednesday’s RBNZ meeting.

Softer than expected Q1 New Zealand Retail Sales growth figures have contributed to a weakening of the kiwi on Tuesday, with NZD/USD eroding much of the gains it made on Monday as a result. Worries about global growth as scores of major institutions revised down their growth estimates for the Chinese economy and more US companies warned about a worsening economic environment also weighed. The pair is currently trading near the 0.6450 level, down about 0.3% on the day, after reaching as high as 0.6490 at the start of the week. Just released US Services PMI data for May was worse than expected and has helped the kiwi pair some of its intra-day losses versus the buck, with NZD/USD having been as low as the 0.6420s earlier in the day.

Back to the New Zealand data; real Retail Sales growth came in at -0.5% QoQ in the first quarter of this year, below expectations for a solid pace of increase. Analysts at Westpac said the data “signals downside risk to our forecasts for a 0.6% rise in March quarter GDP”. “The rise in consumer prices is squeezing households' spending power,” they added, “while the rise in mortgage rates and related debt servicing costs will add to the pressures on discretionary incomes”.

Still, the RBNZ is nonetheless expected to press ahead with a 50 bps rate hike during the upcoming Wednesday Asia Pacific session. Kiwi traders will be closely scrutinising the bank’s guidance for future rate hikes and NZD could be choppy as a result. Ahead of the upcoming RBNZ announcement, NZD/USD traders will also have to keep an eye on commentary from Fed Chair Jerome Powell from 1620GMT, where he will likely reiterate the bank’s stance that it is ready to lift interest rates above neutral without hesitation if needed to tame inflation.

New Home Sales in the US in April slumped 16.6% MoM, according to the latest data from the US Census Bureau released on Tuesday. That comes after a 10.5% slump in March, reflecting the ongoing impact of the recent sharp rise in mortgage rates. New Homes Sales came in at 591K over the past 12 months to April, well below expectations for 750K and down from March's 709K.  

Market Reaction

FX markets do not seem to have reacted to the latest US housing figures, concerning for the US economy though they were. Focus instead has seemingly remained on weak US Service PMI data released a few minutes before, which knocked the DXY back to session lows. 

• A combination of factors dragged USD/CHF to a nearly one-month low on Tuesday.
• The risk-off mood underpinned the safe-haven CHF and exerted downward pressure.
• Broad-based USD weakness further contributed to the selling bias and the downfall.

The USD/CHF pair dropped to a nearly one-month low during the early North American session and is now looking to extend the downward trajectory below the 0.9600 round-figure mark.

The pair prolonged its recent sharp retracement slide from a two-year peak, around the 1.0065 region touched earlier this month and witnessed some follow-through selling on Tuesday. This marked the second successive day of a downfall - also the fifth in the previous six - and was sponsored by a combination of factors.

The worsening global economic outlook continued weighing on investors' sentiment, which was evident from a fresh wave of the risk-aversion trade. This, in turn, boosted demand for the traditional safe-haven Swiss franc and dragged the USD/CHF pair lower amid the emergence of heavy selling around the US dollar.

The anti-risk flow was reinforced by a fresh leg down in the US Treasury bond yields. Apart from this, strong pickup in the shared currency - bolstered by hawkish comments by the ECB policymakers - dragged the USD Index to a fresh monthly low. This was seen as another factor that contributed to the USD/CHF pair's decline.

On the economic data front, the US PMIs indicated a deceleration of growth in both - the manufacturing and services sector - and did little to provide any respite to the USD bulls. Tuesday's US economic docket also features New Home Sales and Richmond Manufacturing Index, though the focus remains on Fed Chair Jerome Powell's speech.

Technical levels to watch

• USD/TRY prints new 2022 highs north of 16.00 on Tuesday.
• Turkey 10y bond yields rose to the boundaries of 25.00%.
• The CBRT is expected to leave the policy rate unchanged.

Further weakness in the Turkish currency lifts USD/TRY to new YTD highs past the 16.00 barrier on Tuesday.

USD/TRY weaker ahead of CBRT

USD/TRY advances for the third session in a row and finally manages to leave behind the 16.00 hurdle on Tuesday despite the persistent offered stance in the greenback.

The lira, in the meantime, continues to suffer the omnipresent geopolitical tensions stemming from the war in Ukraine and its associated energy crisis, while rising speculation of a global slowdown seems to have already started to weigh on the currency.

In addition, inflation concerns appear unabated and were particularly exacerbated after the monthly survey by the Turkish central bank (CBRT) on Monday now sees inflation around 58% by year end.

Investors’ attention, in the meantime, slowly shifts to the CBRT’s event on Thursday and whether the bank will finally start hiking rates to tame the rampant inflation.

What to look for around TRY

USD/TRY keeps the upside bias well and sound and trades beyond the 16.00 yardstick for the first time since late December 2021.

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

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

Key events in Turkey this week: 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 gaining 0.80% at 16.0484 and is expected to meet the next hurdle at 16.1533 (2022 high May 24) seconded by 18.2582 (all-time high December 20) and then 19.00 (round level). On the other and, a breach of 14.6836 (monthly low May 4) would expose 14.5458 (monthly low April 12) and finally 14.5136 (weekly low March 29).

How should investors position for stagflation? Economists at Deutsche Bank can already see similar patterns between how different assets performed in the 1970s and how they have been doing today. Commodities are the only asset class to see relatively consistent gains.

Traditional assets need inflation back towards target

“The main takeaway should be that if inflation stays high for many years, then both history and today's high starting valuations suggest it will be very difficult to generate positive real returns in most traditional financial asset classes. Nominal returns will also likely underperform their long-term trend.” 

“Commodities could be the exception although the run-up in prices in the last few quarters leaves the asset class much more expensive than it was.”

“Traditional assets will need inflation to return back towards target in order to get back to long-term positive real returns. If not, then prepare for a decade of real wealth destruction after four decades of huge real wealth accumulation.”

• The flash US Manufacturing PMI was in line with expectations, but the Services PMI was weaker.
• The US dollar is weakening as a result, with the DXY dropping to fresh session lows in the 101.70s.    

The flash estimate for May of IHS Markit's headline US Manufacturing PMI came in at 57.5, in line with expectations, data released on Tuesday showed. That was a slight decline from 59.2 last month. 

However, the flash estimate for May of IHS Markit's headline US Services PMI came in at 53.5, below expectations for a reading of 55.2 and below last month's 55.6. That meant that the flash estimate of IHS Markit's US Composite PMI fell to 53.8 in May from 55.6 in April. 

Market Reaction

The US dollar has been under selling pressure in recent trade in wake of the downbeat US Service PMI numbers, which come at a time when recent earnings announcements (from Snap Inc. on Tuesday but also lots of big US retailers last week) have been warning about a worsening consumer environment. The DXY recently fell to fresh session lows under the 101.75 level, and is now down about 0.4% on the day. 

• GBP/USD has slid back below 1.2500 on Tuesday after weak UK PMI data and amid risk-off flows.
• The pair is eyeing a test of its 21DMA around 1.2425 as US PMIs, remarks from Fed Chair Powell loom.

The sterling bears regained control on Tuesday and pushed GBP/USD back below the 1.2500 level, a roughly 100 pip turnaround from earlier session highs just shy of the 1.2600 level after UK PMI data released earlier in the day reignited fears about a possible recession later this year. The flash estimate of May’s headline Services PMI fell to 51.8, well below the expected drop to 56.9 from 58.9 in April. A reading below 50 suggests negative growth.

The latest data has been interpreted as dampening the prospect for further BoE monetary tightening, given that bank had already been worried about UK growth as the country experiences its worst cost-of-living crisis in decades. The PMI data comes on the heels of last week’s UK Consumer Price Inflation reading that showed headline prices pressures rising at a four-decade high pace of 9.0% YoY in April and jobs data that showed the UK labour market remains tight at the start of Q2/end of Q1.

In wake of aftermarket earnings on Monday from Snap that alluded to a weakening macro environment, which comes on the heels of big US retailers last week essentially pointing to the same thing, risk appetite has soured a little on Tuesday, with this also weighing on GBP/USD. As focus turns to the upcoming release of US PMI data at 1345GMT and then a speech from Fed Chair Jerome Powell at 1620GMT, GBP/USD bears are eyeing a retest of the 21-Day Moving Average, which currently resides close to 1.2425.

• AUD/USD witnessed some selling on Tuesday and eroded a part of the previous day’s strong gains.
• Recession fears weighed on investors’ sentiment and drove flows away from risk-sensitive aussie.
• Sustained weakness below mid-0.7000s is needed to confirm that spot prices have topped out.

The AUD/USD pair came under some selling pressure on Tuesday and moved further away from over a two-week high, around the 0.7125 region touched the previous day. The pair remained depressed through the early North American session and was last seen trading around the 0.7075-0.7080 region, just a few pips above the daily low.

The worsening global economic outlook continued weighing on investors' sentiment and triggered a fresh wave of the risk-aversion trade. This was evident from a generally weaker tone around the equity markets, which, in turn, undermined the perceived riskier aussie, though modest US dollar weakness helped limit deeper losses.

From a technical perspective, the AUD/USD pair, so far, has managed to hold its neck above the 23.6% Fibonacci retracement of the 0.6829-0.7128 recent recovery move. This is closely followed by a confluence comprising an upward sloping trend-line extending from the YTD low touched earlier this month and 100-hour SMA.

The technical set-up warrants some caution before confirming that the recent positive move witnessed over the past two weeks or so has run out of steam and before placing bearish bets. Moreover, neutral oscillators on hourly/daily charts haven't been supportive of any firm near-term direction, warranting caution for aggressive traders.

Hence, sustained weakness below the aforementioned confluence, around mid-0.7000s, is needed to support prospects for any further losses. The AUD/USD pair might then accelerate the slide towards the 38.2% Fibo. level, around the 0.7015 region, en-route the 0.7000 psychological mark and the 50% Fibo. level support near the 0.6980 area.

On the flip side, the 0.7100 round-figure mark now seems to act as an immediate hurdle ahead of the overnight swing high, around the 0.7125 region. Some follow-through buying would be seen as a fresh trigger for bulls and pave the way for a move towards the 0.7200 round figure, with some intermediate resistance near the 0.7170 region.

AUD/USD 1-hour chart

Key levels to watch

Gold remains underpinned near $1,860 as growing economic concern is breathing life into the gold market. As economists at TD Securities note, gold traders are increasingly questioning the Fed's willingness to hike into a recession.

Gold traders focused on remarks from Fed Chair Jerome Powell

“Upside flow from CTAs along with renewed growth in ETFs have supported the recovery. In turn, the improving momentum has seen the nearest trigger within trend following models flip toward further upside should prices break north of $1,900/oz, rather than a whipsaw lower.

“The recovery in the yellow metal is still on shaky ground as Fed Chair Powell signalled a willingness to sacrifice some economic growth in an effort to tame inflation, suggesting the Fed is comfortable with more pain before taking the foot off the brake, which should ultimately still weigh on precious metals.”

• EUR/USD surpasses the 1.0700 hurdle and reaches 4-week highs.
• Immediately to the upside now comes the 55-day SMA.

EUR/USD sees its upside accelerated above the 1.0700 yardstick on turnaround Tuesday.

Considering the pair’s ongoing price action, the continuation of the recovery appears likely in the very near term at least. That said, the next up barrier now appears at the 55-day SMA, today at 1.0785 before the 3-month resistance line around 1.0840.

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).

The daily RSI around 55 also indicates that extra upside could still be in store for the pair until it reaches the overbought territory (>70).

EUR/USD daily chart

• The global flight to safety boosted the JPY and prompted some selling around USD/JPY.
• Retreating US bond yields turned out to be another factor that exerted downward pressure.
• The emergence of USD buying helped limit losses amid the Fed-BoJ policy divergence.

The USD/JPY pair maintained its offered tone through the early North American session, albeit has managed to rebound a few pips from the daily low. The pair was last seen trading around the 127.40-127.35 region, still down over 0.40% for the day.

The worsening global economic outlook continued weighing on investors' sentiment and triggered a fresh wave of the risk-aversion trade. This, in turn, boosted demand for traditional safe-haven currencies, including the Japanese yen, and exerted downward pressure on the USD/JPY pair. The anti-risk flow was reinforced by a fresh leg down in the US Treasury bond yields, which further inspired bearish traders and dragged spot prices back closer to the monthly low.

The downside, however, remains cushioned, at least for the time being, amid the emergence of some US dollar buying at lower levels. Apart from this, a big divergence in the monetary policy stance adopted by the Bank of Japan (dovish) and the Fed (hawkish) assisted the USD/JPY pair to find some support ahead of the 127.00 round-figure mark. This, in turn, makes it prudent to wait for strong follow-through selling before positioning for any further depreciating move.

Market participants now look forward to the US economic docket - featuring the releases of the flash PMI prints for May, New Home Sales and Richmond Manufacturing Index. This, along with Fed Chair Jerome Powell's speech and the US bond yields, will influence the USD price dynamics and provide some impetus to the USD/JPY pair. Traders will further take cues from the broader market risk sentiment to grab short-term opportunities.

Technical levels to watch

The economy of the European Union is resilient, but economic growth will be slower said Vice President of the European Commission Valdis Dombrovskis said on Tuesday according to Reuters. 

• Gold is a little higher on Tuesday as it benefits from weaker equities, lower yields and a softer dollar.
• XAU/USD was last trading just above its 21DMA and near $1860, more than $50 higher versus earlier weekly lows.
• Gold traders are focused on upcoming US PMI data and more remarks from Fed Chair Jerome Powell.

Spot gold (XAU/USD) is unsurprisingly trading with an upside bias just above its 21-Day Moving Average at $1856.70 and near the $1860 mark amid a favourable macro backdrop that sees long-term US yields hovering close to monthly lows, US equities reversing Monday’s gains in pre-market trade and the DXY falling to fresh four-week lows under 102. The precious metal was last trading with gains of about 0.2%, boosted amid safe-haven flows from equities, by falling yields lowering the “opportunity cost” of holding non-yielding assets like gold, and as a the weaker US dollar makes the purchase of USD-denominated commodities like gold cheaper for international buyers, thus boosting its demand.

Focus turns to upcoming US flash PMI survey data for May scheduled for release at 1345GMT, as investors fret about the strength of the US economy. Recent indications from major US companies (most recently Snap’s guidance on Monday, but before that from major retailers last week) is that conditions are worsening, though other indicators haven't been quite so downbeat. Tuesday’s PMIs are expected to fall in the latter camp, but traders should monitor the data in case it triggers any cross-asset volatility.

Thereafter, Fed Chair Jerome Powell is scheduled to deliver some pre-recorded remarks at an event from 1620GMT. There is much less confusion/uncertainty about the Fed than there is about the current strength of the US economy. They are unequivocally hawkish, with Powell last week reiterating the bank’s desire to get rates to neutral by the end of the year (meaning a few more 50 bps hikes at upcoming meetings) and saying the bank wouldn’t hesitate to raise rates beyond neutral if needed to tame inflation, which remains far too high. Other Fed policymakers have all been reading off of the same script and the takeaway is clear, interest rates are moving higher.

The big question for markets is just how much higher. Gold traders should beware that while the US dollar’s recent pullback from multi-decade highs printed earlier in the month has given the precious metal some short-term respite (its currently more than $50 higher versus earlier monthly lows), this may prove short-lived if inflation fails to moderate as fast as the Fed wants in the coming months, and if markets subsequently start betting on a higher Fed terminal rate. This would push long-term yields and the US dollar higher, which would make a return to sub-$1800 levels likely.

• EUR/USD has pushed above 1.0700 on Tuesday amid more tailwinds from hawkish ECB commentary.
• The pair is now trading 1.5% higher on the week, despite flash May PMIs printing a little weaker than forecast.
• Focus turns to US PMIs and remarks from Fed’s Powell later in the day as strategists warn about USD dip-buying.

Weaker than forecast Eurozone flash PMI survey data for May has not deterred euro bulls on Tuesday, given that it (unlike the UK data) still indicated solid underlying growth despite continued high inflationary pressures. Indeed, EUR/USD has been able to reclaim the 1.0700 level with the pair getting tailwinds from hawkish ECB commentary thus far on the week. At current levels between 1.0710-20, the pair is trading with gains of about 0.25% on the day, taking its gains on the week to around 1.5%.

To recap, in a Monday blog post, ECB President Christine Lagarde said that the ECB would likely lift interest rates into positive territory by the end of Q3, a stance she reiterated in remarks made earlier this Tuesday. Other important ECB players have thrown support behind this shift in stance, including Bank of France head Francois Villeroy de Galhau, though a few of the ECB’s more hawkish members have been reportedly irked by the fact that Lagarde and other “core” ECB members have taken a 50 bps rate rise off of the table. Austria’s Robert Holzmann was, on Tuesday, pushing for a 50 bps hike in July.

Even if the hawks aren’t satisfied, the euro bulls seem to be. EUR/USD is nearly 3.5% higher versus lows printed earlier in the month in the mid-1.0300s, defying (for now) calls by some analysts for EUR/USD to hit parity in the weeks/months ahead. The recent upturn in the pair also comes despite continued ropey sentiment in the global equity space, which would normally be a headwind given likely USD safe-haven flows.

EUR/USD is now eyeing a test of its 50-Day Moving Average in the 1.0760s and strategists are unsurprisingly questioning how much further the rebound has to run. The major driver of USD gains thus far this year has been the hawkish shift from the Fed and commentary from policymakers last week suggested that they are only getting more hawkish. Fed Chair Jerome Powell is slated to speak at 16:20 GMT on Tuesday and will likely reiterate the bank’s stance that it is ready to lift interest rates above neutral without hesitation if needed to tame inflation.

That is a far more hawkish stance than that of the ECB and, as a result, FX strategists suspect it won’t be long before the USD bulls return to buy the dip, which likely caps the prospect of a prolonged EUR/USD rebound. Focus will also be on the upcoming release of US flash PMI survey data for May at 13:45 GMT, which should show growth in the US remains solid and inflationary pressures high.

• USD/CAD trimmed a part of its intraday gains and was pressured by a combination of factors.
• Modest uptick in crude oil prices underpinned the loonie and capped gains amid a weaker USD.
• The risk-off mood, aggressive Fed rate hike bets limited the USD losses and extended support.

The USD/CAD pair struggled to capitalize on its goodish bounce from a near three-week low set earlier this Tuesday and was seen trading below the 1.2800 mark heading into the North American session.

The impending European Union ban on Russian oil imports continued fueling concerns about tightening global supply. Adding to this, hopes for demand recovery in China assisted crude oil prices to reverse modest intraday losses. This, in turn, underpinned the commodity-linked loonie and acted as a headwind for the USD/CAD pair amid the emergence of fresh selling around the US dollar.

In fact, the key USD Index dropped to a nearly one-month low amid strong pickup in the shared currency, which gained traction in reaction to hawkish comments by the European Central Bank (ECB) policymakers. That said, the prevalent risk-off environment - amid the worsening global economic outlook - helped limit losses for the safe-haven buck and extended some support to the USD/CAD pair.

Investors remain worried that a more aggressive move by major central banks to curb soaring inflation could pose challenges to the global economy. Adding to this, the Russia-Ukraine war and the latest COVID-19 outbreak in China have been fueling recession fears. This, in turn, kept a lid on the overnight optimistic move in the markets and benefitted traditional safe-haven assets.

Apart from this, expectations that the US central bank would need to take more drastic action to bring inflation under control held back traders from placing aggressive USD bearish bets. Hence, the focus will remain glued to Fed Chair Jerome Powell's speech later during the early North American session and the latest FOMC meeting minutes, scheduled for release on Wednesday.

A 50 bps Fed rate hike move over the next two meetings is already priced in, suggesting that market participants will look for clues about the possibility of a jumbo 75 bps rate hike in June. This, in turn, will play a key role in driving the USD demand in the near term and assist traders to determine the next leg of a directional move for the USD/CAD pair.

In the meantime, traders will take cues from the US economic docket - featuring the releases of the flash PMI prints for May, New Home Sales and Richmond Manufacturing Index. This, along with the broader market risk sentiment, will drive the USD demand. Apart from this, oil price dynamics should allow traders to grab short-term opportunities around the USD/CAD pair.

Technical levels to watch

• DXY accelerates losses and breaches the 102.00 support.
• The 55-day SMA at 100.90 now emerges as the next target.

DXY comes under extra selling pressure and breaks below the key support at the 102.00 yardstick to print new 4-week lows.

The index remains under scrutiny and therefore extra losses should not be ruled out for the time being. Against that, a deeper decline could see the 55-day SMA, today at 100.89, revisited in the not-so-distant-future.

Looking at the broader picture, the current bullish stance in the index remains supported by the 3-month line around 100.40, while the longer-term outlook for the dollar is seen constructive while above the 200-day SMA at 96.64.

DXY daily chart

Hawkish leaning European Central Bank (ECB) Governing Council member Robert Holzmann said on Tuesday that a 50 bps rate hike in July would be appropriate and that ending the year with interest rates in positive territory is extremely important, reported Reuters. Euro-area inflation is set to remain above 2.0% in 2023 and 2024, he added, noting that the ECB's strict forward guidance on rates no longer makes sense. 

His remarks come after ECB Governing Council member and Bank of France head Francois Villeroy de Galhau said that a 50 bps rate hike isn't in the consensus at the bank earlier in the day. 

• EUR/JPY meets quite a tough barrier near 136.80.
• Further gains are expected to challenge the May highs.

EUR/JPY partially reverses Monday’s strong advance and comes under pressure following another failed attempt to surpass the 136.80 region.

If the cross manages to leave behind the weekly highs in the 136.70/80 band, then it could attempt to challenge the May high at 138.31 (May 9) prior to the 2022 peak at 140.00 (April 21).

In the meantime, while above the 200-day SMA at 131.24, the outlook for the cross is expected to remain constructive.

EUR/JPY daily chart

• Silver gained some positive traction on Tuesday, albeit lacked any follow-through buying.
• Rising wedge breakdown favours bearish traders and supports prospects for further losses.
• Sustained strength beyond the $22.25 confluence is needed to negate the bearish outlook.

Silver attracted some dip-buying near the $21.65 area on Tuesday and refreshed its daily high during the first half of the European session. Bulls, however, struggled to capitalize on the move and spot prices remained below the $22.00 mark, warranting caution before positioning for any further gains.

From a technical perspective, the overnight rejection slide from the 61.8% Fibonacci retracement level of the $23.28-$20.46 downfall dragged the XAG/USD below an ascending trend line. This, along with another upward sloping trend line, constituted the formation of a bearish rising wedge pattern.

The aforementioned support breakpoint coincided with the 100-period SMA on the 4-hour chart and the 50% Fibo. level, which now seemed to cap the upside for the XAG/USD. Meanwhile, oscillators on the daily chart are holding in negative territory but are yet to confirm a bearish bias on hourly charts.

Nevertheless, the technical set-up favours bearish traders and supports prospects for further losses. The XAG/USD seems vulnerable to sliding back to test the 38.2% Fibo. level, around mid-$21.00s, before eventually dropping to the $21.30 area en-route the 23.6% Fibo. level, around the $21.10 region.

Some follow-through selling would expose the YTD low, around the $20.45 zone touched earlier this month. The downward trajectory could further get extended and allow bearish traders to challenge the $20.00 psychological mark.

On the flip side, momentum back above the $22.00 round figure might continue to confront stiff resistance near the $22.25 confluence. The said barrier represents 61.8% Fibo. level and the top boundary of the rising wedge, which if cleared decisively will negate any near-term negative bias.

Silver 4-hour chart

Key levels to watch

• WTI price is reversing a dip to 108.00 amid risk-aversion.
• Sustaining above the 50-SMA on the 4H chart is critical for oil bulls.
• RSI defends the midline, backs the bulls ahead of the API data.

WTI (NYMEX futures) is attempting a bounce back above the $109.00 mark, having found strong bids just above $108.00 in the last hours.

The rebound in the US oil comes even though risk sentiment remains sour amid a revival of the global growth fears, in the wake of disappointing Euro area and UK Manufacturing and Services PMIs reports for May.

The renewed selling seen in the US dollar could be aiding the latest uptick in the black gold while markets stay hopeful of yet another drawdown in the American crude stockpiles data. The American Petroleum Institute (API) will release its weekly crude stocks change report towards the NY close at 2030 GMT.

From a short-term technical perspective, the ascending 50-Simple Moving Average (DMA) on the four-hour chart at $108.88 has come to the rescue of bulls, as they have managed to regain control above the latter.

WTI traders are now eyeing a sustained move above the horizontal 21-SMA at $109.10 to cement the recovery momentum.

Acceptance above that level will power bulls to retest the $110.00 threshold. Further up, the previous day’s high of $111 25 could be challenged by the bullish traders,

The 14-day Relative Strength Index (RSI) is inching higher just above the midline, suggesting that recovery could have legs going forward.

WTI: Four-hour chart

On the other side, a four-hourly candlestick closing below the 50-SMA will revive the bearish interests. WTI will then resume its corrective downside towards the daily lows of $108.04 once again.

The next significant downside target is aligned at the upward-sloping 200-SMA at $106.63.   

WTI: Additional levels to watch

Barnabas Gan, Economist at UOB Group, comments on the results of inflation figures in Singapore.

Key Takeaways

“Singapore’s consumer prices rose 5.4% y/y (-0.1% m/m nsa) in Apr 2022, marking the first month-on-month contraction in 9 months. The rate of increase is also markedly lower compared to market expectations for a 5.7% y/y (+0.2% m/m sa) climb. Core inflation however accelerated to 3.3% y/y in the same month, from 2.9% in Mar 2022.”

“Notwithstanding the inflation risks seen at this juncture, the climb in headline CPI at 5.4% y/y was significantly overshadowed by the pace of increase in global commodity prices. This suggests the effectiveness of Singapore’s monetary policy, whereby the Monetary Authority of Singapore (MAS) has lifted the S$NEER gradient in the last three policy statements.”

“Inflation risks remain magnified on the back of higher global commodity prices. We keep our headline and core inflation forecasts to average 4.5% and 3.5% in 2022 respectively. This is in line with the official outlook for both headline (4.5 – 5.5%) and core inflation (2.5% - 3.5%) for this year. We also expect MAS to further steepen the S$NEER gradient slightly in its upcoming Oct policy statement, while leaving the width of the band and the level at which it is centred unchanged.”

Economist at UOB Group Enrico Tanuwidjaja reviews the latest Current Account results in the Indonesian economy.

Key Takeaways

“Indonesia’s current account posted a surplus of USD0.2bn (0.1% of GDP) in 1Q22, smaller than USD1.5bn (0.5% of GDP) in 4Q21.”

“On the back of sustained (though narrowing) outflows in the financial and capital accounts, Indonesia posted a larger BOP deficit of USD1.8bn in 1Q22 vs. USD0.8bn deficit in 4Q21.”

“For 2022 we revised our forecast that current account position will now return to a smaller deficit of just 0.2% (viz. 0.5% previously) of GDP as imports demand is likely to come back more moderately, while exports revenue is expected to be stronger than initially projected.”

Germany’s Chambers of Industry and Commerce (DIHK) on Tuesday lowered the country’s 2022 GDP growth forecast to 1.5% vs. 3% in the February estimate.

Key quotes

“Germany's 2022 inflation rate will more than double from last year's 3.1% as already high energy and food prices are pushed up by the war in Ukraine.”

“Now expects the inflation rate to hit 7%, after initially forecasting a rise of 3.5% in its February forecast.”

“DIHK survey of 25,000 companies shows 39% of all firms want to pass cost increases on to customers.”

Market reaction

EUR/USD is keeping its range above 1.0700, up 0.17% on the day, as investors assess the latest ECB commentary and mixed German and Eurozone PMIs.  

• GBP/JPY witnessed aggressive selling on Tuesday and snapped a three-day winning streak.
• The GBP weakened across the board amid diminishing odds of any further BoE rate hikes.
• The risk-off impulse boosted demand for the safe-haven JPY and added to the selling bias.

The GBP/JPY cross added to its heavy intraday losses and weakened further below the 159.00 mark, hitting a multi-day low during the first half of the European session.

A combination of factors failed to assist the GBP/JPY cross to capitalize on its gains recorded over the past three trading sessions and prompted aggressive selling on Tuesday. The worsening global economic outlook triggered a fresh wave of the risk-aversion trade and boosted demand for the safe-haven Japanese yen. Apart from this, the disappointing release of the UK PMI prints prompted aggressive selling around the British pound and exerted additional downward pressure on the cross.

In fact, the Preliminary UK Services PMI showed a sharp deceleration of growth in May and slumped to a 15-month low level of 51.8 versus April’s final readout of 58.9 and 57.3 expected. Adding to this, the seasonally adjusted S&P Global/CIPS UK Manufacturing PMI dropped to 54.6 in May versus 55.1 expected and April’s final reading of 55.8. The data reaffirmed the Bank of England's gloomy economic outlook and forced investors to scale back bets for any further rate hikes in the near future.

This, along with the UK-EU impasse over the Northern Ireland protocol, weighed heavily on sterling and was seen as a key factor behind the latest leg of a steep decline witnessed over the past hour or so. The GBP/JPY cross plunged to multi-day low and took along some shor-term trading stops placed near the 159.00 round-figure mark. Moreover, acceptance below the 200-hour SMA supports prospects for additional losses and a slide towards testing the next relevant support near the 158.00 mark.

Technical levels to watch

GBP/USD has declined sharply after having tested 1.26. As FXStreet’s Eren Sengezer notes, sellers could retain control if the pair fails to reclaim 1.25.

1.2530 aligns as interim resistance

“Later in the session, the PMI data from the US will be watched closely by market participants. In case these data highlight the diverging US-UK economic outlook, GBP/USD could extend its slide.”

“The ascending trend line coming from mid-May stays intact despite the latest decline and forms significant support at 1.25. With a four-hour close below that level, the pair could push lower toward 1.2450 (static level) and 1.2400 (psychological level, 100-period and 50-period SMAs on the four-hour chart).”

“1.2530 (20-period SMA) aligns as interim resistance ahead of 1.2560 (static level) and 1.2600 (psychological level, daily high).” 

ECB President Lagarde signalled an upcoming turnaround in interest rate policy. The news caused the euro to appreciate noticeably yesterday, pulling gold up to $1,865 for a time. However gold in euros is kept in check, economists at Commerzbank report.

Lagarde endorsed an exit from negative rates in Q3 

“Lagarde announced ‘a progressive further normalisation of interest rates towards the neutral rate’ for the period after the third quarter.”

“Our ECB watcher believes that 1-1.5% would be considered a neutral rate by the ECB. We assume that the ECB will raise the deposit rate by 25 basis points at each of its seven meetings between July and next May, bringing the rate then to 1.25%. The market expects interest rates to increase to 1.0% by then.” 

“We believe that the euro could profit for a while from the prospect of a more restrictive ECB monetary policy, providing that the situation in Ukraine does not deteriorate significantly. This should support gold in US dollars but keep gold in euros in check.”

• Gold Price extends a five-day rally amid a broad subdued US dollar.
• Risk-aversion, falling Treasury yields boost the XAUUSD gains.
• Focus on daily closing above 21-DMA for the additional upside.

Gold Price is heading back towards the highest levels in two weeks, as bulls continue to draw support from the falling US Treasury yields across the curve.

Risk-aversion remains at full steam, accentuated by the weak Eurozone and the UK business PMIs, which drives the haven demand into the US government bond. This, in turn, weighs down on the Treasury yields, aiding the upside in the non-yielding gold.

Moreover, the bright metal also capitalizes on a broadly subdued US dollar. The greenback came under renewed selling pressure after the EUR/USD pair rebounded sharply on the latest hawkish comments from ECB President Christine Lagarde. The dollar is keeping its corrective mode intact ahead of Wednesday’s FOMC May meeting’s minutes.

Brewing geopolitical tensions between the US and China over Taiwan is also boding well for the traditional safe-haven gold. US President Joe Biden maintains its commitment of getting militarily involved to defend the self-governed island claimed by China. When asked if there had been any change to the policy after remarks on Monday, Biden said "No."

Attention now turns towards US Manufacturing and Services PMIs due later in the NA session for fresh cues on risk sentiment and the dollar dynamics.

Gold Price: Daily chart

Daily closing above the 21-DMA of $1,857 is needed to confirm a bullish reversal, exposing the additional upside towards the mildly bullish 100-DMA at $1,885. Ahead of that the $1,870 round figure could challenge the bearish commitments.

Also read: Gold Price eyes a sustained move above 21-DMA, focus shifts to Fed Minutes

On the flip side, the immediate support is seen at the $1,850 psychological level. Sellers will then look out for the horizontal flattish 200-DMA at $1,839. Acceptance below the latter will trigger a fresh downswing towards the $1,800 mark.

Gold Price: Additional levels to consider

European Commission President Ursula von der Leyen is on the wires now, via Reuters, making some comments against Russia’s invasion of Ukraine.

Key quotes

“Playbook of Russia’s aggression comes straight out of another century.”

Russia is "treating millions of people not as human beings but as faceless populations to be moved or controlled or set as a buffer between military forces, trying to trample the aspirations of an entire nation with tanks.”

“Ukraine "must win this war".

“Putin's aggression must be a strategic failure.”

Market reaction

EUR/USD shows little reaction to the above comments, as it keeps its renewed upside above 1.0700.

• GBP/USD came under intense selling pressure during the early part of the European session.
• The disappointing release of the UK Services PMI raised doubts about further BoE rate hikes.
• Some cross-driven weakness further weighed on sterling and contributed to the steep decline.

The GBP/USD pair continued with its struggle to make it through the 1.2600 round-figure mark and witnessed a dramatic turnaround during the early part of the European session on Tuesday. The steep intraday slide dragged spot prices back below the 1.2500 psychological mark, or a fresh daily low in the last hour.

The latest leg of a sudden fall of over 100 pips followed the disappointing release of the UK Services PMI, which showed a sharp deceleration in growth during May. In fact, the Preliminary UK Services Business Activity Index slumped to a 15-month low and arrived at 51.8 versus April’s final readout of 58.9 and 57.3 expected.

Adding to this, the seasonally adjusted S&P Global/CIPS UK Manufacturing PMI dropped to 54.6 in May versus 55.1 expected and April’s final reading of 55.8. The data reaffirmed the Bank of England's gloomy economic outlook and forced investors to scale back bets for any further rate hikes in the near future.

This, along with the UK-EU impasse over the Northern Ireland protocol, weighed heavily on the British pound. Apart from this, the downfall could further be attributed to some cross-driven weakness stemming from a spike in the EUR/GBP cross that followed hawkish comments by the European Central Bank policymakers.

With the latest leg down, the GBP/USD pair reversed the previous day's positive move to a near three-week high and also snapped a three-day winning streak. Some follow-through selling below mid-1.2400s will suggest that the recent bounce from the YTD low has run its course and set the stage for further near-term losses.

Technical levels to watch

EUR/USD has managed to build on Monday's gains and broke above 1.07. However, the pair remains technically overbought in the near term, suggesting that there could be a technical correction before the next leg higher, FXStreet’s Eren Sengezer reports.

EUR/USD could extend its rally after 1.07 is confirmed as support

“The Relative Strength Index (RSI) indicator on the four-hour chart stays in the overbought territory above 70. Hence, buyers might wait for the pair to correct its overbought conditions before adding to long euro positions.”

“On the downside, 1.07 (psychological level, static level) aligns as first support. If buyers manage to defend this level, the pair could regain its traction and test 1.0740 (daily high, static level) before targeting 1.0780 (static level) and 1.0800 (psychological level).”

“With a four-hour close below 1.07, EUR/USD could extend its correction toward 1.0670 (static level) and 1.0640 (200-period SMA).”

• EUR/GBP gained strong traction for the second straight day and jumped to over a one-week high.
• The shared currency continued drawing support from hawkish comments by the ECB policymakers.
• Brexit woes, softer UK PMIs weighed on the British pound and further provided a lift to the cross.

The EUR/GBP cross built on the overnight solid rebound from the 0.8435-0.8430 zone, or the 200-day SMA and gained strong follow-through traction for the second straight day on Tuesday. The momentum extended through the early part of the European session and pushed spot prices to over a one-week high, around mid-0.8500s in the last hour.

The shared currency's relative outperformance comes on the back of the overnight hawkish comments by the European Central Bank President Christine Lagarde, hinting at a probable rate hike in July. In a blog post, Lagarde said that the ECB was likely to lift the euro area deposit rate out of the negative territory by the end of September. She added that the central bank could raise interest rates further if it saw inflation stabilizing at 2%.

Adding to this, ECB Governing Council member Francois Villeroy de Galhau said that the central bank is in the process of normalising policy and that rate hikes in July and September are likely a done deal.  This, to a larger extent, helped offset mostly lower-than-expected Eurozone PMI prints for the month of May. Furthermore, the emergence of fresh selling around the US dollar remained supportive of the strong bid tone surrounding the euro.

On the other hand, the British pound was undermined by the UK-EU impasse over the Northern Ireland protocol. In fact, the British government last week announced legislation that would effectively override parts of a Brexit deal, fueling fears about a trade war in the middle of the cost-of-living crisis. This, along with the disappointing release of the flash UK PMIs, weighed on sterling and provided an additional lift to the EUR/GBP cross.

The fundamental backdrop now seems tilted in favour of bullish traders and supports prospects for additional gains. Hence, a subsequent move back towards reclaiming the 0.8600 mark, en-route the YTD peak around the 0.8615-0.8620 region, remains a distinct possibility.

Technical levels to watch

• UK Manufacturing PMI drops to 54.6 in May, misses estimates.
• Services PMI in the UK comes in at 51.8 in May, a big miss.
• GBP/USD drops sharply to 1.2515 on awful UK Preliminary PMIs.

The seasonally adjusted S&P Global/CIPS UK Manufacturing Purchasing Managers’ Index (PMI) drops sharply to 54.6 in May versus 55.1 expected and 55.8 – April’s final reading.

Meanwhile, the Preliminary UK Services Business Activity Index for May slumped to 15-month lows, arriving at 51.8 versus April’s final readout of 58.9 and 57.3 expected.

Chris Williamson, Chief Business Economist at S&P Global, commented on the survey

“The UK PMI survey data signal a severe slowing in the rate of economic growth in May, with forward-looking indicators hinting that worse is to come. Meanwhile, the inflation picture has worsened as the rate of increase of companies' costs hit yet another all-time high.“

“The survey data therefore point to the economy almost grinding to a halt as inflationary pressure rises to unprecedented levels.”

FX implications

Poor UK Preliminary Manufacturing and Services PMIs took the steam out of the GBP/USD rally, as the pair changed course in a knee-jerk reaction.

The spot is trading at 1.2514, down 0.57% at the time of writing. Before the UK PMIs release, cable was trading firmer around 1.2590.

European Central Bank (ECB) Governing Council member and Bank of France head Francois Villeroy de Galhau poured cold water on a 50 bps summer rate hike expectations.

Villeroy said that a 50 bps rate hike isn't part of the central bank consensus.

Additional comments

“ECB is in the process of normalizing policy.”

“There is no trade-off between growth and inflation.”

Market reaction

EUR/USD’s upside lost traction on the above comments, as the pair now trades at 1.0705, adding 0.16% so far.

• EUR/USD reaches new multi-week highs past 1.0700.
• The dollar remains on the back footing amidst increasing risk-on trade.
• ECB’s Lagarde sees rates in the positive territory in Q3.

Further optimism among traders pushes EUR/USD to new 4-week highs in the 1.0735/40 band on Tuesday.

EUR/USD boosted by sentiment, Lagarde

EUR/USD extends Monday’s advance to the area well north of 1.0700 the figure on turnaround Tuesday, once again sustained by the strong improvement in the risk-linked galaxy as well as further hawkish comments from Chairwoman Lagarde.

On the latter, Lagarde insisted that rates could be in the positive territory in Q3 and she discarded a recession scenario in the euro bloc for the time being.

Extra legs to the single currency came after the flash Manufacturing PMI surpassed estimates in Germany and is now seen at 54.7 in May. Results from France and the broader Euroland, instead, were short of expectations at 54.5 and 54.4, respectively.

The US docket will include the advanced Manufacturing/Services PMIs for the month of May as well as New Home Sales and welcoming notes from Chief Powell at an event in Las Vegas

What to look for around EUR

Extra recovery in EUR/USD trespasses the 1.0700 mark on Tuesday, recording at the same time new multi-week highs.

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: 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 0.22 at 1.0711 and faces the next hurdle at 1.0736 (monthly high May 24) followed by 1.0789 (55-day SMA) and finally 1.0936 (weekly high April 21). 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).

Bank Indonesia (BI) kept policy rates unchanged at 3.5%, matching the market consensus, as BI appears confident that fiscal measures can contain price pressures. In the view of economists at ING, the Indonesian rupiah is set to suffer some pressure as BI holds out on rate hikes for now.

BI enacts dovish pause

“We had expected BI to keep policy rates unchanged at today’s meeting, however, we believed that Governor Warjiyo would at least set the table for a June rate hike. Warjiyo did the exact opposite by pledging sustained support for the economic recovery and citing IDR stability.” 

“It appears the central bank remains confident that inflation can be contained by subsidies rolled out by fiscal authorities and that IDR would remain supported by a healthy trade surplus in the near term. As such, it appears BI is in no hurry to hike policy rates in the near term unless we see a substantial pickup in core inflation in the coming months and or heightened weakness from IDR.” 

“With BI enacting a dovish pause, expect IDR to come under some pressure as BI opts not to join the rate hike camp for now.”   

• Eurozone Manufacturing PMI arrives at 54.4 in May vs. 54.9 expected.
• Bloc’s Services PMI falls to 56.3 in May vs. 57.5 expected.
• EUR/USD falls off the highs on the downbeat Eurozone PMIs.

The Eurozone manufacturing sector expansion fell short of expectations in May, the latest manufacturing activity survey from S&P Global research showed on Tuesday.

The Eurozone Manufacturing purchasing managers index (PMI) arrived at 54.4 in May vs. 54.9 expectations and 55.5 last. The index hit a two-month top.

The bloc’s Services PMI dropped sharply to 56.3 in May vs. 57.5 expected and 57.7 previous. The indicator registered two-month lows.

The S&P Global Eurozone PMI Composite fell to 54.9 in May vs. 55.3 estimated and 55.8 previous. The gauge reached the lowest level in two months.

Comments from Chris Williamson, Chief Business Economist at S&P Global

“The eurozone economy remained encouragingly resilient growth in May, as a beleaguered manufacturing sector was offset by a buoyant service sector.“

“Although factories continue to report widespread supply constraints and diminished demand for goods amid elevated price pressures, the economy is being boosted by pent-up demand for services as pandemic-related restrictions are wound down. May saw a further surge in spending on tourism and recreation in particular.”

FX implications

EUR/USD ticks a few pips lower from daily highs of 1.0736 on dismal Eurozone PMIs. The pair was last seen trading at 1.0722, still up 0.33% on the day.

The People’s Bank of China (PBOC) said in a statement on Tuesday, it will keep stable credit growth in the property sector.

Additional quotes

“Will use various tools to appropriately increase credit to support quality development.”

“Will guide financial institutions to go all out to increase credit.”

Related reads

• USD/CNH Price Analysis: Recovery remains elusive below 6.7300
• JP Morgan cuts China’s Q2 2022 GDP growth forecast to -5.4%

• GBP/USD attracted some dip-buying on Tuesday amid renewed USD weakness.
• A goodish pickup in the shared currency dragged the buck to a fresh monthly low.
• The risk-off mood should limit losses for the greenback and cap gains for the pair.

The GBP/USD pair reversed modest intraday losses and climbed to the top end of its daily trading range, closer to the 1.2600 round-figure mark during the early European session.

Following a brief consolidation, the US dollar came under some renewed selling pressure and dropped to a fresh monthly low on Tuesday amid a goodish pickup in demand for the shared currency. This, in turn, was seen as a key factor that assisted the GBP/USD pair to attract some dip-buying near the mid-1.2500s, though the uptick lacked bullish conviction.

The worsening global economic outlook continued weighing on investors' sentiment and triggered a fresh bout of global risk-aversion trade. This was evident from a sea of red across the equity markets, which should act as a tailwind for the safe-haven buck amid expectations that the Fed would need to take more drastic action to bring inflation under control.

Apart from this, the UK-EU impasse over the Northern Ireland protocol should hold back traders from placing aggressive bullish bets around the British pound. Hence, it will be prudent to wait for strong follow-through buying before positioning for an extension of the recent strong recovery move from the YTD low, around the 1.2155 region touched earlier this month.

Market participants now look forward to the release of PMI prints from the UK and the US, which will drive the market risk sentiment and influence the USD price dynamics. Apart from this, traders will take cues from Fed Chair Jerome Powell's speech during the early North American session. This, in turn, should provide some meaningful impetus to the GBP/USD pair.

Technical levels to watch

In light of the ongoing price action, USD/CNH faces a potential consolidation ahead of a probable retracement in the near term, suggested FX Strategists at UOB Group Quek Ser Leang and Peter Chia.

Key Quotes

24-hour view: “We did not expect the sharp drop in USD to 6.6480 and the subsequent strong bounce from the low (we were expecting USD to consolidate). The rapid decline appears to be overdone and the 6.6480 low is not expected to come back into the picture, at least not for today. Overall, USD is more likely to trade sideways within a range of 6.6550/6.6950.”

Next 1-3 weeks: “We highlighted yesterday (03 May, spot at 6.6915) that USD could break 6.6700 and we indicated that the next support is at 6.6500. That said, we did not quite expect USD to break both levels so quickly (USD dropped to 6.6480 before rebounding). Further USD weakness is not ruled out but deeply oversold shorter-term conditions could lead to a few days of consolidation first. All in, as long as 6.7300 (strong resistance level was at 6.7550 yesterday) is not breached, there is room for USD to weaken further to the next support at 6.6300.”

NZD/USD has seen a 4.4% recovery from its mid-May 0.6217 lows. Nonetheless, this remains corrective unless the pair can sustain its gain over a 0.6713, 0.6821 resistance threshold, Benjamin Wong, Strategist at DBS bank reports.

Kiwi is not over the 0.6713 and 0.6821 thresholds to exactly call it bullish

“The technical indicator is moving towards an oversold pasture, but there remain impediments at 200-WMA (weekly moving average) of 0.6713 and 40-WMA of 0.6821. Prices must pop over these levels to have a sustainable bull.”

“So far, NZD has rebounded from 0.6217 lows to a 0.6492 high, but it has not scaled over a former price leg, early May highs at 0.6568, or a Starc Band resistance at 0.6552. Just above is 50-DMA at 0.6666.”

“The 4.4% rally off 0.6217 lows start to show up on the technical indicator Relative Strength Index as closer to achieving correction – this could imply NZD’s strength from 0.6217 remains corrective within the broader weakness landscape.”

• DXY breaks below the 103.00 mark and prints new lows.
• Markets remain tilted towards the riskier assets on Tuesday.
• Powell, Flash PMIs, New Home Sales, all next on tap.

The greenback, in terms of the US Dollar Index (DXY), adds to the pessimistic start of the week and drops to new lows in the sub-103.00 region on Tuesday.

US Dollar Index weaker amidst risk-on mood

The index adds to Monday’s pullback and now breaches the 102.00 support for the first time since late April following the continuation of the investors’ appetite for the risk complex.

Indeed, the prevailing risk-on mood accelerated after the opening bell in the European markets on turnaround Tuesday and following further comments from ECB’s Lagarde, who almost confirmed that interest rates will be in the positive territory in Q3, at the time when she ruled out a recession in the euro bloc for the time being.

The corrective downside in the dollar, in the meantime, comes amidst the recovery in US yields, while the German 10y bund yields appear to lack some upside traction so far.

From the Fed’s backyard, Kansas City Fed E.George said late on Monday that she expects the policy rate to be around 2% by August and added that the Fed’s top objective is bring inflation down to the bank’s 2% goal. Previously, San Francisco Fed M.Daly said she does not expect a recession and suggested higher rates can coexist with and expanding economy and plenty of employment.

In the US data space, Chief Powell will make welcoming remarks at an event in Las Vegas, while Flash Manufacturing and Services PMIs and New Home Sales are also due later in the NA session.

What to look for around USD

The dollar started the week in a negative fashion and breaches the 103.00 mark, printing at the same time new 4-week lows. 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: 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 0.30% at 101.78 and faces the next contention at 100.89 (55-day SMA) followed by 100.00 (psychological level) 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).

• German Manufacturing PMI arrives at 54.7 in May vs. 54.0 expected.
• Services PMI in Germany drops sharply to 56.3 in May vs. 57.2 expected.
• EUR/USD is trading near highs around 1.0730 on mixed German PMIs.

The German manufacturing sector quickened its pace of expansion but the services sector activity slowed down in May, the preliminary manufacturing activity report from S&P Global/BME research showed this Tuesday.

The Manufacturing PMI in Eurozone’s economic powerhouse came in at 54.7 this month vs. 54.0 expected and 54.6 prior. The index rebounded to two-month highs.

Meanwhile, Services PMI dropped from 57.6 booked previously to 56.3 in May as against the 57.2 estimated. The PMI clocked the lowest level in two months.

The S&P Global/BME Preliminary Germany Composite Output Index arrived at 54.6 in May vs. 54.0 expected and April’s 54.3. The gauge reached two-month peaks.

Key comments from Phil Smith, Economics Associate Director at S&P Global

“A post-lockdown recovery in services activity continues to provide a strong tailwind for the German economy, with May’s ‘flash’ PMI data signalling that output levels remain in growth territory.”

“Even manufacturing saw a slightly better performance in terms of production levels in May. However, goods producers are increasingly turning to backlogs of work to support output as new orders show a sustained decline, boding ill for growth prospects in the sector if demand for goods continues to falter.”

FX implications

EUR/USD is holding the higher ground near 1.0730, adding 0.35% on the day. The spot caught a fresh bid wave on the hawkish comments from the ECB Chief Christine Lagarde.

Market participants are aware that the Brexit issue is about to be escalated once again but how Europe responds will dictate any potential market reaction. Unilateral action by the UK will hit the pound, economists at MUFG Bank report.

Legislation on Brexit protocol coming soon

“We see it as quite likely now that this issue is going to escalate over the coming weeks and unilateral action by the UK could kick off a period of elevated uncertainty that will start to weigh on GBP performance.”

“The EU could threaten scrapping the entire Trade & Cooperation Agreement; it could suspend the trade parts of the TCA; or it could take actions like suspending access to EU waters within seven days. The pound will get hit if these options are even mentioned as considerations by the EU.”

Speaking live in a Bloomberg TV interview from the World Economic Forum (WEF) in Davos, European Central Bank (ECB) President Christine Lagarde said that rates are likely to be positive at end of the third quarter.

“For the moment not seeing recession in the euro area,” Lagarde added.

• ECB's Lagarde: Markets shouldn't translate words into any percentage point moves

Market reaction

EUR/USD was last seen trading at 1.0729, adding 0.39% on the day.

Economists at HSBC have a more dovish perspective than markets regarding the Bank of England (BoE) tightening path. Subsequently, the GBP/USD pair is set to edge lower in the coming period.

UK-EU relations and questions over the UK’s fiscal response to weigh on sterling

“We expect the GBP to weaken against the USD in the coming weeks, with the BoE likely to maintain a gradually tightening path amid elevated economic uncertainty.” 

“We expect a 25bp hike at the 16 June BoE meeting, with only one more hike thereafter in August, which would take the policy rate to 1.50% before a lengthy pause. By contrast, the market is priced for the tightening cycle to continue into 2023, with the policy rate rising close to 2.50%, and it is already priced for almost a 1-in-3 chance of a 50bp hike in June.”

“UK-EU relations and questions over the UK’s fiscal response to the real income squeeze should also be pertinent to the GBP over the near-term.”

The European Central Bank (ECB) President Christina Lagarde was out with some comments in the last hour, saying that inflation is still supply-driven and we are not in a situation of surging demand. She further added that the markets should not translate any words by the central bank as being any percentage point move.

Market reaction

The remarks reaffirmed the base case scenario of a 25 bps rate hike in July and provided modest lift to the shared currency, pushing the EUR/USD pair beyond the 1.0700 mark, to a fresh monthly peak.

• AUD/USD witnessed some selling on Tuesday and was pressured by a combination of factors.
• Recession fears underpinned the safe-haven USD and weighed on the perceived riskier aussie.
• RBA’s hawkish signal might help limit deeper losses ahead of the US PMIs and Powell’s speech.

The AUD/USD pair came under some renewed selling pressure on Tuesday and eroded a part of the previous day's positive move to a two-and-half-week high. The pair remained on the defensive through the early European session and was last seen trading near the daily low, around the 0.7075-0.7070 region.

The latest optimism led by the loosening of COVID-19 lockdowns in China faded rather quickly amid the worsening global economic outlook. Investors remain worried that a more aggressive move by major central banks to curb soaring inflation could pose challenges to the global economy. Adding to this, the Russia-Ukraine war and the latest COVID-19 outbreak in China have been fueling recession fears. This, in turn, triggered a fresh wave of the global risk-aversion trade, which assisted the safe-haven US dollar to stage modest recovery from the monthly low and weighed on the risk-sensitive aussie.

The greenback was further underpinned by expectations that the US central bank would need to take more drastic action to bring inflation under control. Hence, the focus will remain glued to Fed Chair Jerome Powell's speech later this Tuesday and the latest FOMC meeting minutes, scheduled for release on Wednesday. Given that a 50 bps rate hike move over the next two meetings is fully priced in, market participants will look for clues about the possibility of a jumbo 75 bps rate hike in June. This will influence the USD price dynamics and provide a fresh directional impetus to the AUD/USD pair.

In the meantime, the Australian dollar might draw support from the Reserve Bank of Australia's hawkish signal and help limit deeper losses for the AUD/USD pair. This, in turn, warrants some caution before placing aggressive bearish bets. Traders now look forward to the release of the global PMI prints, which will drive the broader market risk sentiment. Apart from this, the USD price dynamics would also contribute to producing short-term opportunities.

Technical levels to watch

• USD/CHF remains pressured around monthly low, retreats from daily top of late.
• Oversold RSI conditions, 50% Fibonacci retracement level challenge immediate downside.
• Key SMAs challenge recovery moves, ascending trend line from March offers an additional filter to the south.

USD/CHF struggles to stretch the week-start bear show despite the latest retreat from the daily high to 0.9560 heading into Tuesday’s European session.

That said, the Swiss currency (CHF) pair remains pressured around a one-month low, marked the previous day, but short-term key supports challenge the quote’s further downside.

It’s worth noting that the oversold RSI conditions join the 50% Fibonacci retracement (Fibo.) of March 31 to May 15 upside, near 0.9630, to restrict short-term USD/CHF declines.

Also challenging the pair bears is an upward sloping trend line from late March, close to 0.9615 at the latest.

Meanwhile, the 200-SMA and the latest swing high, respectively near 0.9685 and 0.9765, restrict the USD/CHF pair’s recovery moves.

Though, the convergence of the 100-SMA and 23.6% Fibo., around 0.9860-65, gains major attention.

USD/CHF: Four-hour chart

Trend: Corrective pullback expected

Here is what you need to know on Tuesday, May 24:

Markets seem to have turned cautious early Tuesday following Monday's risk rally. The US Dollar Index, which lost nearly 1% at the start of the week, is posting small daily gains near 102.20 in the European morning and US stock index futures are down between 0.8% and 1.8%. S&P Global will release May flash PMI reports for Germany, the euro area, the UK and the US. April New Home Sales will be featured in the US economic docket as well. Finally, FOMC Chairman Jerome Powell is scheduled to speak later in the day.

Beijing announced on Tuesday that the work-from-home orders will be extended after the city reported the largest one-day increase in the number of infections in a month. Meanwhile, escalating tensions between the US and China seem to be weighing on the market mood as well. United States Trade Representative (USTR) Katherine Tai said early Tuesday that they were still working on the next trade actions in China. Moreover, US President Joe Biden noted that there were no changes to their policy and that the US would get involved militarily to defend Taiwan against China.

EUR/USD climbed to its highest level in nearly a month at 1.0700 on Monday but lost its bullish momentum on the second day of the week. The pair was last trading in the negative territory near 1.0670. In addition to the broad dollar weakness, hawkish comments from European Central Bank (ECB) officials helped the shared currency find demand and fueled the pair's rally. European Central Bank (ECB) President Christine Lagarde said that they were “likely to be in a position” to exit negative rates toward the end of the third quarter and ECB Governing Council member Francois Villeroy de Galhau noted that a deal on rate hikes in the near term was "probably done."

GBP/USD gained more than 100 pips on Monday but failed to break above 1.2600. The pair stays relatively quiet above 1.2550 early Tuesday. Bank of England (BoE) Governor Andrew Bailey noted on Monday that they are prepared to raise the policy rate again if needed but acknowledged that tightening must take income shock into account.

Selling opportunity? Why GBP/USD's rally is unjustified and could lead to a downfall.

USD/JPY struggled to find direction despite the broad-based dollar weakness on Monday and extended its sideways grind near mid-127.00s. Koji Nakamura, head of the Bank of Japan's division overseeing monetary policy drafting, reiterated that they will continue to ease the monetary policy to assist the economy. 

NZD/USD is pushing lower and trading below 0.6450 on Tuesday after having closed the previous four trading days in the positive territory. The data from New Zealand showed in the early Asian session that Retail Sales contracted by 0.5% on a quarterly basis in the first quarter.

AUD/USD climbed to its highest level in nearly three weeks above 0.7100 on Monday but erased a large portion of its gains on Tuesday. The S&P Global Manufacturing PMI in Australia declined to 55.3 in May from 58.8 in April, missing the market expectation of 57.8.

Bitcoin fell nearly 4% and moves up and down in a narrow range below $30,000 early Tuesday. Ethereum broke below $2,000 late Monday and seems to be having a difficult time staging a rebound.

Economists at HSBC hesitate about the animus of the Swiss National Bank (SNB) to tighten its monetary policy. Therefore, the EUR/CHF pair is set to move downward in the coming weeks.

The correction lower in USD/CHF may already have run its course

“We are not convinced that the SNB has truly pivoted toward the exit in its recent guidance, with the central case still pointing to negative rates and a willingness to intervene in FX. The 16 June SNB meeting will offer greater clarity on this.”

While EUR/CHF may grind lower in line with EUR/USD in the coming weeks, we think the correction lower in USD/CHF may already have run its course.”

Economists at Morgan Stanley believe the S&P 500 price earnings multiple will fall. Consequently, they arrive at a near-term overshoot of fair value of 3400 for the S&P 500.

12-month target for the S&P 500 is 3900

“While our 12-month target for the S&P 500 is 3900, we expect an overshoot to the downside this summer that could come sooner rather than later.”

“We think 3400 is a level that more accurately reflects the earnings risk in front of us, and expect that level to be achieved by the end of the second quarter earnings season, if not sooner.”

Inflation expectations in Turkey have surged to 58%. In the view of economists at Commerzbank, the lira remains vulnerable despite appearing stable for the moment.

When expectations get un-anchored 

“Even as inflation has reached 70% in the absence of central bank targeting, inflation expectations are swiftly catching up because there is no ‘anchor’ to convince markets that inflation will strictly converge back to the target level over the medium-term. In CBT’s latest survey, expectations for end-2022 rose from 46% to 58%.”

“Each time inflation expectations rise, this provides the impetus for the next round of actual price increases. In the absence of targeting, there is no upper-bound to this process.”

“The lira may appear stable for now, but fundamentals are surely deteriorating.”

On Monday, AUD/USD was able to extend its gains and climbed above 0.71. Nevertheless, economists at Commerzbank remain cautious as far as AUD is concerned.

AUD gains sustainable?

“The RBA’s monetary policy is likely to support AUD since it hiked its key rate at the start of the month and signalled further tightening. However, a more restrictive monetary policy has probably already been priced into a large extent. In addition, the US central bank is also hiking its key rate – at a more rapid pace. Therefore the AUD is likely to struggle to make further ground against USD.” 

“The zero covid strategy of Australia’s important trade partner China entails economic concerns so that investors are likely to remain cautious.”

As economists at Commerzbank note, it remains to be seen how quickly the Swiss National Bank (SNB) will actually implement a lift-off. Until then, the euro is set to outperform the franc.

SNB’s communication U-turn was overdue

“It can be assumed that the SNB is likely to be interested in ending its negative interest rate policy. It would therefore make sense to follow the ECB’s course. Seeing that the latter is likely to hike its key rate in July it is high time for the SNB to make a communication U-turn.” 

“If price pressure in Switzerland was not going to increase over the coming months the SNB might take its time with a lift-off. Until then the EUR might have the upper hand over CHF due to the more hawkish ECB.”

• Gold prices snap four-day uptrend while reversing from a fortnight high.
• Risk-aversion joins firmer US dollar to weigh on metal prices.
• Anxiety ahead of key data/events keeps traders troubled.

Gold (XAU/USD) prices remain pressured around the intraday low near $1,850 as sellers struggle to re-enter amid a risk-off mood during the pre-European session trading on Tuesday.

The metal’s latest weakness could be linked to the fresh concern about the US-China trade war and economic fears relating to China’s GDP growth. Also weighing the precious metal prices are the recently hawkish comments from the Fed policymakers and the market’s anxiety ahead of a busy economic calendar.

Although US President Joe Biden teased relief for China, as far as the Trump-era tariff is concerned, his defense of Taiwan keeps the Sino-American geopolitical tensions alive. Also, US Trade Representative (USTR) Katherine Tai’s statements,  who poured cold water on the face of expectations that the Sino-American jitters will be eased soon, at least for the trade concerns, were negatives for gold. The US diplomat said, “We're still working on next actions with China,” while turning down the optimism triggered by US President Joe Biden’s comments suggesting a reversal of the Trump-era tariffs on China.

On a different page, Reuters highlights the covid-led lockdowns in China as the key barrier. “Beijing extended its work-from-home requirement to stem a COVID-19 outbreak, while Shanghai deployed more testing and curbs to hold on to its hard-won "zero COVID" status after two months of lockdown,” said the news. Furthermore, pessimistic growth forecasts for China from JP Morgan and Goldman Sachs add to the gold price weakness. The reason could be linked to China’s status as one of the world’s top gold consumers.

Elsewhere, recently hawkish comments favoring the tighter monetary policy from San Francisco Federal Reserve Bank President Mary Daly and Kansas City Fed President Esther George seem to exert downside pressure on the market sentiment. Furthermore, anxiety ahead of the preliminary readings of the US S&P Global Manufacturing and Services PMIs for May, as well as a speech from Fed Chairman Jerome Powell, also weighs on the risk appetite and the XAU/USD prices.

Amid these plays, the S&P 500 Futures drops 1.21% whereas the US 10-year Treasury yields dropped 2.4 basis points (bps) to 2.835% at the latest.

Moving on, fears of faster monetary policy could help the US dollar to add some more gains if the PMIs manage to print upbeat numbers. For that to happen, Fed’s Powell should refrain from his routine support for 50 bps rate hikes for the next two meetings.

Read: Gold Price Forecast: XAUUSD eyes a sustained move above 21-DMA, focus shifts to Fed Minutes

Technical analysis

Gold fades bounce off the 100-SMA as RSI (14) diverges from the higher-low formation, portraying a bearish RSI divergence.

Even so, a clear downside break of the 100-SMA and weekly support line, respectively around $1,848 and $1,839, becomes necessary for a gold seller’s conviction.

Meanwhile, a confluence of the 200-SMA and 50% Fibonacci retracement of April 18 to May 16 downside, near $1,894, challenged the gold buyers.

Overall, gold buyers have miles to go before retaking the control.

Gold: Four-hour chart

Trend: Further weakness expected

The Reserve Bank of New Zealand (RBNZ) is scheduled to announce its monetary policy decision on Wednesday, May 25 at 02:00 GMT and as we get closer to the release time, here are the expectations as forecast by the economists and researchers of eight major banks.

A 50 bps hike to the Official Cash Rate (OCR) from 1.50% to 2% is well priced in by the market.   

ANZ

“We expect the RBNZ will raise the Official Cash Rate (OCR) 50bp to 2.00%. Beyond that, the path is murkier. We continue to expect the RBNZ to switch to the more usual pace of 25bp hikes from July onward as evidence mounts that demand is cooling. However, if any more upside surprises to inflation emerge, the hurdle for another 50-pointer in July is low.”

Westpac

“We expect the RBNZ to raise the OCR by another 50 basis points to 2.00%. The OCR is still a long way from where it ultimately needs to be to get on top of New Zealand’s burgeoning inflation problem. The RBNZ has now accepted the logic that stronger action early on will reduce the need for an even more painful peak in interest rates in the future. We expect the RBNZ to signal a further series of OCR hikes on the way to a peak of around 3.5%.”

UOB

“We think that it is now likely that the RBNZ will hike by another 50bps at the May meeting.”

Nordea

“The RBNZ is likely to continue hiking interest rates by 50bp at the next meetings to make up for lost ground and get on top of surging inflation.”

Standard Chartered

“We expect the RBNZ to hike OCR to 2.0% from 1.5%. Hawkish central bank rhetoric and elevated (and broad-based) inflation suggest that the RBNZ is keen to get the OCR to neutral as quickly as possible. While the latest inflation expectations data for Q2 was rather flat from Q1 and may reflect some semblance of ‘anchoring’ of inflation expectations, 2Y (3.3%) and 5Y (2.4%) inflation expectations are still much higher than the mid-point of 2%. In addition, still-high commodity prices and a weak NZD keeping imported inflation elevated support the case for a 50bps hike. At 2%, we believe the policy rate will be deemed neutral. We will watch for the central bank’s rhetoric (and any tweaks to OCR projections) to gauge if it intends to tighten significantly beyond neutral. We find it difficult to tighten significantly beyond neutral given weaker sentiment indicators and downside risks to growth.”

TDS

“Both CPI inflation (6.9% YoY) and sectoral core inflation (4.2% YoY) were elevated in Q1 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.” 

Wells Fargo

“High inflation and a hawkish RBNZ sets the stage for another 50 bps hike in May, which would bring the Official Cash Rate to 2.00%. We then expect additional 25 bps rate hikes in July, August, October, and November, which would bring the OCR to 3.00% at the end of 2022.”

Danske Bank

“We expect RBNZ to deliver another 50bp, as they will likely prefer to keep front-loading the rate hikes amid continuing rise in local inflation expectations.”

See – NZD/USD: Vulnerable to disappointment unless RBNZ signals further larger 50bps hikes – MUFG

EUR/USD rose by +1.20% in yesterday’s session. As the European Central Bank (ECB) is set to deliver a rate lift-off in July, economists at Commerzbank expect the shared currency to continue strengthening.

Keeping an eye on developments in Ukraine 

“Many observers will continue to consider the ECB as being too hesitant, but the fact that a lift-off is now very likely to happen in July and that the ECB seems willing to hike rates further after that is positive for EUR.”

“Of course, it remains important to keep an eye on developments in connection with the Ukraine war. However, if the situation does not deteriorate significantly EUR might benefit from the prospect of a more restrictive ECB monetary policy for some time.”

A corrective downside in USD/JPY could visit the 127.00 zone in the next weeks, commented FX Strategists at UOB Group Quek Ser Leang and Peter Chia.

Key Quotes

24-hour view: “We expected USD to ‘trade sideways within a range of 127.35/128.35’ yesterday. USD subsequently traded between 127.13 and 128.05 before closing largely unchanged at 127.87 (+0.02%). The price action still appears to be part of a consolidation and we expect USD to trade between 127.20 and 128.20 for today.”

Next 1-3 weeks: “There is not much to add to our update from yesterday (23 May, spot at 127.90). As highlighted, while downward momentum has eased, there is room for USD to retest the 127.00 level. 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 break of 128.55 (‘strong resistance’ level was at 128.90 yesterday) would indicate that the current downward pressure has eased.”

Open interest in natural gas futures markets extended the downtrend for the fourth consecutive session on Monday, this time by just 688 contracts. On the other hand, volume went up by around 38.9K contracts.

Natural Gas still targets $9.00

Monday’s sharp upside in prices of natural gas was amidst the continuation of the downside in open interest, hinting at the idea that the rebound could be running out of some steam. In the meantime, natural gas could still challenge the 2022 peak around the $9.00 mark per MMBtu (May 6) in the very near term.

FX option expiries for May 24 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

- EUR/USD: EUR amounts        

• 1.0370 1.76b
• 1.0435-40 592m
• 1.0445-50 462m
• 1.0480 279m
• 1.0540-50 813m
• 1.0585 784m
• 1.0600 401m
• 1.0650-55 833m
• 1.0740 952m

- GBP/USD: GBP amounts        

• 1.2500 378m
• 1.2600 302m

- USD/JPY: USD amounts                     

• 127.00 599m
• 128.00 405m
• 128.50 229m
• 129.00 631m
• 130.00 300m

- AUD/USD: AUD amounts  

• 0.7135 247m
• 0.7245-50 628m

- USD/CAD: USD amounts       

• 1.2690-00 326m
• 1.2820-25 258m
• 1.2720 225m
• 1.2820-25 410m
• 1.2870 605m

- EUR/GBP: EUR amounts

• 0.8380-85 256m

• NZD/USD is expected to recover its intraday losses on broader weakness in the DXY.
• The monetary policy announcement from RBNZ Adrian Orr will keep the asset on the hooks.
• The DXY will remain on the sidelines ahead of Fed Powell’s speech.

The NZD/USD pair is attempting a recovery from the intraday low of 0.6428. A downside move after a flat open is expected to be recovered completely as investors are focusing on the interest rate decision announcement by the Reserve Bank of New Zealand (RBNZ) on Wednesday.

In order to address the gigantic inflation monster, RBNZ Governor Adrian Orr is expected to elevate its Official Cash Rate by 50 basis points (bps).  The kiwi area is facing the headwinds of advancing energy bills and commodity prices, which are affecting the paychecks of the households. In the first quarter of CY 2022, the interest rate has been elevated to 6.9%, which is highly needed to be fixed by deploying various quantitative measures. However, the continuous hawkish tone from the RBNZ is elevating recession fears. An extreme liquidity shrinkage program in the kiwi zone could dampen the labor market and economic activities.

Meanwhile, the US dollar index (DXY) is juggling in a narrow range of 102.00-102.32 ahead of the speech from Federal Reserve (Fed) chair Jerome Powell. Investors are bracing for a hawkish tone considering inflationary pressures and significant additions in payrolls. Apart from that, the US Purchase Managers Index (PMI) is also on investors’ radar. A preliminary estimate for the S&P Composite PMI is 55.5, lower than the prior release of 56.

FX Strategists at UOB Group Quek Ser Leang and Peter Chia noted there is scope for NZD/USD to advance to the area above the 0.6500 mark in the short term.

Key Quotes

24-hour view: “We highlighted yesterday that NZD ‘could advance further to 0.6475’. We added, ‘the major resistance at 0.6505 is likely out of reach’. Our view turned out to be correct as NZD rose to 0.6490 before pulling back. The pullback from the high has scope to extend but is unlikely to break the break the support at 0.6400 (minor support is at 0.6420). Resistance is at 0.6465 followed by 0.6485.”

Next 1-3 weeks: “Yesterday (23 May, spot at 0.6445), we highlighted further NZD strength appears likely. We indicated that resistance levels are at 0.6475 and 0.6505. NZD subsequently breached 0.6475 and rose to a high of 0.6490. While overbought shorter-term conditions could lead to a couple of days of consolidation first, as long as 0.6360 (no change in ‘strong support’ level from yesterday) is not breached, there is room for NZD to push higher to 0.6505.”

CME Group’s flash data for crude oil futures markets saw open interest rise by nearly 6K contracts on Monday. Volume followed suit and went up by almost 8K contracts after two consecutive daily drops.

WTI remains side-lined around $109/$110

Monday’s inconclusive price action in WTI was in tandem with rising open interest and volume, indicative that further range bound trade would be in store for the commodity in the very near term. Occasional bullish attempts, in the meantime, remain limited around the May tops in the $115.50 region per barrel (May 17).

When asked if there had been any change to the policy after remarks on Monday where he said that the US will get involved militarily to defend Taiwan, a self-governed island claimed by China, President Joe Biden said "No."

China’s Foreign Ministry warned the US not to underestimate its resolve on Taiwan following Biden’s comments a day before.

Market reaction

The renewed US-Sino geopolitical tensions over Taiwan are unlikely to bode well for the markets, adding to the tepid risk sentiment.

The S&P 500 futures are down 1.21% on the day while the US dollar index rebounds 0.16% so far.

Gold Price is trading almost unchanged on the day at $1,852, as of writing.

• USD/CNH renews intraday high as it bounces off two-week low, snaps three-day downtrend.
• 100-SMA, 23.6% Fibonacci retracement of April-May advances challenge corrective pullback.
• RSI hints at a further upside, monthly support line restricts short-term declines.

USD/CNH takes the bids to renew intraday high around 6.6850 heading into Tuesday’s European session.

In doing so, the offshore Chinese yuan (CNH) pair bounces off an upward sloping trend line from April 29 to print the first daily gains in four. The recovery moves also take clues from the recently firmer RSI from oversold territory, as well as from the RSI breakout of a fortnight-old descending trend line.

However, a convergence of the 100-SMA and 23.6% Fibonacci retracement of the USD/CNH up-moves from April 18 to May 13, near 6.7300, appears a tough nut to crack for the bulls.

Following that, a run-up towards the monthly high surrounding 6.8400 can’t be ruled out.

On the flip side, the weekly descending trend line and an upward sloping support line restrict the short-term downside of the USD/CNH pair to around 6.6500.

Following that, the 200-SMA near 6.6000 appears the last defense for the USD/CNH bulls.

USD/CNH: Four-hour chart

Trend: Further upside expected

Gold Price remains firmer so far this week. As FXStreet’s Dhwani Mehta notes, XAUUSD eyes a sustained move above the 21-Daily Moving Average (DMA) at $1,857.

Immediate support is seen at the $1,850 psychological level

“Attention turns towards the global Manufacturing and Services PMIs preliminary readings, which will provide fresh hints on a potential recession threat. The data releases could have a significant impact on the market sentiment and thus, the dollar and gold valuations.”

“Gold bulls are challenging the 21-DDMA hurdle at $1,857. Daily closing above the latter is needed to confirm a bullish reversal, exposing the additional upside towards the mildly bullish 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 $1,850 psychological level. Sellers will then look out for the horizontal flattish 200-DMA at $1,839. Acceptance below the latter will trigger a fresh downswing towards the $1,800 mark.”

GBP/USD now faces a major resistance at 1.2640, suggested FX Strategists at UOB Group Quek Ser Leang and Peter Chia.

Key Quotes

24-hour view: “While we expected GBP to strengthen yesterday, we were of the view that ‘the major resistance at 1.2580 is unlikely to come into the picture’. The subsequent GBP strength exceeded our expectations as it soared to 1.2601 before easing off. From here, GBP could move above 1.2600 but in view of the overbought conditions, a break of the next major resistance at 1.2640 is unlikely (there is another resistance at 1.2620). On the downside, a breach of 1.2525 (minor support is at 1.2550) would indicate that the current upward pressure has eased.”

Next 1-3 weeks: “Yesterday (23 May, spot at 1.2505), we highlighted that mild upward pressure could lead to GBP edging higher to 1.2580. We did not expect the rapid rise as GBP soared to a high of 1.2601. While upward momentum has not improved by all that much, GBP could advance towards the major resistance at 1.2640. Overall, GBP is expected to trade of a firm footing as long as it does not move below 1.2480 (‘strong support’ level was at 1.2400 yesterday).”

• USD/JPY is hovering around 127.60 on higher-than-expected Jibun Bank PMI.
•  BOJ’s policymaker is advocating for the continuation of a prudent monetary policy.
• A hawkish commentary is expected from Fed’s Powell in his speech on Tuesday.

The USD/JPY pair has witnessed a steep fall after failing to sustain above Monday’s high at 128.06. The pair moved higher in early Tokyo to near 128.08 but failing to overstep Monday’s high dragged the asset below 128.60. A downside move has been witnessed in the asset after the IHS Markit came up with strong Jibun Bank Purchase Managers Index (PMI) numbers.  

The Japan’s Manufacturing PMI has landed at 53.2 higher than the estimates of 52 while the Services PMI has been recorded at 51.7 vs. 50.6 recorded earlier. This has underpinned the Japanese yen against the greenback.

Meanwhile, Bank of Japan (BOJ) Koji Nakamura, head of the central bank division overseeing monetary policy drafting stated that investors should brace for continuation of quantitative easing by the BOJ in order to assist the economy. The agenda behind the continuation of a prudent monetary policy is to keep prices rising, which will be beneficial for the economy in the longer horizon.

On the dollar front, the US dollar index (DXY) is juggling above 102.24 as investors await the speech from Federal Reserve (Fed) chair Jerome Powell. Guidance on June’s interest rate decision is expected as it might fade some obscurity over the extent of the rate hike. Taking into account, the elevated inflationary pressures and higher employment levels, hawkish guidance is expected from the Fed policymaker.

• Copper pares gains after refreshing 13-day high as risk-aversion, concerns over top consumer China recall sellers.
• Hawkish Fedspeak, cautious mood ahead of the key data/events weigh on market sentiment.
• Extended lockdowns, geopolitical headlines raise concerns over China’s economic growth.

Copper prices on COMEX futures bear the burden of risk-aversion, as well as clouds over China demand, retreating from over a two-week high to $4.30 heading into Tuesday’s European session.

Elsewhere, the benchmark three-month copper on the London Metal Exchange (LME) was down 0.4% at $9,510.50 a tonne, as of 02:17 GMT per Reuters, after hitting its highest since May 5 at $9,565 on Monday. Further, the most-active June copper contract on the Shanghai Futures Exchange (SFE) rose 0.2% to 72,150 yuan ($10,827.48) a tonne, per the news.

The recently hawkish comments favoring the tighter monetary policy from San Francisco Federal Reserve Bank President Mary Daly and Kansas City Fed President Esther George seem to exert downside pressure on the market sentiment. Furthermore, anxiety ahead of the preliminary readings of the US S&P Global Manufacturing and Services PMIs for May, as well as a speech from Fed Chairman Jerome Powell, also weigh on the risk appetite.

On the same line was US Trade Representative (USTR) Katherine Tai who poured cold water on the face of expectations that the Sino-American jitters will be eased soon, at least for the trade concerns. The US diplomat said, “We're still working on next actions with China,” while turning down the optimism triggered by US President Joe Biden’s comments suggesting a reversal of the Trump-era tariffs on China.

It’s worth noting that Reuters highlights the covid-led lockdowns in China as the key barrier to copper’s latest weakness. “Beijing extended its work-from-home requirement to stem a COVID-19 outbreak, while Shanghai deployed more testing and curbs to hold on to its hard-won "zero COVID" status after two months of lockdown,” said the news.

Additionally challenging the outlook for China were the recently pessimistic growth forecasts from JP Morgan and Goldman Sachs.

While risk catalysts and concerns over China’s economic growth keep copper prices depressed, the dragon nation’s readiness to introduce more measures to overcome the pandemic-led economic hardships keeps the metal buyers hopeful. “China will broaden its tax credit rebates, postpone social security payments and loan repayments, roll out new investment projects and take other steps to support the economy, state television quoted the cabinet as saying on Monday,” said Reuters.

To sum up, copper prices should improve gradually but the latest risk-aversion may hinder the recovery moves.

Considering preliminary readings from CME Group for gold futures markets, traders trimmed their open interest positions by more than 2K contracts at the beginning of the week, extending the downtrend for yet another session at the same time. Volume, instead, reversed the previous drop and increased by more than 41K contracts,

Gold: Another visit to the 2022 low at $1,780 is not ruled out

Gold prices extended the rebound and closed just above the $1,850 level on Monday. The positive performance, however, was amidst shrinking open interest, opening the door to a corrective move in the near term and leaving a potential short-term top in place at the same time.

In the opinion of FX Strategists at UOB Group Quek Ser Leang and Peter Chia, the recent strong upside in EUR/USD could extend to the 1.0750 region in the next weeks.

Key Quotes

24-hour view: “While we expected EUR to strengthen yesterday, we were of the view that ‘a sustained rise above 1.0605 is unlikely’. We did not anticipate the sudden jump in EUR that sent it surging to a high of 1.0697. The rapid rise is overbought but there is scope for EUR to advance further. However, the major resistance at 1.0750 is unlikely to come under threat for now (there is another resistance level at 1.0715). On the downside, a breach of 1.0630 (minor support is at 1.0660) would indicate that the current upward pressure has eased.”

Next 1-3 weeks: “Yesterday (23 May, spot at 1.0570), we highlighted that the corrective rebound in EUR has room to extend but 1.0645 is expected to offer solid resistance. Our view for a stronger EUR was not wrong but we did not expect the ease by which it cracked 1.0645 and surged to 1.0697. The strong boost in momentum suggests EUR could continue to advance. The next resistance level of note is at 1.0750. Support is at 1.0630 but only a break of 1.0580 would indicate that the upside risk has dissipated.”

• EUR/GBP remains sidelined after rising the most in two weeks the previous day.
• Failures to cross 50% Fibonacci retracement, sluggish oscillators keep sellers hopeful.
• Weekly support line appears a tough nut to crack for the bears.
• Preliminary readings of S&P Global PMIs for May, ECB’s Lagarde eyed for fresh impulse.

EUR/GBP takes rounds to 0.8500 following the run-up to refresh a one-week high, recently easing to 0.8490 heading into Tuesday’s European session.

In doing so, the cross-currency pair pares the biggest daily jump in 13 days while fading the bounce off the 200-HMA.

It’s worth noting that the preliminary readings of the UK and Eurozone S&P Global Manufacturing and Services PMIs for May, as well as a speech from ECB President Christine Lagarde, become crucial for the EUR/GBP traders to watch.

Given the bearish MACD signals and descending RSI (14) line, not oversold, EUR/GBP prices are likely to remain pressured.

However, a clear downside break of the 200-HMA level near 0.8485 becomes necessary for the pair sellers to retake control.

Even so, an upward sloping trend line from May 17, close to 0.8445, could test the quote’s further declines before highlighting the 0.8400 round figure.

Alternatively, 50% Fibonacci retracement (Fibo.) of May 12-17 downside, at 0.8505, guards the EUR/GBP pair’s recovery moves.

Following that, the 61.8% Fibo. near 0.8535 and the 0.8600 threshold may test the pair buyers before directing them to the monthly high, also the highest since late September 2021, close to 0.8620.

EUR/GBP: Hourly chart

Trend: Further weakness expected

• A bullish break of a prolonged consolidation has underpinned the shared currency bulls.
• The asset is marching towards 1.0800 as bulls are firmer above the 200-EMA.
• A bullish range oscillation (60.00-80.00) by the RSI (14) signals the strength of the bulls.

The EUR/USD pair is experiencing a minor pullback after struggling to overstep the round-level resistance of 1.0700 from Monday. The shared currency bulls are witnessing some profit-booking after a vertical upside move from May 13 low around 1.0350.

An upside break of the prolonged consolidation in a wider range of 1.0350-1.0604 has triggered a firmer bullish reversal in the asset. The breakout of a wider consolidation results in higher volume and wider ticks. The euro bulls have strongly pierced the 200-period Exponential Moving Average (EMA) at 1.0647, which signals a continuation of bullish momentum. Also, the asset prices and the 20-period EMA at 1.0606 are carrying a wide margin on the upside, which indicates the strength of the bulls.

Meanwhile, the Relative Strength Index (RSI) (14) has shifted into a bullish range of 60.00-80.00, which signals a sheer upside ahead.

A corrective pullback towards the horizontal resistance of the above-mentioned consolidation at 1.0604 will be a bargain buy opportunity for the market participants. This will send the asset towards April 26 high at 1.0739, followed by the round-level resistance at 1.0800.

On the flip side, the greenback bulls could regain control if the asset drops below May 20 low at 1.0533. An occurrence of the same will drag the asset towards May 15 low and May 13 high at 1.0460 and 1.0420 respectively.

EUR/USD four-hour chart

AUD/USD picks up bids to defend the buyers, despite the recent pullback from a fortnight top, as the options market players battle the risk-off mood heading into Tuesday’s European session. That said, the Aussie pair lost 0.30% intraday by flashing the 0.7085 as a quote by the press time.

One-month risk reversal (RR) of AUD/USD, a spread between calls and puts, remains steady at around 0.1000 on weekly basis. It’s worth noting that the weekly RR jumped the most since November 2020 for the latest full week.

On a daily basis, the RR figures remain mostly unchanged around 0.10 whereas the monthly prints consolidate the heaviest fall since March 2020, up 0.175 at the latest.

Although the options market keeps AUD/USD buyers hopeful, challenges to risk sentiment seem to weigh on the Aussie prices of late.

Read: AUD/USD Price Analysis: Further downside eyes 0.7040 support confluence

• GBP/USD retreats from 13-day top inside weekly rising wedge.
• 200-EMA, overbought RSI add strength to the pullback moves.
• Descending trend line from mid-April acts as extra filter to the north.

GBP/USD consolidates a three-day uptrend around a fortnight top, easing to 1.2565 ahead of Tuesday’s London open.

In doing so, the cable pair carries the previous day’s failure to cross the 200-EMA amid the overbought RSI (14) line.

However, the bears need a clear downside break of the 1.2500 threshold, comprising the support line of a weekly rising wedge bearish chart pattern, to retake control.

Following that, 1.2270 and the monthly low of 1.2155 can entertain traders ahead of the theoretical target surrounding 1.2050.

Meanwhile, recovery moves not only need to cross the 200-EMA level of 1.2610 but also cross the upper line of the stated wedge, near 1.2625, to favor the GBP/USD buyers.

In a case where the cable prices remain firmer past 1.2625, the 61.8% Fibonacci retracement of April-May fall and a five-week-old descending trend line, respectively around 1.2775 and 1.2815, will lure the bulls.

Overall, GBP/USD is likely to stay on the bear’s radar but validation from 1.2500 becomes necessary.

GBP/USD: Four-hour chart

Trend: Further weakness expected

• USD/CAD has scaled above 1.2800 as investors expect a hawkish tone from Fed’s Powell.
• The market participants are expecting a downbeat performance from the US PMI economic data.
• Weaker PMIs from around the world have dented the oil demand.

The USD/CAD pair is advancing sharply higher after hitting a low of 1.2764 in early Tokyo. The pair has climbed above 1.2800 and has touched an intraday high of 1.2810. A rebound in the asset is backed by a modest recovery in the US dollar index (DXY) after a bloody Monday and a plunge in the oil prices.

The DXY is recovering gradually from monthly lows of 102.07 as short-coverings hit the counter. The market participants are awaiting the speech from Federal Reserve (Fed) chair Jerome Powell and the expectation of hawkish guidance for June monetary policy is forcing investors to liquidate their shorts in the DXY. As per the market consensus, an interest rate elevation by 50 basis points (bps) is expected from the Fed next month.

Apart from that, the IHS Markit will release the monthly S&P Purchase Managers Index (PMI) numbers in the New York session. The Composite PMI is seen at 55.5 against the prior release of 56. The Manufacturing PMI may slip to 57.9 from the previous figure of 59.2 while the Services PMI will release at 55.4 vs. 55.6 recorded earlier.

On the oil front, lower PMI numbers from the major economies are indicating weak consumption of oil. This has brought some significant offers in the oil prices and a downside move has been witnessed below $110.00. Lower oil prices are hurting the Canadian dollar as it will reduce its fund flows from oil exports to the US.

• Asian-Pacific equities remain pressured despite Wall Street’s upbeat start of the week performance.
• Covid woes, Sino-American headlines push major banks to downgrade China’s growth forecasts.
• Quad Summit, PMIs and Fed’s Powell are crucial for the day.

Markets in the Asia-Pacific region remain depressed, despite Wall Street’s notable run-up, as mounting fears of growth in China join hawkish Fedspeak and anxiety ahead of the key data/events. Also keeping the markets pressured is the ongoing Quad Summit in Tokyo that recently offered more uncertainty by renewing the US-China trade concerns.

While portraying the mood, MSCI’s Index of the Asia-Pacific shares outside Japan drops 0.80% intraday whereas Japan’s Nikkei 225 drops 0.55% intraday by the press time of early Tuesday.

US Trade Representative (USTR) Katherine Tai poured cold water on the face of expectations that the Sino-American jitters will be eased soon, at least for the trade concerns. The US diplomat said, “We're still working on next actions with China,” while turning down the optimism triggered by US President Joe Biden’s comments suggesting a reversal of the Trump-era tariffs on China.

It should be noted that JP Morgan joined Goldman Sachs in cutting China’s economic growth forecasts for 2022 and exerts additional downside pressure on the APAC (Asia-Pacific) shares.

Not only the covid and the Russia-Ukraine woes but fears of rising power prices also weigh on the Chinese economic transition and challenge the mood of late.

As a result, most shares in China, Hong Kong, Australia and New Zealand remain on the back foot, with Hang Seng losing the most. However, Indian equities lick their wounds as traders cheer on recent government actions, like tax cuts on oil, etc.

In addition to China-linked fears, hawkish comments from San Francisco Federal Reserve Bank President Mary Daly and Kansas City Fed President Esther George also weigh on the market’s mood. On the same line is the cautious mood ahead of the preliminary readings of the US S&P Global Manufacturing and Services PMIs for May and the scheduled speech from Fed Chairman Jerome Powell.

Looking forward, updates from Quad Summit in Tokyo and the US PMIs may entertain traders ahead of Fed Chairman Jerome Powell’s comments. Should Fed’s Powell repeat the latest 50 bps rate hike support, the market’s risk-on mood might return to the table.

Read: S&P 500 Futures, US Treasury yields portray cautious mood ahead of Fed’s Powell, PMIs

Bank of Japan (BOJ) Koji Nakamura, head of the central bank division overseeing monetary policy drafting, said Monday that the BOJ will continue to ease monetary policy to assist the economy.”

Further comments

"It's not good for only prices to increase.”

"It's important to form a virtuous cycle of price hikes led by an increase in household real incomes."

Separately, Japan’s Finance Minister Shunichi Suzuki said that he told the G8 meeting that it was critical to reaffirm the FX agreement.

Additional takeaways

Market reaction

USD/JPY remains pressured below 128.00 on the above comments. The spot was last seen trading at 127.77, down 0.07% so far.

• USD/INR picks up bids to consolidate recent losses inside weekly trading range.
• Sour sentiment, market’s anxiety ahead of the key data/events underpin US dollar demand.
• Leaders from the US, India, Australia and Japan meet at the Quad Summit in Tokyo, China in focus.
• US PMIs, Fed’s Powell will provide clear directions amid inflation, growth fears.

USD/INR remains mildly bid around 77.55, following a downbeat start of the week, as the US dollar cheers the risk-off mood during Tuesday’s Asian session.

The Indian rupee (INR) pair’s latest gains could be linked to the hawkish Fedspeak and the US-China jitters, as well as anxiety ahead of top-tier data/events.

That said, India Prime Minister (PM) Narendra Modi, Japan’s PM Fumio Kishida, the US President Joe Biden and Australia’s newly elected PM Anthony Albanese will meet at Quad Leaders' summit on Tuesday. While the decision-makers have recently started discussing multiple issues ranging from the Ukraine-Russia war to coronavirus, major attention will be given to comments relating to China.

Recently, US Trade Representative (USTR) Katherine Tai poured cold water on the face of expectations that the Sino-American jitters will be eased soon, at least for the trade concerns. The US diplomat said, “We're still working on next actions with China,” while turning down the optimism triggered by US President Joe Biden’s comments suggesting a reversal of the Trump-era tariffs on China.

Elsewhere, San Francisco Federal Reserve Bank President Mary Daly and Kansas City Fed President Esther George sound hawkish in their latest comments and renewed the US dollar buying. “I think that we can weather this storm, get the interest rate up...price stability restored and still leave Americans with jobs a plentiful and with growth expanding as we expect it to," said Fed’s Daly during an interview with Fox News on Monday. On the same line, Fed’s George expects the US central bank to lift its target interest rate to about 2% by August.

It should be observed the major banks’ downgrade of the US and Chinese economic forecasts also keep the risk-aversion on the table and weigh on the EUR/USD prices.

Furthermore, the cautious mood ahead of the preliminary readings of the US S&P Global Manufacturing and Services PMIs for May and the scheduled speech from Fed Chairman Jerome Powell also weigh on the market sentiment and propel the USD/INR prices.

Amid these plays, S&P 500 Futures drop 0.85% intraday to 3,938 whereas the US 10-year Treasury yields reverse the previous day’s rebound from the monthly low, down 1.8 basis points (bps) to 2.84% at the latest.

Moving on, risk catalysts are likely to gain major attention as geopolitical tussles between China and the Quad leaders aren’t hidden, which in turn may add strength to the US dollar’s safe-haven demand.

Also read: US S&P Global May PMI Preview: Recession worries are high, but what of probabilities?

Technical analysis

Bearish RSI divergence joins the repeated failures to stay beyond 77.85 to keep USD/INR sellers hopeful. However, a clear downside break of the weekly rising trend channel, around 77.45 by the press time, becomes necessary for the seller’s entry.

• Gold prices are expecting a sideways move ahead of Fed’s Powell and US PMI.
• An underperformance is expected from the US PMI in both aspects: Manufacturing and Services.
• The DXY has moved upside after a bearish Monday.

Gold price (XAU/USD) is holding itself around $1,850.00 as the US dollar index (DXY) has moved higher in the Asian session after a bearish Monday. The precious metal is indicating volatility contraction as the asset has turned sideways in a $10 range from the previous trading session. A topsy-turvy move is highly expected from the bright metal as investors are awaiting the speech from Federal Reserve (Fed) chair Jerome Powell on Tuesday.

The speech from Fed’s Powell will dictate the likely monetary policy action in June’s interest rate decision announcement. Considering the elevated inflation levels and tight labor market, hawkish guidance is expected in the speech and the status of balance sheet reduction will be keenly watched.

Meanwhile, the DXY is witnessing some selling pressure after hitting a high of 102.32 in the Tokyo session. The asset has wiped off its 2.90% gains in the last few trading sessions after hitting a 19-year high of 105.00 on May 13.

Although the speech from Fed’s Powell will be the major event, investors will also focus on the S&P Global Purchase Managers Index (PMI) numbers. The Composite PMI is seen at 55.5 while the Manufacturing and Services PMI may land at 57.9 and 55.4 respectively.

Gold technical analysis

In today’s session, a directionless move is expected from the gold prices ahead of Fed Powell’s speech and US PMI numbers. The precious metal is likely to trade in a range of $1,847.07-1,865.47. Gold prices are overlapping the 20-period Exponential Moving Average (EMA) at $1,853.33, which signals a consolidation ahead. The Relative Strength Index (RSI) (14) has been established in a 40.00-60.00 range, which indicates a balancing auction.

Gold hourly chart

• USD/TRY has sensed a cushion from the 200-EMA at 15.71.
• The formation of a Bullish Flag signals the continuation of the upside after a rangebound move.
• A 40.00-60.00 range oscillation by the RSI (14) signals a consolidation ahead.

The USD/TRY pair is displaying topsy-turvy moves in a narrow range of 15.90-15.95 in the Asian session after a strong rebound from Monday’s low at 15.69. On a broader note, the asset is oscillating in a wider range of 15.69-15.99 after a juggernaut upside move from May’s low at 14.73.

A Bullish Flag chart formation on an hourly scale is indicating a follow-up buying ahead. The asset is in a consolidation phase after a sheer upside move. Usually, an oscillation phase indicates the initiation of longs by those investors, which prefer to take positions after the establishment of a bullish bias. This represents an initiative buying action after a balancing auction.

The 200-period Exponential Moving Average (EMA) at 15.71 has acted as major support for the counter while the 20-period EMA at 15.90 is overlapping to the prices.

Meanwhile, the Relative Strength Index (RSI) is trading back and forth in the 40.00-60.00 range, which signals a rangebound move ahead.

An upside move above the psychological resistance of 16.00 will trigger the Bullish Flag formation and will send the asset towards the 20 December 2021 opening price at 16.60, followed by the round-level resistance at 17.00.

Alternatively, a decisive slippage below Monday’s low at 15.69 will drag the asset towards May 16 low at 15.45. A breach of the latter will expose the asset to more downside towards the 9 May low at 14.92.

USD/TRY hourly chart

• EUR/USD pares the biggest daily gains in 11 weeks around a fortnight top.
• Risk-aversion, pre-data/event anxiety weigh on the pair prices.
• ECB vs. Fed appears the key catalyst, preliminary EU/US PMIs for May also seem important for immediate directions.
• EU oil embargo, China’s covid conditions are extra signals for better forecasting.

EUR/USD takes offers to renew intraday low around 1.0665 as it consolidates the previous day’s run-up, the heaviest since late March, near a two-week top during Tuesday’s mid-Asian session. In doing so, the major currency pair respects the market’s risk-off mood, as well as anxiety, ahead of top-tier data/events. Also weighing on the quote are the recently hawkish comments from the Fed policymakers, as well as the US-China jitters.

Contrary to the neutral comments from the Fed policymakers, San Francisco Federal Reserve Bank President Mary Daly and Kansas City Fed President Esther George sound hawkish in their latest comments. “I think that we can weather this storm, get the interest rate up...price stability restored and still leave Americans with jobs a plentiful and with growth expanding as we expect it to," said Fed’s Daly during an interview with Fox News on Monday. On the same line, Fed’s George expects the US central bank to lift its target interest rate to about 2% by August.

Elsewhere, US Trade Representative (USTR) Katherine Tai poured cold water on the face of expectations that the Sino-American jitters will be eased soon, at least for the trade concerns. The US diplomat said, “We're still working on next actions with China,” while turning down the optimism triggered by US President Joe Biden’s comments suggesting a reversal of the Trump-era tariffs on China.

Furthermore, major banks’ downgrade of the US and Chinese economic forecasts also keep the risk-aversion on the table and weigh on the EUR/USD prices.

It should be noted that the cautious mood ahead of the Quad Summit in Tokyo and the preliminary readings of the US and Eurozone S&P Global Manufacturing and Services PMIs for May drown the risk appetite and favor the pair sellers. On the same line are the scheduled speeches from Fed Chairman Jerome Powell and ECB President Christine Lagarde.

To portray the mood, S&P 500 Futures drop 0.70% to 3,940 whereas the US 10-year Treasury yields fade from the previous day’s rebound from the monthly low of around 2.85%.

Looking forward, Eurozone PMIs may portray the economic conditions in the bloc and can recall the bulls should the outcome challenges the current pessimism, mainly due to the Russia-Ukraine war. Following that, the art of central bankers in defending the respective economies, while also taming the inflation fears, will be crucial for the EUR/USD traders. Given the recently hawkish ECB speak, contrary to Powell’s repetitive remarks, the pair sellers have a tough road to tackle.

Also read: US S&P Global May PMI Preview: Recession worries are high, but what of probabilities?

Technical analysis

EUR/USD prices keep the previous day’s upside break of a descending line from late March, around 1.0560, despite the latest pullback. Also likely to challenge the pair’s further downside is the early-month swing high near 1.0640.

Meanwhile, the previous support line from early March, around 1.0840 by the press time, restricts the short-term upside of the pair.

• WTI is under pressure as bears move in surrounding geopolitics. 
• Oil prices are offered as EU’s proposed ban on Russian oil looks increasingly unlikely.

At $109.54, the price of US oil, or WTI, is down by some 0.8%, falling from a high of $110.50 to a low of $109.20. Meanwhile, crude oil prices have melted due to the EU’s proposed ban on Russian oil looks increasingly unlikely.

''Hungary has been holding out on the unilateral ban, asking for more time to allow it to find alternative sources. Prime Minister Viktor Orban said that progress on a deal will likely slip into next month. The EU has offered to phase in the sanctions to 2024, while Hungary has indicated it needs at least EUR770m to revamp its oil industry,'' analysts at ANZ Bank explained.

''The bloc’s leaders are scheduled to meet next week to continue to nut out a deal. In the meantime, Russian oil continues to flow. Overall shipments edged lower in the seven days to 20 May, with a total of 30 tankers loading about 24mbbls from Russian terminals. This equates to average flows of 3.44mb/d, down only 3%. This is despite EU financial sanctions that came into effect on 15 May. Nevertheless, the risk of higher prices remains,'' the analysts added.

''International Energy Agency Executive Director Fatih Birol said that 'we may see prices even going higher, becoming much more volatile and a major risk for the global economy'.''

Meanwhile, the summer months are here and so too is driving season in the US.

''The increasingly tight gasoline and distillate markets are also adding a layer of bullishness to the crude market as record refiner margins are likely to fuel elevated refiner intake this summer season,'' analysts at TD Securities said. ''In this context, despite macroeconomic angst, crude oil markets may be shaping up for another move higher this summer.''

• Market sentiment fades the week-start optimism amid challenges from China, Fed.
• S&P 500 Futures retreat from 3,950, US 10-year Treasury yields dribble around 2.85%.
• Hawkish Fedspeak, USTR’s comments and anxiety ahead of PMIs, Fed's Powell weigh on the mood.

Global markets fail to conserve the week-start optimism as headlines surrounding China and the Fed weigh on sentiment during early Tuesday. Also challenging the positive mood is the market’s anxiety ahead of the key data/events.

To portray the mood, S&P 500 Futures drop 0.70% to 3,940 whereas the US 10-year Treasury yields fade from the previous day’s rebound from the monthly low of around 2.86%.

Contrary to the neutral comments from the Fed policymakers, Tuesday’s hawkish Fedspeak seems to have weighed on the market sentiment. The key among them was San Francisco Federal Reserve Bank President Mary Daly and Kansas City Fed President Esther George.

“I think that we can weather this storm, get the interest rate up...price stability restored and still leave Americans with jobs a plentiful and with growth expanding as we expect it to," said Fed’s Daly during an interview with Fox News on Monday. On the same line, Fed’s George expects the US central bank to lift its target interest rate to about 2% by August.

On a different page, US Trade Representative (USTR) Katherine Tai poured cold water on the face of expectations that the Sino-American jitters will be eased soon, at least for the trade concerns. The US diplomat said, “We're still working on next actions with China,” while turning down the optimism triggered by US President Joe Biden’s comments suggesting a reversal of the Trump-era tariffs on China.

It should be observed that major banks’ downgrade of the US and Chinese economic forecasts also keep the risk-aversion on the table.

Additionally, the cautious mood ahead of the Quad Summit in Tokyo and the preliminary readings of the US S&P Global Manufacturing and Services PMIs for May, as well as a speech from Fed Chairman Jerome Powell, drown the risk appetite.

That said, mixed prints of the PMIs and Powell’s repetitive comments may recall the optimists but the geopolitical and trade catalysts are less likely to let that happen. Hence, strong prints of the US data and hawkish comments from Fed’s Powell will be eyed for further risk-off play.

Also read: Fed’s inflation fight is all bark, no bite

Japanese Finance Minister Shunichi Suzuki said in a statement on Tuesday, “we will take serious action in response to pricing increases.”

“I intend to present an additional budget to parliament tomorrow,” he added.

Japan’s Prime Minister Fumio Kishida said last week that his government will double fiscal aid for Ukraine to $600 million in a coordinated move with the World Bank to back the country's near-term fiscal necessities damaged by Russia's invasion.

Market reaction

USD/JPY is rebounding in sync with the US dollar, currently trading at 127.97, up 0.08% on the day.

United States Trade Representative (USTR) Katherine Tai said early Tuesday, “we're still working on next actions with China.”

Additional comments

“US is taking a methodical approach in Asia.”

“Biden's team believes that trade requires new ideas.”

Tai spoke ahead of a likely discussion scheduled between US President Biden and Treasury Secretary Janet Yellen on the administration’s review of Section 301 tariffs on circa $370 bn worth of Chinese goods.

In his speech on Monday, Biden said that the US is considering reducing tariffs on China.

Market reaction

AUD/USD is uninspired by the optimism on the US-Sino trade front, as it sheds 0.45% on the day to trade at 0.7074, as of writing.

• AUD/USD takes the offers to renew daily low, extends pullback from two-week top.
• 100-HMA, short-term bullish channel’s support lures bears amid downbeat RSI.
• 200-HMA adds to the downside filters, 61.8% Fibonacci retracement to test recovery moves.

AUD/USD remains on the back foot around the daily low near 0.7080 as it consolidates the previous week’s gains around a fortnight top. Even so, the Aussie pair remains inside a bullish chart formation during Tuesday’s Asian session.

The Aussie pair’s latest weakness could be linked to the inability to stay beyond the 61.8% Fibonacci retracement (Fibo.) of May 05-12 downside, as well as RSI pullback from the overbought territory.

As the RSI and the aforementioned channel both have some downside room before hitting the reversal point, AUD/USD is likely to extend the latest losses.

That said, the lower line of the stated channel and the 100-HMA, around 0.7040, appear a tough nut to crack for the pair sellers.

Also acting as a downside filter is the 0.7000 threshold and the 200-HMA level of 0.6985.

On the flip side, a clear break of the 61.8% Fibo. level, near 0.7100, will recall AUD/USD buyers.

Following that, the latest swing high and the channel’s upper, respectively around 0.7130 and 0.7160, can entertain the bulls before challenging them with the 78.6% Fibonacci retracement level near 0.7170.

AUD/USD: Hourly chart

Trend: Further weakness expected

In recent trade today, the People’s Bank of China (PBOC) set the yuan (CNY) at 6.6566 vs. the estimated 6.6576 and the previous 6.6756.

About the fix

China maintains strict control of the yuan’s rate on the mainland.

The onshore yuan (CNY) differs from the offshore one (CNH) in trading restrictions, this last one is not as tightly controlled.

Each morning, the People’s Bank of China (PBOC) sets a so-called daily midpoint fix, based on the yuan’s previous day's closing level and quotations taken from the inter-bank dealer.

• NZD/USD is breaking to the downside and an H&S pattern.
• There are prospects of a move to mitigate the price imbalance between there and the old swing highs near 0.6420. 

As per the prior analysis, NZD/USD Price Analysis: The bears are taking over and trying to move towards a 50% mean reversion, the price did indeed meet the 50% ratio target but this proved to be a firm support area from which the bulls in from. However, there are prospects of a move to the downside from the topping pattern since made in the same time frame.

NZD/USD H1 prior analysis

NZD/USD H1 live chart

The price has moved created a head and shoulders topping formation on the hourly chart and has breached the neckline/support zone in recent trade. The bears are taking over control. A restest of the support zone would be typical at this stage and if it holds, there would be prospects of a move to mitigate the price imbalance between there and the old swing highs near 0.6420. 

JP Morgan came out with a downbeat economic forecast for China amid the ongoing covid woes, as well as concerns emanating from the Russia-Ukraine crisis.

“We downgraded our China GDP forecast again,” said JPM in the opening remarks before mentioning, “Now look for 2Q GDP to contract ‒5.4% (previously ‒1.5%).”

The analytical piece also said, “Our 2Q global growth forecast stands at just 0.6% (easily the weakest quarter since the GFC outside of 2020).”

It’s worth noting that the latest jitters surrounding the US-China trade jitters seem an additional negative catalyst for China. US Trade Representative (USTR) Katherine Tai poured cold water on the face of expectations that the Sino-American jitters will be eased soon, at least for the trade concerns. The US diplomat said, “We're still working on next actions with China,” while turning down the optimism triggered by US President Joe Biden’s comments suggesting a reversal of the Trump-era tariffs on China.

Read: Gold Price Forecast: XAU/USD eases back to $1,850 on anxious markets, PMIs, Fed’s Powell in focus

• GBP/USD is expected to remain subdued as DXY steadies ahead of Fed’s Powell.
• Hawkish guidance should be expected from Fed’s Powell.
• The US and UK PMI numbers will keep investors busy in today’s session.

The GBP/USD pair is oscillating in a narrow range of 1.2560-1.2593 in the early Tokyo session as investors are awaiting the release of the Purchase Managers Index (PMI) numbers from the UK and the US. The cable has remained stronger over the past few trading sessions amid a rebound in the risk-on impulse, which has strengthened the risk-sensitive currencies and has diminished the safe-haven's appeal.

The US dollar index (DXY) is performing a little stable on Tuesday after a bloodbath Monday. The DXY slipped sharply to near 102.00 on an upbeat market tone. Now, investors are focusing on the release of the S&P Composite PMI numbers. The Composite PMI is seen lower at 55.5, against the prior print of 56. From a bifurcation view, the Manufacturing and Services PMI are expected to land at 57.9 and 55.4 against the previously recorded figures of 59.2 and 55.6 respectively.

Apart from the US PMI data, the speech from Federal Reserve (Fed) chair Jerome Powell will remain in limelight. The guidance from Fed Powell over the likely monetary policy action by the Fed will facilitate investors to take measured decisions in the cable. Most likely, the tone from Fed’s Powell will remain hawkish as soaring inflation needs to be contained quickly.  

On the UK front, S&P Global/CIPS Manufacturing and Services PMI are seen at 55.1 and 57.3, lower than the previously recorded figures of 55.8 and 58.9 respectively.

• Gold renews intrdaay low while reversing from fortnight top, probes four-day uptrend.
• Week-start optimism fades on hawkish Fedspeak, USTR Tai’s comments.
• Cautious mood ahead of preliminary PMIs for May, speech from Powell also probe bulls.
• Quad Summit, China’s covid conditions are extra catalysts to keep eyes on for fresh impulse.

Gold (XAU/USD) struggles for clear directions as it retreats from a two-week high during a lackluster Asian session on Tuesday. That said, the precious metal’s inaction around $1,850, close to the daily low near $1,850 by the press time, can be linked with the recently sour sentiment and the market’s anxiety ahead of the key data/events.

While portraying the mood, S&P 500 Futures drop 0.70% intraday and the US 10-year Treasury yields fall 1.8 basis points (bps) to 2.84%, as recently hawkish Fedspeak joins fresh fears concerning the US-China trade war.

Comments from San Francisco Federal Reserve Bank President Mary Daly and Kansas City Federal Reserve Bank President Esther George 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 a plentiful and with growth expanding as we expect it to," said Fed’s Daly during an interview with Fox News on Monday. On the same line, Fed’s George expects the US central bank to lift its target interest rate to about 2% by August.

Elsewhere, US Trade Representative (USTR) Katherine Tai poured cold water on the face of expectations that the Sino-American jitters will be eased soon, at least for the trade concerns. The US diplomat said, “We're still working on next actions with China,” while turning down the optimism triggered by US President Joe Biden’s comments suggesting a reversal of the Trump-era tariffs on China.

It’s worth observing that the cautious mood ahead of the Quad Summit in Tokyo and the preliminary readings of the US S&P Global Manufacturing and Services PMIs for May, as well as a speech from Fed Chairman Jerome Powell, also weigh on the gold price.

Looking forward, gold buyers will wait for upbeat US data and confirmation of a 50 bps rate hike from Fed’s Powell for return. In the absence of this, the metal prices become vulnerable to reverse the latest corrective pullback from a four-month low.

Also read: Gold Price Forecast: Loses steam amid a better market mood

Technical analysis

Despite the latest inaction, gold price seesaws inside a weekly rising channel while keeping the previous week’s upside break of the 200-HMA, portraying the traders’ bullish bias.

That said, the stated channel’s upper line and a downward sloping resistance line from April 29, respectively near $1,870 and $1,878, restrict short-term upside moves of gold prices.

Alternatively, a convergence of the 200-HMA and support line of the aforementioned bullish channel, close to $1,833-30, appears a tough nut to crack for sellers.

Overall, gold’s gradual recovery remains intact even as the buyers await fresh catalysts.

Gold: Hourly chart

Trend: Further upside expected

• GBP/JPY has recovered a little after slipping to near 160.30 on higher Japan PMI.
• The BOE is expected to elevate its interest rate by a significant figure to fix the inflation mess.
• In the European session, UK’s PMI numbers will remain in focus.

The GBP/JPY pair has attracted some bids in the early Asian session after slipping to near 160.30 on higher-than-expected Jibun Bank Japan’s Manufacturing and Services PMI numbers. The Jibun Bank Manufacturing and Services PMI have landed at 53.2 and 51.7 against the prior print of 52 and 50.6 respectively. The cross witnessed a decent sell-off at open after failing to cross Monday’s highest traded price at 161.02.

The pair has remained in the grip of bulls from the last week as the improved risk appetite of the market participants underpinned the risk-perceived currencies against the safe-assets.

The bound bulls are also getting traction on expectations of a rate hike by the Bank of England (BOE) in June. The BOE is left with no other alternative than to elevate its interest rates in June monetary policy. The Consumer Price Index (CPI) in the UK area has climbed to 9%, which cannot be overlooked and needed to be contained as early as possible. The households in the pound area are facing the heat of advancing energy bills and food prices. In order to tame the galloping inflation, a jumbo rate hike announcement is expected from the BOE.

Going forward, investors will focus on the Purchase Managers Index (PMI) numbers from the UK and Japan. The UK’s S&P Global/CIPS Manufacturing and Services PMI are seen at 55.1 and 57.3, lower than the previously recorded figures of 55.8 and 58.9 respectively.

• USD/CAD renews intraday high, keeps corrective pullback from 13-day low.
• Bearish MACD signals, steady RSI favor sellers until staying below 1.2920.
• Key Fibonacci retracement levels add to the downside filters

USD/CAD picks up bids to renew daily top surrounding 1.2800, after the biggest daily fall towards testing a fortnight low. In doing so, the Loonie pair rebounds from the 50-day EMA during Tuesday’s Asian session.

Even so, bearish MACD signals and the steady RSI keeps USD/CAD bulls worried. Also challenging the recovery moves is the 10-day EMA level surrounding 1.2845.

Additionally, a three-week-long horizontal area comprising the 23.6% Fibonacci retracement (Fibo.) of April-May upside, as well as the tops marked during early May, will also challenge the pair’s short-term upside near 1.2920.

In a case where USD/CAD rises past 1.2920, the 1.3000 threshold and the monthly peak of 1.3076 will be on the bull’s radar.

On the contrary, a daily closing below the 50-day EMA level of 1.2764 can direct USD/CAD sellers towards the 50% and 61.8% Fibonacci retracements, respectively near 1.2740 and 1.2660.

Following that, a south-run towards the late April swing low near 1.2460 can’t be ruled out.

USD/CAD: Daily chart

Trend: Further weakness expected

• EUR/USD bulls have moved in and have begun a mitigation process.
• The price imbalance between recent highs and towards 1.10 is compelling. 

The US dollar is under pressure and the euro has caught a bid on a combination of the market's pivot towards the European Central Bank and refreshed hawkish sentiment. This leaves the prospects for a longer correction of the weekly bearish impulse for the foreseeable future. 

EUR/USD weekly chart

The bulls are already penetrating the 38.2% Fibonacci and on the way to 1.07 the figure. A move towards the 50% and 61.8% ratios could be on the cards for the foreseeable future. 

Meanwhile, the US dollar on the charts, as per 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:

The price imbalance on the daily chart leaves the aforementioned weekly ratios on the Fibonacci scale exposed towards 1.0770 and 1.0936.

• USD/JPY remains sidelined, mildly offered, as market consolidates recent moves.
• Hawkish Fedspeak, cautious sentiment ahead of the key data/events probes the previous risk-on mood.
• Quad Summit, S&P Global PMIs for May and Fed’s Powell will provide fresh impetus.

USD/JPY renews intraday low around 127.70 as market’s in Tokyo opens for Tuesday’s trading. In doing so, the yen pair portrays the market’s anxiety before the crucial catalysts. Also challenging the USD/JPY moves are the latest comments from the Fed policymakers.

That said, the Quad Summit in Tokyo and the preliminary readings of the US S&P Global Manufacturing and Services PMIs for May, as well as a speech from Fed Chairman Jerome Powell, are today’s key catalysts that make traders nervous of late.

On the other hand, comments from San Francisco Federal Reserve Bank President Mary Daly and Kansas City Federal Reserve Bank President Esther George 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 a plentiful and with growth expanding as we expect it to," said Fed’s Daly during an interview with Fox News on Monday. On the same line, Fed’s George expects the US central bank to lift its target interest rate to about 2% by August.

It should be noted that the risk-on mood joined a lack of bullish bias to weigh on the USD/JPY prices the previous day. That said, the firmer sentiment drowned the US Dollar Index to a fresh two-week low but mixed concerns in Japan, due to the Bank of Japan’s favor for (BOJ) easy money policies and risks emanating from China and Russia, seemed to have restricted the USD/JPY losses.

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.

Against this backdrop, S&P 500 Futures drops 0.60% intraday whereas the US 10-year Treasury yields fell two basis points (bps) to pare the recent gains and challenge the USD/JPY moves.

To sum up, USD/JPY portrays the market’s indecision and hence cautious trading ahead of the aforementioned key data/events becomes prudent for traders.

Technical analysis

A convergence of the two-week-old descending trend line and the 10-DMA, around 128.60 by the press time, restricts the short-term USD/JPY upside. However, a steady RSI and monthly horizontal support near the 127.00 threshold, challenge the pair sellers.