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• AUD/JPY has crossed the critical hurdle of 94.00 as RBA and BOJ’s minutes will highlight the policy divergence.
• The major contribution of costly oil and food prices in the entire inflation is restricting BOJ to sound hawkish.
• Japan’s economy wants a less attractive yen to keep higher exports intact.

The AUD/JPY pair has given an upside break of the consolidation formed in a 93.81-93.94 range in early Tokyo. An upside break of the narrow range has pushed the risk barometer above the critical resistance of 94.00. The cross is expected to perform stronger in today’s session as the release of the meeting minutes by the Reserve Bank of Australia (RBA) and the Bank of Japan (BOJ) will highlight a policy divergence between the economies.

The RBA raised its interest rates by 50 basis points (bps) in the first week of June as soaring price pressures demanded extreme policy tightening measures. The central bank went beyond the 25 bps rate hike option despite lower employment generation capacity. However, the labor statistics added 60.6k jobs in May, which was released after the RBA’s policy announcement. The RBA minutes are going to provide more insights into the monetary policy action and views of other policymakers on the economy and policy rates.

On the Tokyo front, a continuation of an ultra-loose monetary policy by the BOJ has put the yen bulls on the tenterhooks. The BOJ is focused on keeping its currency less attractive as it will result in higher exports for the economy. Also, the Consumer Price Index (CPI) in the Japanese economy is majorly contributed by advancing oil and commodity prices, which is restricting the BOJ to sound hawkish in its monetary policy dictation.

• USD/CAD keeps week-start break of weekly support, off intraday low.
• Double tops around 1.3080 and downbeat oscillators keep sellers hopeful.
• Key SMAs can probe the downside ahead of six-week-old horizontal support.
• The late 2020 peak can lure the bulls on crossing 1.3080.

USD/CAD bounces off intraday low of 1.2975, at 1.2983 by the press time, as it extends the previous day’s losses during Tuesday’s Asian session.

In doing so, the loonie pair holds onto the downside break of a one-week-old ascending trend line, previous support, while keeping the Friday’s U-turn from a 19-month high.

It’s worth noting that the Loonie pair ticked up to refresh the multi-month high before reversing from 1.3075. In that process, the quote portrayed a double-top bearish chart pattern surrounding the 1.3080-75 area.

Hence, the double-top formation and a downbeat break of the immediate support, not to forget bearish MACD signals and descending RSI line, suggest the USD/CAD pair’s further downside.

As a result, the 50-SMA and the 200-SMA levels, respectively around 1.2880 and 1.2810, are likely luring the short-term bears before directing them to the horizontal area comprising multiple levels marked since early May around 1.2710.

On the contrary, recovery moves need to jump back beyond the support-turned-resistance line, close to 1.2990 by the press time, to recall the buyers. Also acting as an immediate upside filter is the 1.3000 psychological magnet.

Should the USD/CAD pair remains firmer past 1.3000, it can again aim to cross the 1.3080 hurdle, which in turn holds the key for a rally toward the latest 2020 levels surrounding 1.3175-80.

USD/CAD: Four-hour chart

Trend: Further downside expected

• AUD/USD picks up bids to refresh intraday high, extends week-start recovery.
• RBA praises yield targeting method and mentioned reputational damage as it ended.
• Market sentiment remains mixed, US holiday allowed European/UK shares to improve.
• RBA Meeting Minutes, speech from Governor Lowe gain major attention ahead of the full markets.

AUD/USD renews intraday high around 0.6960, extending the daily gains as market sentiment remains cautiously optimistic ahead of multiple catalysts from the Reserve Bank of Australias (RBA), up for publishing on early Tuesday.

The Aussie pair’s latest gains could be linked to the absence of the US traders, due to the Juneteenth holiday, as well as the RBA’s comments on the success of the yield targeting method.

RBA conceded the end of yield target was damaging during early Tuesday morning in Asia. The Aussie central bank also mentioned, “Yield target successfully reinforced the bank's forward guidance about the cash rate.”

Also read: RBA: Yield target successfully reinforced the bank's forward guidance about the cash rate

It’s worth noting that the RBA surprised markets with 50 basis points (bps) rate hike during its latest monetary policy meeting and the tide for a rate lift isn’t down yet. Hence, the AUD/USD traders will be more interested in reading about the future rate actions and/or possible monetary policy moves discussed by the policymakers. The same highlights today’s RBA Meeting Minutes for the last meeting. Also important will be a speech from RBA Governor Philip Lowe.

On the other hand, the US Dollar Index (DXY) began the week on a negative side as an off in the US markets allowed stocks/bunds in Europe and the UK to consolidate recent moves. Even so, fears of monetary policy aggression and economic fears challenged the market’s optimism amid a lackluster day.

Moving on, RBA’s Lowe and Meeting Minutes will be crucial for the AUD/USD traders ahead of the second-tier US data. Additionally, chatters surrounding the likely US tax relief to China and covid may also entertain the pair traders. Above all, Federal Reserve (Fed) Chairman Jerome Powell’s Testimony on the bi-annual Monetary Policy Report, on Wednesday and Thursday, will be important for clear directions.

Technical analysis

AUD/USD grinds higher between the weekly support line and the 10-DMA, respectively around 0.6930 and 0.7000.

• Gold price is displaying a lackluster performance as investors are awaiting Fed Powell’s testimony.
• The DXY is underperforming on lower forecasts for the US PMI.
• Investors should brace for one more 75 bps interest rate hike by the Fed in July.

Gold price (XAU/USD) is displaying back and forth moves in a narrow range of $1,835.59-1,839.15 in the early Asian session. The precious metal is going through a corrective action as a gradual decline has been recorded in the gold prices after the asset recorded a high of $1,857.64 on Thursday.

The gold prices are facing the headwinds of an extremely tight policy period. Investors have still not passed the hangover of the 75 basis points (bps) interest rate hike announcement last week. Now, advancing odds of a consecutive 75 bps rate hike are hurting the greenback bulls.

The US dollar index (DXY) has turned sideways below 104.50 as investors are awaiting the Federal Reserve (Fed) chair Jerome Powell’s testimony, which is due on Wednesday. Apart from that lower forecasts for the US Purchase Managers Index (PMI) will keep hammering the DXY.

The Composite PMI is seen higher marginally to 53.5 from the prior print of 53.4. The estimates for the Manufacturing and Services indicate an underperformance. The Services PMI is seen extremely lower at 49.1 against the prior print of 53.2. While the Manufacturing PMI is expected to slip to 54.7 from the former figure of 55.7.

Gold technical analysis

On an intraday scale, the gold prices are auctioning in a Descending Triangle pattern. The horizontal support of the chart pattern is placed from $1,836.04 while the downward sloping trendline is plotted from Monday’s high at $1,845.54. The primary trendline placed from last week’s high at $1,857.58. The asset is trading near the 50-period Exponential Moving Average (EMA) at $1,839.14, which signals a consolidation ahead. While, the Relative Strength Index (RSI) (14) is oscillating in a 40.00-60.00 range, which signals a continuation of a sideways move.

Gold intraday chart

• GBP/USD fades week-start rebound, seesaws inside short-term triangle.
• MACD signals join downbeat moving average crossover to suggest further declines, 1.2200 holds the key to welcome bears
• SMA convergence appears a tough nut to crack for buyers.

GBP/USD remains sidelined around the mid-1.2200s as it funnels down to the short-term triangle break during early Tuesday’s Asian session.

The cable pair began the week on a positive note but fails to stay firmer as the receding bullish bias of the MACD joins the looming bearish moving average crossover between the 100-SMA and the 200-SMA.

While the 100-SMA’s clear downside break of the 200-SMA from above could tease the sellers, a confirmation is needed before forming a downside bias.

As a result, a short-term triangle will be in focus and hence the GBP/USD pair’s declines below the 1.2200 become necessary for the bearish confirmation.

Following that, the cable pair could quickly drop to 1.2100 threshold before challenging the multi-month low around 1.1935 marked the last week.

Alternatively, an upside clearance of the 1.2290 hurdle could defy the bear cross and propel the quote towards the 61.8% Fibonacci retracement of May 26 to June 16 downside, around 1.2390.

However, a convergence of the stated key SMAs, near 1.2410 by the press time, appears a strong resistance to cross for the GBP/USD buyers before taking control.

GBP/USD: Four-hour chart

Trend: Further weakness expected

• The absence of North American traders kept the EUR/USD subdued in a narrow range.
• Fed Waller agrees on a 75 bps rate hike in July.
• ECB’s Lagarde foresees hiking rates in July and September, although the latter would depend on the medium-term inflation outlook.
• EUR/USD Price Forecast: Bearish harami candle pattern and Fed-ECB interest rate differential benefits the greenback.

The shared currency is almost flat as the Asian session begins, after on Monday, remained confined to the 1.0472-1.0545 range, on a thin liquidity trading session due to a bank holiday in the US. At the time of writing, the EUR/USD is trading at 1.0512, forming a bearish harami candle chart pattern that might drag prices down towards the June 17 low at 1.0444.

Sentiment remains upbeat, as shown by Asian equity futures rising. The absence of US traders kept the greenback on the back foot, as shown by the US Dollar Index, falling 0.16%, down at 104.483. Despite staying above the 3% threshold, US Treasury yields remain downward pressured.

Fed and ECB speakers dominated headlines

Elsewhere, Fed speakers commenced crossing wires. Throughout the weekend, Fed member Christopher Waller backed a July 75 bps rate hike mentioning that inflation needs to be brought down, regardless of the cause. Meanwhile, Cleveland’s Fed President Loretta Mester noted that inflation would not reach the Fed’s 2% target while mentioning that although the Fed’s Summary of Economic Projections (SEP) estimates that the US economy slowing down, she said that she’s not “predicting a recession.”

The ECB President Christine Lagarde said she expects to raise the key ECB interest rates again in September after a 25bp hike in July, while the calibration of the September hike will depend on the updated medium-term inflation outlook. Also, the ECB’s Chief Economist Philip Lane said that very high inflation means there is a risk inflation psychology could take hold and said the larger increment for a rate increase in September does not represent a red alert assessment of inflation.

Lane also commented that he doesn’t see a situation where they would need to revisit the plan for a July decision, and there is no preview beyond September of what will be the appropriate pace of tightening.

In the week ahead, an absent Eurozone economic calendar will leave traders adrift to the US economic docket. The US docket will feature the Chicago Fed National Activity Index for May, Existing Home Sales, and the Richmond Fed Thomas Barkin, which will cross wires twice.

EUR/USD Price Forecast: Technical outlook

The EUR/USD is still downward biased. Although the major consolidated in the 1.0472-1.0545 range in the last three days, the interest rate differential between the ECB and the Fed benefits the greenback.

Therefore, the EUR/USD will remain downward pressured. With that said, the EUR/USD first support would be the June 17 daily low at 1.0444. A breach of the latter would expose the June 16 low at 1.0380, followed by the YTD low at 1.0348.

“The European Central Bank (ECB) will not revisit its decision to raise interest rates by 25 basis points at its July 21 meeting,” said ECB Chief Economist Philip Lane on Monday per Reuters.

Additional comments

EUR/USD fades recovery moves

The news failed to get any major attention but EUR/USD paused the week-start recovery around 1.0500 of late.

“Now that the board has more experience with bond purchase programs, it is likely that, in the future, bond purchases would be preferred to a bond yield target,” said the Reserve Bank of Australia (RBA) during its review of yield target.

Additional comments

Any use of a yield target would require close attention to the lessons learned from this experience.

Yield target successfully reinforced the bank's forward guidance about the cash rate.

But its effectiveness as a monetary policy tool waned as market participants reassessed their views of the outlook for the cash rate.

While a bond purchase program offers more flexibility than a yield target, it carries other risks.

Exit experience caused some reputational damage to the bank.

Board has agreed to strengthen the way it considers the full range of scenarios when making policy decisions.

AUD/USD grinds higher

Following the RBA announcement, AUD/USD holds onto the week-start recovery moves, picking up bids to 0.6955 by the press time of early Tuesday morning in Asia.

Also read: AUD/USD hovers around 0.6950s after failures at 0.7000 ahead of RBA Lowe

• NZD/USD is recovering its corrective move as the focus shifts to the Fed testimony.
• The antipodean is expected to perform despite vulnerable Consumer Confidence.
• To tame the soaring inflation, the Fed could announce one more 75 bps rate hike

The NZD/USD pair has witnessed a minor recovery after hitting a low of 0.6322 in the late New York session. The asset is recovering after a corrective move from Monday’s high at 0.6364.  A sideways move is expected in the major as investors are on the sidelines ahead of the Federal Reserve (Fed) chair Jerome Powell’s testimony, which is due on Wednesday.

The US dollar index (DXY) has turned sideways after a bearish move as investors are awaiting Fed Powell’s testimony, which will provide a glimpse of the likely monetary policy action in July. It is worth noting that the Fed elevated its interest rates by 75 basis points (bps) last week. Thanks to the galloping inflation and extremely lower Unemployment Rate which has supported the Fed to take the necessary steps required for containing inflation. The Fed is expected to continue the unexpected and announce a consecutive 75 bps rate hike in July to roll back inflation's near-targeted rate quickly.

On the kiwi front, a stable monetary policy by the People’s Bank of China (PBOC) has supported the antipodean. New Zealand is a leading exporter to China, therefore a neutral stance on policy rates by the PBOC will keep the kiwi dollar stronger. Meanwhile, Consumer Confidence has landed extremely lower. The Westpac Consumer Survey for second quarter has been recorded at 78.7, much lower than the estimates of 100 and the prior print of 92.1.

• The AUD/USD begins the week on the right foot, gaining 0.25%.
• An upbeat market mood due to China’s covid news and the US weighing lifting restrictions on China’s increased appetite for riskier assets.
• Fed speakers reiterated the US central bank’s commitment to tackle inflation down.

The Australian dollar edges up in the North American session, even though a bank holiday in the US kept trading conditions thin due to a lack of volume in the FX markets. At 0.6952, the AUD/USD bounces off daily lows at 0.6915 after reaching a daily high near 0.7000.

Risk-on impulse boosts the AUD

In an upbeat mood, US equity futures closed earlier due to a holiday. That, alongside China’s Covid-19 crisis getting under control and US President Biden weighing removing some trading tariffs to China, was cheered by investors, as shown by climbing AUD/USD prices.

Nevertheless, despite the AUD/USD jump near the 0.7000 area, falling Iron Ore prices capped the rally. Newswires over the weekend reported that China wants to set up a central group to control Iron Ore imports by the end of the year. If that’s achieved, AUD/USD traders should be aware that some of Australia’s 697 million tonnes of exports would take a hit, and with it, the Aussie dollar.

Elsewhere, Fed speakers commenced crossing wires. Throughout the weekend, Fed member Christopher Waller backed a July 75 bps rate hike mentioning that inflation needs to be brought down, regardless of the cause. Meanwhile, Cleveland’s Fed President Loretta Mester noted that inflation would not reach the Fed’s 2% target while mentioning that although the Fed’s Summary of Economic Projections (SEP) foresees the US economy slowing down, she said that she’s not “predicting a recession.”

On Tuesday, the Australian economic calendar will feature the Reserve Bank of Australia (RBA) Governor Philip Lowe speaking. The central bank will also release minutes of its June meeting, at which it decided to hike by a surprisingly large 50 basis points to 0.85%, and markets are wagering on a similar-sized move for July as well.

The US economic docket will feature Existing Home Sales for May, and further Fed speakers, with Richmond Fed President Thomas Barkin, crossing wires

Key Technical Levels

What you need to take care of on Tuesday, June 21:

The American dollar is ending Monday with modest losses against most major rivals. The better tone of European indexes and a holiday in the US, however, resulted in choppy trading across the FX board.

The EUR/USD pair is currently battling the 1.0500 level amid discouraging local news. European Central Bank President Christine Lagarde testified before the Committee on Economic and Monetary Affairs of the European Parliament and repeated that the central bank intends to raise the key interest rate by 25 bps in their July policy meeting. Furthermore, she added that they will hike rates back in September as inflation is “undesirably high.”

The Ukraine war has reduced gas flows from Russia to the Union, with major countries looking to revive coal-fired power plants as an alternative. The Kremlin noted that they are to send gas to the EU, claiming gas flows have fallen because of missing turbines in NordStream as a result of sanctions. German Chancellor Olaf Scholz said that is not plausible.

Brexit woes continue to hurt the pound after the UK government announced plans to change parts of the Northern Ireland Protocol, despite the EU claiming it breaches international laws. GBPUSD hovers around 1.2250.

Federal Reserve chief Jerome Powell will testify on the Semi-Annual Monetary Policy Report before the Senate on Wednesday and will repeat its testimony before a different commission on Thursday. Market participants will be looking for clues about US economic developments.

Commodity-linked currencies got to advance against the greenback, despite the sour tone of gold and oil. The bright metal eased to $1,835 a troy ounce, while WTI is now trading at around $108.80 a barrel. The USD/CAD pair is down to 1.2990.

AUD/USD trades around 0.6950 ahead of the RBA Meeting Minutes. The document may shed some light on why policymakers hiked the cash rate by 50 bps and whether they plan to keep raising rates by more than 25 bps per month.

Speculative interest remains concerned about skyrocketing inflation and slowing economic growth, which means markets could suddenly experience risk-off movements.

• The Loonie begins the week on the right foot, up by 0.23%, as shown by the USD/CAD falling.
• An upbeat sentiment boosted the Canadian dollar while the buck weakened.
• USD/CAD Price Forecast: In consolidation, but it’s showing the formation of negative divergence in the daily/4-H chart, opening the door for further losses.

The Loonie gained some ground against the greenback as shown by the USD/CAD pair, retracing from fresh YTD highs at around 1.3076, towards the 1.2990s area, amidst a thin liquidity trading session, courtesy of a bank holiday in the US. At the time of writing, the USD/CAD is trading at 1.2996, down 0.23%.

Sentiment-wise, European bourses closed in the green. Meanwhile, US futures witnessed a shorter trading session, finishing with decent gains between 0.97% and 1.29%. That said, the USD/CAD fell on a risk-on impulse, a headwind for the safe-haven status of the greenback, which remains soft, as shown by the US Dollar Index, down 0.07%, sitting at 104.577.

The lack of data in the Canadian economic docket left USD/CAD traders adrift to Fed speaking. Once the June’s Fed meeting is on the rearview mirror, Fed officials were unleashed.

Over the weekend, Fed Governor Christopher Waller said he supports a 75 bps rate hike in July if data comes as he expected. Cleveland Fed President Loretta Mester said it would take inflation a couple of years to get to the US central bank’s target of 2%, reiterating that some inflation measures looked worse in May than April.

Atlanta’s Fed President Raphael Bostic said he supported a 75 bps in June and emphasized the Fed’s commitment to tame inflation.

In the week ahead, Statistics Canada will unveil May’s CPI, which is expected at 7.3% YoY vs. 6.8% in April, while the common core is estimated at 3.4% YoY vs. 3.2% in April. Ahead of that, April Retail Sales data Tuesday will be of interest. Headline sales are expected at 0.8% MoM vs. 0.0% in March, while sales ex-autos are expected at 0.6% MoM vs. 2.4% in March.

USD/CAD Price Forecast: Technical outlook

The USD/CAD daily chart depicts the pair consolidating after reaching a fresh YTD high at around 1.3076. On Monday, the major shifted downwards, below the 1.3000 mark, but remains confined above December 20, 2021, daily high, in the 1.2964-1.3025 area. USD/CAD traders should be aware that the Relative Strength Index (RSI) is aiming lower, despite the pair’s edging higher, suggesting that a negative divergence could be forming.

In the near term, the USD/CAD 4-hour chart illustrated the pair is trending higher, but the RSI shifted downwards, meaning that daily’s chart negative divergence is also present in this timeframe. Therefore, the USD/CAD is headed downwards.

The USD/CAD first support would be the S1 daily pivot at 1.2950. Break below would expose the 1.2900 figure, followed by the S2 daily pivot point at 1.2870, near the confluence of the 50-period simple moving average (SMA() and June 15 daily low at around the 1.2856-60 area.

Key Technical Levels

• The Swiss franc is registering decent gains of 0.20%, as shown by the USD/CHF falling.
• A double top in the USD/CHF daily chart looms, targeting 0.9035.
• USD/CHF Price Forecast: Range bound unless the USD/CHF breaks above-below the 0.9620-0.9700 area.

USD/CHF is retracing from the 50-day moving average (DMA) and last Friday’s high at 0.9708, down towards the 0.9670s, courtesy of a risk-on impulse as shown by European equities closing in the green, while US futures are trading with decent gains. At the time of writing, the USD/CHF is trading at 0.9675.

From a technical perspective, the USD/CHF is still headed upwards, despite being below the 50-DMA. The 100 and 200-DMA’s reside well below the spot price, but the double top looming on the daily chart looms, and once USD/CHF sellers achieve a daily close below 0.9544, that would open the door for further losses.

Nevertheless, mixed signals in the daily chart suggest caution is warranted. Also, it’s worth noting that, albeit the US Fed is on an “aggressive” tightening cycle, the Swiss National Bank (SNB) surprised the markets, hiking 50 bps its interest rates. Nonetheless, the US – Switzerland interest rates differential stills favor the greenback, with the US interest rates at 1.75%, while rates in Switzerland remain negative at -0.25%.

USD/CHF Price Forecast: Technical outlook

The USD/CHF is upward biased. The USD/CHF price action in the last two days shows that buyers are defending the 0.9620s-0.9650s area, with the USD/CHF registering daily closes around that area. Traders should keep in mind that the 78.6% Fibonacci retracement so far has kept sellers aside, and if USD/CHF buyers achieve a daily close above 0.9700, that will expand the consolidation area to the 0.9620-0.9700 region.

If USD/CHF buyers break above 0.9700, that will expose the 61.8% Fibonacci level at 0.9737, followed by the 50% Fibonacci retracement at 0.9797. Once cleared, a move towards 0.9800 is on the cards. On the other hand, the USD/CHF first support would be the 78.6% Fibonacci level at 0.9652. A breach of the latter would expose the June 17 low at 0.96119, followed by the 0.9600 figure.

Key Technical Levels

"The Fed still has to follow through to ratify the forward guidance previously given but the effects on the economy and on inflation are already taking hold," St. Louis Federal Reserve Bank President James Bullard said on Monday, per Reuters.

Bullard repeated that the US labor market remains robust and added that the US economy is expected to continue to expand through 2022. 

Market reaction

These comments had little to no impact on the greenback's valuation against its major rivals. As of writing, the US Dollar Index was down 0.25% on a daily basis at 104.40.

• Gold spot (XAUUSD) begins the week on the wrong foot, down some 0.12%.
• A risk-on impulse was a headwind for safe-haven assets and weighed much more in Gold.
• Gold Price Forecast (XAUUSD): Failure at the 200-DMA to send gold prices tumbling towards $1800.

Gold spot (XAUUSD) slides for the second consecutive day and fails to break above the 200-day moving average (DMA) at $1843.71, a zone briefly tested on Monday. However, bulls were quickly rejected, with sellers taking over and dragging prices below Friday’s close. At $1836.79, XAUUSD records losses of 0.05% amidst a thin liquidity trading session.

US real yields remain a headwind for gold prices, despite a softer greenback

Global equities recovered some ground, while US futures gained. The US Dollar Index, a measure of the buck’s value vs. a basket of its rivals, drops 0.31%, down at 104.314. The risk-on impulse courtesy of China’s Covid-19 news weighed in safe-haven status assets, in this case, Gold and the greenback. However, the uptick in real yields, as depicted by US 10-year Treasury Inflation-Protected Securities (TIPS) yield, unchanged at 0.648%, in positive territory, remains a headwind for the non-yielding metal.

In the meantime, speculation of the US reaching a recession begins to mount. Analysts at Nomura warned that tightening conditions, consumer sentiment souring, and energy and food supply distortions have worsened the global growth outlook.

“With rapidly slowing growth momentum and a Fed committed to restoring price stability, we believe a mild recession starting in the fourth quarter of 2022 is now more likely than not,” analysts at Nomura wrote.

Elsewhere, Fed speakers throughout the weekend crossed wires. Firstly, Fed Governor Christopher Waller said that he supported the 75 bps rate hike in June and will support another rate increase of that size in July if data comes as expected. Similarly, Atlanta’s Fed President Raphael Bostic said he endorsed the 75 bps rate hike last week and said they need to act decisively and affirmatively to get inflation under control.

Furthermore, Treasury Secretary Janet Yellen also mentioned her expectations of a slowing economy but ruled out recession concerns.

Gold Price Forecast (XAUUSD): Technical outlook

Last Friday’s fall below the 200-DMA opened the door for selling pressure. Although the yellow metal is in consolidation in the $1800-$1850 range, a move towards the bottom area of it is on the cards. Why? Gold’s failure to print a daily close above the 200-DMA, alongside the Relative Strength Index (RSI) pushing lower in negative territory and crossing below the RSI’s 14-period moving average (MA), gives enough reasons for bears to drag prices towards the $1800 area.

Therefore, the XAU/USD first support would be the Jun 1 daily low at $1828.33. A break below would open the door for a May 18 test at a $1807.23 cycle low. Once broken, a fall to $1800 is next.

Upwards, XAU/USD’s first resistance would be the 200-DMA. If XAU bulls achieve a daily close above it, a move towards the 50-DMA at $1874.80 is on the books. Once cleared, the XAU/USD following resistance level would be the 100-DMA at $1891.92.

German Chancellor Olaf Scholz said on Monday that energy prices will remain high for a long time, as reported by Reuters.

Additional takeaways

"Putin is scared of the spark of democracy that could spread to Russia."

"This fear explains why he has tried to break up NATO and the EU for years."

"Putin wants to return to a politics of spheres of influence but he won't succeed."

"Russian claim that gas flows have fallen because spare parts are missing thanks to sanctions is not plausible."

Market reaction

These comments don't seem to be having an impact on the shared currency's performance against its rivals. As of writing, EUR/USD was posting modest daily gains at 1.0525.

US President Joe Biden said on Monday that they could decide whether to pause the federal gasoline tax by the end of the week, as reported by Reuters. 

"I hope I have a decision based on data I am looking for by the end of the week," Biden told reporters and added that he thought it was very likely for Ukraine to become a member of the European Union.

Market reaction

There was no noticeable market reaction to these comments since US stock and bond markets are closed in observance of the Juneteenth holiday on Monday. Meanwhile, the US Dollar Index was down 0.3% on a daily basis at 104.35.

• The GBP/USD begins the week positively, gaining 0.23%.
• BoE Mann commented that 0.50% moves reduce the risks of domestic inflation.
• Fed’s Waller and Bostics supported 75 bps in July and both reiterated the Fed’s commitment to tame inflation.

The British pound is trimming some of Friday’s losses, though edges lower after printing a daily high at around 1.2279, but remains to gain some 0.12% amidst a thin liquidity session due to a US bank holiday. The GBP/USD is trading at 1.2252 at the time of writing.

A weak US dollar boosts the pound

The sentiment is positive, as shown by Europen equities and US futures markets. On Monday, the GBP/USD opened near the 1.2210s area and, albeit reaching a daily low around 1.2200, bounced off and edged slightly above the daily pivot point amid the lack of UK – US economic data. In the meantime, the US Dollar Index, a gauge of the buck’s value vs. a basket of rivals, is losing 0.29% and is currently at 104.351, a tailwind for the GBP/USD.

BoE and Fed officials cross wires

Nevertheless, once both central banks – the Fed and the BoE – had their monetary policy meetings, speakers from both banks began to cross wires.

Firstly, one of the dissenters on BoE’s Thursday decision Catherine Mann said that 50 bps moves reduce the risks of domestic inflation, boosted by a weaker pound. Mann said that the BoE should raise rates faster because the weakness in the pound’s value is adding to inflationary pressures. Mann added that inflation is becoming more embedded and persistent.

On the US side, Fed Governor Christopher Waller said he would support a 75 bps hike in July if data come in as he expects, reiterating that the central bank is all in on re-establishing price stability. Similarly, Atlanta’s Fed President Raphael Bostic said he supported the 0.75% increase last week and said the Fed needs to act decisively and affirmatively to get inflation under control.

Elsewhere, Cleveland Fed President Loretta Mester said that it would take “a couple” of years to get inflation back to 2%.

In the week ahead, the UK economic docket will feature BoE Chief Economist Huw Pill and CBI Industrial Trend Orders for June. Across the pond, May’s Existing Home Sales, alongside Fed speaker Thomas Barking would entertain GBP/USD traders.

Key Technical Levels

European Central Bank (ECB) President Christine Lagarde told the European Parliament on Monday that risks to financial stability have perceptibly increased since the beginning of this year, as reported by Reuters.

Lagarde further added that they see an increased risk of a correction of real estate prices. Commenting on the labor market conditions, Lagarde noted that it was likely for wage increases to accelerate.

Market reaction

These comments don't seem to be having a noticeable impact on the euro's performance against its major rivals. As of writing, the EUR/USD pair was up 0.25% on the day at 1.0525.

Bank of England (BOE) policymaker Catherine Mann said on Monday that her views on the BOE's rate outlook were not about defending the British pound, as reported by Reuters.

BOE's Mann: 50 bps hike reduces risk of inflation being boosted by weaker sterling.

"There is an important difference of view on the Monetary Policy Committee (MPC) on the resilience of UK consumption," Mann added. "Since the May MPC meeting, I have become more concerned about the embeddedness of UK inflation and price expectations."

Market reaction

GBP/USD continues to fluctuate in its daily range and was last seen posting modest gains at 1.2245.

While testifying before the European Parliament, European Central Bank (ECB) President Christine Lagarde acknowledged that they must be attentive to recession risks but noted that recession was not their baseline scenario for the eurozone, per Reuters.

During her testimony, Lagarde said that she will not be revealing any features of the new bond-buying tool and added that they will look at the balance sheet size issue at a later stage.

Market reaction

The EUR/USD pair edged slightly higher following these comments and was last seen gaining 0.35% on a daily basis at 1.0535.

• EUR/USD keeps gains well past the 1.0500 mark.
• Lagarde announced a 25 bps rate hike in July.
• Lagarde suggested another raise in the policy rate in September.

EUR/USD keeps the familiar range north of the 1.0500 yardstick at the beginning of the week.

EUR/USD apathetic on Lagarde

EUR/USD clings to the positive performance amidst the generalized selling pressure around the greenback on Monday.

The pair, in the meantime, showed no meaningful reaction to the testimony of Chair Lagarde before the European Parliament. Indeed, Lagarde said the bank plans to hike the policy rate by 25 bps next month, while she also left the door open to another hike at the September event.

In addition, Lagarde declined to comment on any feature of a new ECB’s bond-buying tool, at the time when she highlighted that conditions are in place for further economic growth in the region and that the fight against fragmentation is a precondition to success of the monetary policy.

What to look for around EUR

EUR/USD keeps the recovery-mode unchanged and manage to regain the area beyond 1.0500 the figure on Monday.

The resumption of the buying bias comes in response to the offered note in the US dollar, particularly following last week’s interest rate hike by the Fed.

However, EUR/USD is still far away from exiting the woods and it is expected to remain at the mercy of dollar dynamics, geopolitical concerns and the Fed-ECB divergence, while higher German yields, persistent elevated inflation in the euro area 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: ECB Lagarde (Monday) – Flash EMU Consumer Confidence (Wednesday) – ECB General Council Meeting, Flash EMU, Germany PMIs (Thursday) – Germany IFO Business Climate (Friday).

Eminent issues on the back boiler: Fragmentation risks. Kickstart of the ECB hiking cycle in July? Asymmetric economic recovery post-pandemic in the euro bloc. Impact of the war in Ukraine on the region’s growth prospects.

EUR/USD levels to watch

So far, spot is gaining 0.29% at 1.0523 and the immediate up barrier comes at 10601 (weekly high June 15) followed by 1.0649 (55-day SMA) and finally 1.0786 (monthly high May 30). On the other hand, a break below 1.0358 (monthly low June 15) would target 1.0348 (2022 low May 13) en route to 1.0300 (psychological level).

Palladium is currently trading well below $2,000. Strategists at Commerzbank expect the precious metal to soar towards $2,100 by end-2022.

Recovery potential for palladium in the coming months

“The slower demand for palladium from the automotive industry should prevent a larger supply deficit on the palladium market, provided there are no disruptions in palladium supplies from Russia.”

“As the problems in automobile production should gradually ease during the course of the year, we see recovery potential for palladium in the coming months, so that the price should rise to $2,100 by the end of the year.”

• USD/JPY lacked any firm direction on Monday and seesawed between tepid gains/minor losses.
• Bulls need to wait for sustained strength beyond the 135.50-60 area before placing fresh bets.
• Break below the 134.00 mark might prompt aggressive selling and expose last week’s swing low.

The USD/JPY pair struggled to capitalize on Friday's dovish Bank of Japan-inspired strong move up and witnessed subdued/range-bound price action on the first day of a new week. Spot prices seesawed between tepid gains/minor losses through the early North American session and now seem to have stabilized in neutral territory, around the 135.00 psychological mark.

The recent sharp pullback in the US Treasury bond yields prompted some US dollar selling and turned out to be a key factor that acted as a headwind for the USD/JPY pair. That said, a generally positive tone around the equity markets, along with the Fed-BoJ monetary policy divergence, undermined the safe-haven Japanese yen and extended some support to spot prices.

From a technical perspective, the intraday pullback from the vicinity of mid-135.00s constitutes the formation of a bearish double-top on short-term charts. The lack of follow-through selling, however, warrants some caution before positioning for any meaningful downside. Moreover, oscillators on 4-hourly/daily charts are still holding in the bullish territory.

The mixed technical setup makes it prudent to wait for a sustained move in either direction before positioning for the near-term trajectory. A convincing break through the 135.45-135.50 resistance zone would be seen as a fresh trigger for bullish traders and allow the USD/JPY pair to reclaim the 136.00 round-figure mark for the first time since 1998.

The subsequent move up has the potential to lift spot prices towards a nearly two-week-old ascending trend-line resistance, currently near mid-136.00s.

On the flip side, the daily swing low, around mid-134.00s now seems to protect the immediate downside for the USD/JPY pair ahead of the 134.30-134.20 horizontal support. This is closely followed by the 134.00 round figure, which if broken decisively would validate the double-top bearish pattern and prompt aggressive long-unwinding trade.

The USD/JPY pair might then turn vulnerable to break below the 133.00 mark and test the next relevant support near the 132.45 region before dropping to the 132.00 handle. The corrective decline could eventually drag spot prices back towards the 131.50-131.30 horizontal resistance breakpoint. The latter should act as a strong near-term base for the major.

USD/JPY 4-hour chart

Key levels to watch

In mid-June, platinum slipped into the lower range of the $900-$ 1,050 corridor and thus also slightly below the level at the start of the year. Economists at Commerzbank expect the precious metal to trade at $1,050 by end-2022.

Platinum market to remain oversupplied this year

“The platinum price is likely to remain strongly influenced by the gold price in the coming months. This suggests moderate upside potential, as we expect the price of gold to rise to $1,900 per troy ounce by the end of the year.”

“The renewed supply surplus expected for this year argues against platinum being able to make up ground against gold. We are therefore lowering our forecast for the end of the year to $1,050 per troy ounce (previously $1,100).”

“Due to the lower starting level, we are reducing our forecast for the end of 2023 to $1,200 (previously $1,250).”

“The prospect of an end to the supply surpluses speaks in favour of a slightly better price development of platinum compared to gold in the coming year, so that the price difference should narrow to $750.”

The sentence in the Bank of England's meeting minutes on further rate rises being necessary was wearing thin, Bank of England policymaker Catherine Mann said on Monday, per Reuters.

"We thought it appropriate to recalibrate market expectations," Mann added. "We have given important guidance on the size, timing and pace of any future rate rises."

Market reaction

The British pound is struggling to find demand after these comments and the GBP/USD pair was last seen trading at 1.2230, rising 0.05% on a daily basis. 

While testifying before the European Parliament, European Central Bank (ECB) President Christine Lagarde said that the ECB must be flexible to ensure a proper policy transmission. 

"The fight against fragmentation is a precondition to the success of the monetary policy," Lagarde added and noted that they must preempt fragmentation.

Market reaction

EUR/USD continues to fluctuate in the lower half of its daily range following these comments. At the time of press, the pair was trading at 1.0520, where it was up 0.2% on the day.

Diverging paths for monetary policy between the Federal Reserve and the People’s Bank of China (PBoC) have already been one of the key contributors to a weaker renminbi this year. Economists at Wells Fargo continue to forecast a weaker Chinese currency, albeit very modest renminbi depreciation through the end of this year. 

Fed to tighten monetary policy, PBoC to keep policy steady 

“With the PBoC now on hold and the Fed lifting policy rates, we expect diverging paths for monetary policy between the two central banks to persist. However, with monetary policy settings now likely to be on hold rather than more accommodative as well as the local economy demonstrating a recovery, we expect less depreciation pressure to build on the renminbi.” 

“Going forward, we expect only modest Chinese yuan weakness by the end of this year. By the end of Q4-2022, we forecast the USD/CNY exchange rate to reach 6.72.”

Bank of England policymaker Catherine Mann said on Monday that a 50 basis points rate increase would reduce the risk of domestic inflation being boosted by weaker sterling, as reported by Reuters.

Additional takeaways

"I open the door to a policy rate reversal in the medium term when the domestic supports to demand fade and when weakness in external sources of demand bite."

"It is important to react in a timely fashion to a US monetary policy shock that causes the UK price level to jump."

"If near-term inflation is the dominant concern, then the activist path addresses that."

Market reaction

GBP/USD, which touched a daily high of 1.2280 earlier in the day, was last seen trading flat on the day at 1.2227.

Further upside in the short-term horizon looks likely in USD/IDR, commented Quek Ser Leang at UOB Group’s Global Economics & Markets Research.

Key Quotes

“We highlighted last Monday (13 Jun, spot at 14,655) that ‘rapid boost in momentum is likely to lead to further USD/IDR strength’. We indicated, ‘resistance levels are at 14,700 followed by 14,735’. The anticipated advance exceeded our expectations as USD/IDR jumped to a high of 14,833 last Friday.”

“Upward momentum remains strong and USD/IDR is likely to strengthen further. However, overbought shorter-term conditions suggest that the major resistance at 14,950 is likely out of reach this week (there is another resistance at 14,900). On the downside, support is at 14,800 followed by 14,680.”

• EUR/USD manages to reverse part of the recent pullback .
• Last week’s high past 1.0600 emerges as the next target.

EUR/USD regains the smile and reclaims part of the ground lost on Friday.

If bulls push harder, then the pair could attempt a move to the minor hurdle at the June 16 high at 1.0601. Beyond this level comes the 55-day SMA at 1.0648 prior to the 4-month line around 1.0715. Spot needs to clear the latter to open the door to the continuation of the recovery in the short-term horizon.

In the longer run, the pair’s bearish view is expected to prevail as long as it trades below the 200-day SMA at 1.1161.

EUR/USD daily chart

While testifying before the Committee on Economic and Monetary Affairs of the European Parliament, European Central Bank (ECB) President Christine Lagarde said that they intend to raise key rates by 25 basis points at the July policy meeting.

Additional takeaways

"Euro area activity is being dampened by high energy costs, intensified supply disruptions and greater uncertainty."

"Price rises are becoming more widespread across sectors and measures of underlying inflation have risen further.."

"We expect to raise the key ecb interest rates again in September."

Market reaction

EUR/USD seems to have lost its bullish momentum but continues to trade in positive territory slightly above 1.0500.

"Incoming data suggest an increasingly stark trade-off in terms of rising and persistent inflation versus deteriorating real income," Bank of England policymaker Catherine Mann said on Monday, as reported by Reuters.

Additional takeaways

"Incoming data on inflation show increasingly domestic embeddedness, persistence and momentum."

"Countervailing factors importantly and increasingly are likely to support consumption spending in the near term."

"Domestic conjunctural situation is characterized by very high inflation."

"If the Fed tightens at the currently expected pace and the ECB musters an increase soon, the scenarios outlined above suggest additional depreciation pressure on sterling."

Market reaction

GBP/USD edged lower from session highs after these comments and was last seen posting small daily gains at 1.2245.

USD/MYR could see its losses accelerate on a breach of 4.3870, according to Quek Ser Leang at UOB Group’s Global Economics & Markets Research.

Key Quotes

“We highlighted last Monday (13 Jun, spot at 4.4140) that ‘risk for USD/MYR is on the upside even though the 2020 high of 4.4410 is unlikely to come into the picture for now’. While USD/MYR advance as expected, it pulled back sharply after touching a high of 4.4240.”

“Upward momentum is weakening and a break of 4.3870 could lead to a deeper pullback to 4.3800, possibly 4.3670. For this week, the 55-day exponential moving average support at 4.3515 is not expected to come under threat. Resistance is at 4.4150 followed by 4.4240.”

GBP/USD is little changed in mid-1.22s. This figure stands in the way of the pair regaining the 1.23 mark, which would improve the pound’s outlook, economists at Scotiabank report.

UK markets look ahead to inflation

“A close above 1.23 on the day, which is key resistance past the mid-figure area, would firm up the GBP’s ambitions while the 1.22 big figure area stands as support followed by ~1.2175 (Friday’s low).”

“The GBP should follow the broad dollar mood until Wednesday’s inflation print with the UK’s weak macroeconomic backdrop and likely overpriced BoE expectations (~190bps by year-end) acting as headwinds.”

• USD/CHF came under renewed selling pressure on Monday amid modest USD weakness.
• The SNB’s surprise rate hike underpinned the CHF and contributed to the intraday selling.
• Hawkish Fed expectations to limit the USD losses and lend support amid a positive risk tone.

The USD/CHF pair met with a fresh supply on the first day of a new week and dropped back closer to a nearly two-week low touched on Friday. The pair, however, managed to trim a part of its intraday losses and was last seen trading just above mid-0.9600s during the early North American session.

The Swiss Franc continued drawing support from a surprise hawkish shift by the Swiss National Bank (SNB), which joined other major central banks and delivered a 50 bps rate hike on Thursday. In the accompanying policy statement, the SNB left the door open for further rate hikes to counter rising inflationary pressures. This, along with the emergence of fresh US dollar selling, exerted some downward pressure on the USD/CHF pair.

Investors took comfort from the fact that the Fed forecasted the rate to decline to 3.4% in 2024 and 2.5% over the long run from the anticipated 3.8% in 2023. This was seen as a key factor behind the recent sharp decline in the US Treasury bond yields, which kept the USD bulls on the defensive. That said, expectations that the US central bank would stick to its aggressive policy tightening path should act as a tailwind for the greenback.

Apart from this, a generally positive tone around the equity markets might undermine the safe-haven CHF and lend some support to the USD/CHF pair. Investors might also be reluctant to place aggressive bets amid absent relevant economic data and relatively thin trading volumes on the back of a holiday in the US. This makes it prudent to wait for a convincing break below the 0.9600 mark before positioning for any further depreciating move.

Technical levels to watch

EUR/USD regains 1.05. Economists at Scotiabank expect the world’s most popular currency pair to retest the 1.06 level.

Support is the 1.05 figure zone

“The EUR’s higher lows and overall still positive trend are supportive of continued gains in the coming days to a retest of the 1.06 mark.” 

“The 1.0550 area stands as resistance with limited levels to watch until the big figure.” 

“Support is the 1.05 figure zone, ~1.0475, and the mid-1.04s.”

Norges Bank is expected to hike rates by 25 basis points (bps) on Thursday, June 23. EUR/NOK could edge higher following the policy announcement, however, economists at EUR/NOK expect the pair to move back lower into end-2022.

EUR/NOK seen at 10.30 on a three-month view

“While a 25 bps rate hike from the Norges Bank this week could result in EUR/NOK drifting higher in the coming weeks, we see potential for EUR/NOK lower into year-end.” 

“We forecast EUR/NOK at 10.30 on a three-month view.”

• GBP/USD kicked off the new week on a positive note amid the emergence of fresh USD selling.
• The recent decline in the US bond yields and a positive risk tone weighed on the safe-haven buck.
• Hawkish Fed expectations should limit any further USD losses and cap the upside for the major.

The GBP/USD pair built on its modest intraday gains and climbed to a fresh daily high, around the 1.2275-1.2280 region during the mid-European session.

Against the backdrop of the post-FOMC slide in the US Treasury bond yields, a generally positive risk tone exerted some downward pressure on the safe-haven US dollar on Monday. This, in turn, was seen as a key factor that assisted the GBP/USD pair to regain positive traction and recover a part of Friday's losses. That said, any meaningful recovery move still seems elusive, warranting caution for aggressive bullish traders.

Investors remain concerned that a more aggressive move by major central banks to curb inflation would pose challenges to global economic growth. This should keep a lid on any optimistic move in the markets, which, along with hawkish Fed expectations should act as a tailwind for the buck. In fact, the markets seem convinced that the US central bank would hike interest rates at a faster pace to tame soaring inflation.

In contrast, the Bank of England is expected to opt for a more gradual approach to raising interest rates amid growing recession fears. Apart from this, the UK-EU impasse over the Northern Ireland Protocol of the Brexit agreement might hold back traders from placing aggressive bullish bets around the British pound. This, in turn, warrants caution before positioning for any meaningful appreciating move for the GBP/USD pair.

There isn't any relevant economic data due for release from the UK on Monday and the US markets will be closed in observance of Juneteenth National Independence Day. Traders, however, will take cues from a scheduled speech by St. Louis Fed President James Bullard, which might influence the USD price dynamics and provide some impetus to the GBP/USD pair.

Technical levels to watch

EUR/USD is seen at risk of a lengthier consolidation phase. Notwithstanding,  economists at Credit Suisse stay negative for an eventual sustained break below the 2017 and YTD lows at 1.0350/41.

EUR/USD to suffer an eventual break below 1.0350/41 for a fall to parity

“We see increasing risk for a lengthier consolidation phase. A close above the 13-day exponential average at 1.0555 can add weight to this view for a recovery back to what we continue to see as more important resistance, starting at 1.0627 and stretching up to the 55-day average at 1.0652, which we continue to look to cap on a closing basis.”

“Only above 1.0774/88 would mark a ‘double bottom’ base and a more significant move higher.”

“Support is seen at 1.0470 initially, then 1.0445, below which should clear the way for a retest of 1.0358/41. An eventual break below here should act as the catalyst for a resumption of the core downtrend with support seen next at 1.0217/09 and eventually parity/0.99.”

EUR/JPY has held support from its 55-day moving average at 137.58. Analysts at Credit Suisse look for strength back to the 144.15/26 highs and then above.

Support at 140.68/58 to hold for a retest of resistance at 144.15

“Resistance is seen at the 78.6% retracement of the recent sell-off at 142.81/89, above which should clear the way for a retest of the 144.15/26 high and Fibonacci projection resistance. An eventual break above here in due course should then see resistance next at 144.96/145.00 and eventually the 149.78 high of 2015.” 

“Support is seen at 141.45 initially, then 141.02. A break can see a pullback to the 13-day exponential average and price pivot at 140.68/58, but with this now ideally proving a solid floor.”

Global oil demand fell month-on-month in April to below pre-pandemic levels (97% of 2019 levels) as consumption softened across several Asian countries, Reuters reported on Monday, citing data from the Joint Organizations Data Initiative (JODI). 

Saudi Arabia's April crude exports rose to 7.38 million barrels per day (bpd) from 7.235 million bpd in March, Reuters further added and noted that the country's crude oil production in April increased to 10.44 million bpd.

Market reaction

Crude oil prices showed no immediate reaction to this headline and the barrel of West Texas Intermediate (WTI) was last seen trading flat on the day near $110.00.

• DXY fades part of Friday’s rebound and retests 104.20.
• The 4-monht line near 101.70 props up the upside bias.

DXY resumes the leg lower and leaves behind Friday’s bullish attempt.

Considering the ongoing price action, further correction should not be ruled out in the short-term time frame. That said, another visit to the post-FOMC low near 103.40 (June 16) is expected to remain on the cards, although this and a potential deeper decline could be deemed as buying opportunities.

As long as the 4-month line around 101.20 holds the downside, the near-term outlook for the index should remain constructive.

Looking at the longer run, the outlook for the dollar is seen bullish while above the 200-day SMA at 97.61.

DXY daily chart

Quek Ser Leang at UOB Group’s Global Economics & Markets Research suggested further upside in USD/THB could retest 35.40 ahead of 35.70.

Key Quotes

“We highlighted last Monday (13 May, spot at 34.85) that USD/THB ‘is likely to break 35.00 but any further advance is expected to face solid resistance at 35.40’. While USD/THB subsequently took out 35.00, it did not challenge the resistance at 35.40 (high of 35.31 last Friday).”

“Shorter-term conditions are overbought but as long as 34.85 is not breached, USD/THB could rise above 35.40. The next resistance at 35.70 is unlikely to come under threat.”

• EUR/JPY adds to Friday’s gains above 142.00.
• Further upside should re-target the 2022 high past 144.00.

EUR/JPY extends Friday’s rebound further north of the 142.00 mark at the beginning of the week.

The cross sparked a bounce off last week’s lows in the sub-138.00 zone and the continuation of this move should put a potential challenge of the YTD peak past 144.00 back on the radar sooner rather than later.

That said, the surpass of the 2022 peak at 144.25 (June 8) should lead up to a probable test of the 2015 high at 145.32 (January 2) prior to the 2014 high at 149.78 (December 8).

In the meantime, while above the 3-month support line near 137.15, the short-term outlook for the cross should remain bullish.

EUR/JPY daily chart

• USD/CAD retreated further from the YTD high touched on Friday amid modest USD weakness.
• Hawkish Fed expectations and recession fears might continue to act as a tailwind for the buck.
• Sliding crude oil prices could undermine the loonie and help limit deeper losses for the major.

The USD/CAD pair witnessed some selling on the first day of a new week and moved further away from the fresh YTD peak, around the 1.3075 region touched on Friday. The pair maintained its offered tone through the first half of the European session and was last seen flirting with the daily low, around the 1.2985 region.

The Fed forecasted the rate to decline to 3.4% in 2024 and 2.5% over the long run from the anticipated 3.8% in 2023, which was seen as a key factor behind the recent sharp decline in the US Treasury bond yields. Apart from this, concerns that a more aggressive policy tightening by the Fed would pose challenges to the US economic growth kept the US dollar bulls on the defensive. This, in turn, exerted some downward pressure on the USD/CAD pair, though any meaningful downside seems elusive.

Crude oil prices languished near a one-month low amid worries that the softening global economic growth would temper fuel demand. This could undermine the commodity-linked loonie and act as a tailwind for the USD/CAD pair. Furthermore, acceptance that the Fed would hike interest rates at a faster pace to curb soaring inflation favours the USD bulls. This, in turn, supports prospects for the emergence of some dip-buying around the USD/CAD pair and warrants caution for bearish traders.

In the absence of any major market-moving economic releases, traders will take cues from a scheduled speech by St. Louis Fed President James Bullard, which might influence the USD. Apart from this, traders will take cues from oil price dynamics to grab short-term opportunities around the USD/CAD pair amid relatively lighter trading volumes on the back of a holiday in the US.

Technical levels to watch

USD/CNH is now seen trading between 6.6600 and 6.7400 in the next weeks, commented FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang.

Key Quotes

24-hour view: “We expected USD to ‘trade between 6.6650 and 6.7250’ last Friday. USD subsequently traded within a narrower range than expected (6.6827/6.7256). The price actions appear to be part of a consolidation and we expect USD to trade between 6.6920 and 6.7250 for today.”

Next 1-3 weeks: “Last Thursday (16 Jun, spot at 6.6885), we highlighted that the recent advance in USD has come to an end and we were of the view the short-term weakness has scope to extend to 6.6300. Since then USD has not been able to make any headway on the downside. Downward pressure has eased USD is likely to trade between 6.6600 and 6.7450 for now.”

Gold is finally able to hold its own again and has risen slightly to $1,845. Economists at Commerzbank expect the yellow metal to trade comfortably above the $1,800 level.

Speculative financial investors retreated on a grand scale from gold

“Gold was unable to resist the downward pull of cyclical commodities on Friday and likewise fell. The lower price level generated buying interest, however: at over 10 tons, the gold ETFs tracked by Bloomberg registered their biggest daily inflow since mid-April on Friday.”

“The renewed buying interest that is repeatedly seen at prices of between $1,800 and $1,850 is likely in our view to prevent gold from dropping lastingly or noticeably below the $1,800 mark.”

“According to the CFTC’s statistics, net long positions were slashed by 36% to just shy of 37,000 contracts in the week to 14 June. Speculative financial investors probably played a major part in the slide in the gold price during the period under review, in other words.”

See – Gold Price Forecast: Hedging demand amidst market volatility to push XAUUSD higher – Deutsche Bank

The bullish bias in USD/JPY remains well in place and faces further advance once 136.00 is cleared, according to FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang.

Key Quotes

24-hour view: “We expected USD to ‘trade in a choppy manner between 131.80 and 133.80’ last Friday. We did not expect the outsized surge as USD jumped to a high of 135.42. The rapid rise has scope to extend but deeply overbought conditions suggest that a sustained rise above 135.60 is unlikely (next resistance is at 136.00). On the downside, a breach of 134.00 (minor support is at 134.40) would indicate that the current upward pressure has eased.”

Next 1-3 weeks: “After USD plummeted to 131.48, we highlighted last Friday (17 Jun, spot at 132.60) that ‘the rapid improvement in downward momentum suggests the decline could extend to 130.50’. We did not anticipate the outsized jump as USD rallied by 2.09% (NY close of 134.96). The break of our ‘strong resistance’ at 134.80 has invalidated our view. The risk appears to be shifting back to the upside but USD has to close above 136.00 before further sustained advance is likely. The chance for USD to close above 136.00 would remain intact as long as it does not move below 133.50 (‘strong support’) level within these few days.”

European Central Bank (ECB) does not target specific spread levels for indebted countries, the central bank policymaker Martins Kazaks told Reuters on Monday.

Additional quotes

"But we try to ensure proper transmission."

“Difficult to see rise in spreads as driven by changes in fundamentals.”

“Investors shouldn't get carried away with rate hike bets.”

“Would support 25 bps hike in July, 50 bps hike in September.”

“Inflation would need to surprise on the low side for it not to be 50 bps in September.”

“But investors should not think that 50 bps rate hikes are the new default.”

“Market expectation of the terminal rate shot up quite dramatically last week.”

“One should be careful about the speed, not get carried away.”

Related reads

• EUR/USD gains further poise above 1.0500, focus on Lagarde
• ECB's Centeno: There is a great determination to deal with fragmentation risk

• EUR/GBP gained traction for the third straight session and climbed to a three-day high on Monday.
• Expectations of a less hawkish BoE, Brexit woes undermined sterling and remained supportive.
• Bulls now seemed reluctant and preferred to move on the sidelines ahead of Lagarde's testimony.

The EUR/GBP cross attracted some dip-buying near the 0.8555-0.8560 region on Monday and turned positive for the second successive day. The momentum lifted spot prices back above the 0.8600 mark during the early part of the European session, though lacked bullish conviction.

The British pound's relative underperformance could be attributed to expectations that the Bank of England would opt for a more gradual approach to raising interest rates. This, along with the UK-EU impasse over the Northern Ireland Protocol of the Brexit agreement, further undermined sterling and acted as a tailwind for the EUR/GBP cross.

On the other hand, the shared currency drew some support from the emergence of some US dollar selling and the European Central Bank's explicit signal that it would hike interest rates in July. That said, nervousness over fragmentation risks held back bulls from placing aggressive bets around the euro and capped any further gains for the EUR/GBP cross.

Investors also preferred to wait for ECB President Christine Lagarde's testimony before the Committee on Economic and Monetary Affairs of the European Parliament later this Monday. Lagarde's remarks will play a key role in influencing the common currency and provide a fresh impetus to the EUR/GBP cross amid absent relevant market-moving economic releases.

Technical levels to watch

• EUR/USD picks up extra pace above the 1.0500 mark.
• The dollar remains offered at the beginning of the week.
• ECB’s Lagarde will testify before the European Parliament.

The selling bias in the greenback lends oxygen to the risk complex and lifts EUR/USD further north of the 1.0500 mark on Monday.

EUR/USD looks to Lagarde, ECB-speak

EUR/USD shrugs off Friday’s bout of weakness and resumes the recovery following the FOMC-led drop to the sub-1.0400 levels at some point during last week.

Monday’s move higher in spot comes in tandem with further correction in the greenback along with the inactivity in the US markets due to the Juneteenth holiday. In addition, the German 10y bund yields keep the range bound theme intact near the 1.70% yardstick.

In the domestic calendar, Chairwoman Lagarde will speak before the European Parliament. Additionally, Board members P.Lane and F.Panetta are also due to speak.

What to look for around EUR

EUR/USD keeps the recovery-mode unchanged and manage to regain the area beyond 1.0500 the figure on Monday.

The resumption of the buying bias comes in response to the offered note in the US dollar, particularly following last week’s interest rate hike by the Fed.

However, EUR/USD is still far away from exiting the woods and it is expected to remain at the mercy of dollar dynamics, geopolitical concerns and the Fed-ECB divergence, while higher German yields, persistent elevated inflation in the euro area 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: ECB Lagarde (Monday) – Flash EMU Consumer Confidence (Wednesday) – ECB General Council Meeting, Flash EMU, Germany PMIs (Thursday) – Germany IFO Business Climate (Friday).

Eminent issues on the back boiler: Fragmentation risks. Kickstart of the ECB hiking cycle in July? Asymmetric economic recovery post-pandemic in the euro bloc. Impact of the war in Ukraine on the region’s growth prospects.

EUR/USD levels to watch

So far, spot is gaining 0.34% at 1.0528 and the immediate up barrier comes at 10601 (weekly high June 15) followed by 1.0649 (55-day SMA) and finally 1.0786 (monthly high May 30). On the other hand, a break below 1.0358 (monthly low June 15) would target 1.0348 (2022 low May 13) en route to 1.0300 (psychological level).

• Gold Price erases recovery gains after bulls run into the 21 DMA barricade.
• US dollar starts the week on the back foot amid a better risk environment.
• America observes the Juneteenth holiday, leaving XAUUSD in limbo.

Gold Price is trading modestly flat around $1,840, reversing the rebound seen in the Asian session. The recovery in risk sentiment is boding ill for the safe-haven US dollar, in turn, capping the downside in the bright metal.

Thinner liquidity conditions on account of the Juneteenth holiday in the US also leave the dollar bulls at bay, helping the metal find a floor.

The upside in XAUUSD, however, remains capped, as investors remain wary amid the aggressive Fed’s tightening path. The Fed hiked the key policy rates by 75 bps last week while leaving doors open for a 75 bps increase in July, as the world’s central bank remains committed to fighting inflation.

Meanwhile, gold price also lacks the follow-through recovery momentum, as the US inflation expectations, as per the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, hit fresh monthly lows below 2.60%. The yellow metal is often considered a hedge against inflation.

Markets now remain focused on the testimony from ECB President Christine Lagarde for fresh hints on the monetary policy, which could have a significant impact on risk sentiment, which may affect gold dynamics. Next of note for the metal remains Fed Chair Jerome Powell’s testimony due later this week.

Gold Price: Daily chart

Gold bulls failed to resist above the key 200-Daily Moving Average (DMA) and 21 DMA at $1,843 and $1,848 respectively so far this Monday.

 If bulls manage to find acceptance above the latter, then the $1,850 psychological mark will be challenged.  Up next, the recent rage highs near $1,858 will test the bearish commitments if bulls manage to flex their muscles.  

Also read: Gold Price Forecast: XAUUSD to extend struggle around 200 DMA, with all eyes on Powell

The 14-day Relative Strength Index (RSI) remains listless below the midline, suggesting that the upside attempts are likely to have limited legs.

On the downside, the immediate support is likely to emerge at Friday’s low of $1,834, below which XAU bears will aim for the $1,830 round figure.

Gold Price: Additional levels to consider

European Central Bank (ECB) Governing Council member Mario Centeno said on Monday that there is a great determination to deal with fragmentation risk.

Additional comments

Instruments against fragmentation only to be used in case of need, hope won't be used at all.

We are discussing instruments (against fragmentation) that allow to bring discipline to the market that seems not to exist whenever spreads go beyond the fundamentals of savings.

The dimension of and solidarity should go hand in hand at all times in Europe, they must be coordinated.

There is no way the euro is at risk.

The natural interest rate is an indicator, normalisation of monetary policy will be made gradually; our obligation is with the instruments we have and those we may create, to create conditions that 2% inflation goal can be achieved.

Earlier on, the ECB policymaker Yannis Stournaras said that they must remain focused on medium-term inflation objectives.

Market reaction

EUR/USD defends mild gains above 1.0500, awaiting ECB President Christine Lagarde’s testimony for a fresh trading impetus. The above comments have little to no impact on the shared currency.

• AUD/USD regained positive traction and reversed a major part of Friday’s downfall.
• Stability in the financial markets benefitted the aussie amid modest USD weakness.
• Hawkish Fed expectations should act as a tailwind for the buck and cap the major.

The AUD/USD pair attracted some buying near the 0.6915 region on Monday and reversed a major part of its losses recorded on the last day of the previous week. The pair maintained its bid tone through the early part of the European session and was last seen trading near the daily high, just below the 0.7000 psychological mark.

The recent pullback in the US Treasury bond yields failed to assist the US dollar to capitalize on Friday's positive move, which, in turn, extended some support to the AUD/USD pair. Apart from this, signs of stability in the financial markets further undermined the greenback's safe-haven status and benefitted the risk-sensitive aussie. That said, a combination of factors might hold back bulls from placing aggressive bets and cap any meaningful upside for the major.

The markets seem convinced that the US central bank would stick to its policy tightening path to tame soaring inflation, which accelerated to the highest level since December 1981 in May. The bets were reaffirmed by the Fed's so-called dot plot, showing that the median projection for the federal funds rate stood at 3.4% for 2022 and 3.8% in 2023. Moreover, growing recession fears should continue to lend support to the USD and act as a headwind for the AUD/USD pair.

Investors remain concerned amid doubts that major central banks could hike interest rates without affecting global economic growth. This should keep a lid on any optimistic move in the markets and hold back traders from placing aggressive bullish bets around the AUD/USD pair. Traders now look forward to St. Louis Fed President James Bullard's public appearance for some impetus later during the US session amid absent relevant market-moving economic data from the US.

The focus would then shift to Reserve Bank of Australia RBA Governor Philip Lowe's speech during the Asian session on Tuesday. This, along with minutes from the latest RBA monetary policy meeting, will influence the Australian dollar and produce some meaningful trading opportunities around the AUD/USD pair.

Technical levels to watch

EUR/USD has edged higher at the start of the new week but struggled to gather bullish momentum. A four-hour close below 1.0470 could be seen as a bearish development, FXStreet's Eren Sengezer reprots.

Sellers could take action in case 1.0470 support fails

“On the downside, 1.0470 (Fibonacci 23.6% retracement of the latest downtrend, 20-period SMA), aligns as initial support. A four-hour close below that level could be seen as a significant bearish development and open the door for additional losses toward 1.0400 (psychological level) and 1.0380 (static level).”

“EUR/USD is trading near 1.0520 (Fibonacci 38.2% retracement). In case this level is confirmed as support, next bullish targets are located at 1.0560 (Fibonacci 50% retracement), 1.0580 (200-period SMA) and 1.0600 (psychological level, Fibonacci 61.8% retracement).”

See: EUR/USD may find a floor around 1.0400-1.0450, but downside risks to 1.02-1.00 persist – ING

AUD/USD could drop to 0.6850 in case 0.6900 is cleared in the next weeks, suggested FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang.

Key Quotes

24-hour view: “We highlighted last Friday that ‘despite the advance, upward momentum has not improved by much and AUD is unlikely to strengthen much further’ and we expected AUD to ‘trade between 0.6970 and 0.7070’. However, AUD plummeted to a low of 0.6898 before rebounding. The rebound amidst oversold conditions suggests that AUD has likely moved into a consolidation phase. In other words, AUD is likely to trade sideways for today, expected to between 0.6900 and 0.7010.”

Next 1-3 weeks: “Last Thursday (16 Jun, spot at 0.7020), we highlighted that the recent weak phase in AUD has ended. We expected AUD to consolidate and trade between 0.6900 and 0.7100. Last Friday, AUD dropped a couple of pips below the bottom of our expected (low 0.6898). There is no change in our view for now and only a daily closing below 0.6900 would indicate that AUD is ready to move to 0.6850. At this stage, the odds for AUD to close below 0.6900 is not high.”

The more aggressive line by central banks adds to headwinds for economic growth and equities. Economists at UBS have lowered their S&P 500 forecast to 3,900 by December.

Euro Stoxx December target cut 15% to 3,400

“We now anticipate less upside for stocks this year, with slowing economic growth weighing on profit growth and higher bond yields depressing valuations. This combination implies less upside for the S&P 500 Index, and we have lowered our base case December price target to 3,900.”

“In the eurozone, growth momentum is slowing, while renewed uncertainty about the future of Russian gas supplies and the risk of bond market fragmentation are adding to macro risks. As a result, we have cut our base case December Euro Stoxx 50 targets by 15% to 3,400.”

• DXY starts the week on the defensive in the low-104.00s.
• US markets are closed due to the Juneteenth holiday on Monday.
• Markets’ attention will be on Powell’s testimonies later in the week.

The greenback gives away part of Friday’s gains and recedes to the 104.30/20 region when tracked by the US Dollar Index (DXY) on Monday.

US Dollar Index looks to risk trends, Fed, yields

Sellers seem to have regained the upper hand around the greenback and force the index to shed some ground following Friday’s moderate bounce.

Indeed, after hitting fresh cycle peaks near 105.80 soon after the Federal Reserve hiked rates by the most since 1994 on June 15, the buck triggered a corrective move that has so far met initial contention in the 103.40 region (June 16).

The inactivity in the US markets is expected to keep trading conditions flat and volatility in marginal levels on Monday, leaving all the attention to the broad risk appetite trends when it comes to assets price action.

In the US data space, market participants will closely follow Powell’s Semiannual testimonies on Wednesday and Thursday along with speeches by several FOMC governors throughout the week.

What to look for around USD

The index came under pressure after climbing to new highs around 105.80 in the wake of the Fed’s 75 bps rate hike on June 15.

The dollar, in the meantime, remains well supported by the Fed’s divergence vs. most of its G10 peers (especially the ECB) in combination with bouts of geopolitical effervescence, higher US yields and a potential “hard landing” of the US economy, all factors supportive of a stronger dollar in the next months.

Key events in the US this week: Chicago Fed National Activity Index, Existing Home Sales (Tuesday) – MBA Mortgage Applications, Powell’s Semiannual Testimony (Wednesday) – Initial Claims, Flash PMIs, Powell’s Semiannual Testimony (Thursday) – Final Consumer Sentiment (Friday).

Eminent issues on the back boiler: Powell’s “softish” landing… what does that mean? Escalating geopolitical effervescence vs. Russia and China. Fed’s more aggressive rate path this year and 2023. US-China trade conflict. Future of Biden’s Build Back Better plan.

US Dollar Index relevant levels

Now, the index is losing 0.21% at 104.43 and faces the next support at 102.45 (55-day SMA) followed by 101.29 (monthly low May 30) and then 100.16 (100-day SMA). On the other hand, a break above 105.78 (2022 high June 15) would open the door to 107.31 (monthly high December 2002) and finally 108.74 (monthly high October 2002).

• USD/JPY witnessed modest intraday pullback from the vicinity of over a two-decade high.
• The recent pullback in the US bond yields undermined the USD and exerted some pressure.
• The Fed-BoJ policy divergence should limit losses and warrants caution for bearish traders.

The USD/JPY pair attracted some sellers near the 135.45 region on Monday and retreated over 90 pips from the vicinity of a 24-year peak touched last week. Spot prices dropped to a daily low, around mid-134.00s during the early European session and eroded a part of Friday's dovish Bank of Japan-inspired strong gains.

The recent sharp pullback in the US Treasury bond yields failed to assist the US dollar to capitalize on the previous day's move up and held back bulls from placing fresh bets around the USD/JPY pair. Apart from this, the intraday downtick lacked any obvious fundamental catalyst and is more likely to remain limited amid the widening Japan-US interest rate differential.

The Bank of Japan (BoJ) on Friday decided to leave its ultra-easy monetary policy settings unchanged and reiterated its guidance to keep borrowing costs at "present or lower" levels. The BoJ also pledged to guide the 10-year yield to around 0%. In contrast, the Fed last week delivered the biggest hike since 1994 and indicated a faster policy tightening path to tame surging inflation.

Moreover, the Fed's so-called dot plot showed that the median year-end projection for the federal funds rate moved up to 3.4% from 1.9% in the March estimate and 3.8% in 2023. This should act as a tailwind for the US bond yields and favours the USD bulls, warranting caution before positioning for deeper losses amid lighter trading volumes on the back of a holiday in the US.

That said, a scheduled speech by St. Louis Fed President James Bullard might influence the USD price dynamics and provide some impetus later during the early North American session. Nevertheless, the fundamental backdrop supports prospects for the emergence of some dip-buying around the USD/JPY pair.

Technical levels to watch

European Central Bank Governing Council member Yannis Stournaras reiterated on Monday that they must remain focused on medium-term inflation objectives.

Stournaras further added that the monetary policy could afford to be gradual.

Market reaction

The shared currency holds its ground early Monday. As of writing, the EUR/USD pair was up 0.23% on a daily basis at 1.0522. Meanwhile, the Euro Stoxx 600 Index opened virtually unchanged on the day at 403.50. Later in the session, ECB President Christine Lagarde will testify before the Committee on Economic and Monetary Affairs of the European Parliament.

Markets are still digesting the higher re-pricing of Fed rate expectations, and global risk assets may struggle to show any sustainable rebound for now. All this should keep the dollar mostly in demand, according to economists at ING.

US Dollar Index to return above 105

“Unless we see some explicit pushback against a 75 bps hike in July, markets may consolidate their pricing for a Fed rate around 3.50% at the end of this year, which should offer some underlying support to the dollar.”

“Global risk appetite may struggle to recover just yet, especially considering the recent developments in the gas market and lingering concerns about China’s economic outlook, all of which should continue to fuel demand for defensive dollar positions.”

"A return above 105.00 in DXY in the short term is our base case.”

GBP/USD fluctuates in a narrow range above 1.22 on Monday. Economists at ING expect cable to trade above 1.20 for the time being.

Any rate pushback from BoE members?

“Supported Bank of England rate expectations have provided a floor for now. We continue to see some risks that we’ll see some dovish re-pricing of those rate expectations, but for now, that may only come from some explicit pushback by any of the BoE speakers scheduled this week (we’ll hear from Jonathan Haskel and Catherine Mann today). That’s because on the data side we could see yet another modest acceleration in headline inflation, while the core rate may stay above 6.0%.”

“We could see cable hold above 1.20 for now despite the dollar staying largely bid, and EUR/GBP staying around 0.8550-0.8600.”

USD/JPY registered impressive gains on Friday before going into a consolidation phase below 135.00 early Monday. Economists at ING expect the pair to continue marching forward to the 136-138 area.

FX intervention risk remains elevated

“We have long discussed how FX intervention is not a straightforward policy move for G7 countries, but it’s hard to argue that this remains the only option on the table for Japanese authorities unless Treasury yields start to drop.”

“Risks for USD/JPY remain tilted to the 136-138 area (and potentially even beyond) over the coming days.”

EUR/USD ended the previous week virtually unchanged. The pair may find a floor around 1.0400-1.0450, but downside risks beyond that persist, economists at ING report.

Downside risks to the 1.02-1.00 area over the summer months

“More stability in the eurozone peripheral bond market and not-so-bad PMIs may put a temporary floor under the EUR around the 1.0400-1.0450 area despite the dollar staying largely bid.”

“But downside risks to the 1.02-1.00 area over the summer months on the back of sustained dollar strength and a deteriorating eurozone outlook persist.”

• GBP/USD gained some positive traction on Monday amid the emergence of some USD selling.
• The recent slide in the US bond yields, stable risk sentiment undermined the safe-haven buck.
• The fundamental backdrop warrants some caution before placing bullish bets around the pair.

The GBP/USD pair showed resilience below the 1.2200 round-figure mark and attracted some buying on the first day of a new week. The pair held on to its modest gains through the early European session and was last seen trading just below mid-1.2200s.

A combination of factors failed to assist the US dollar to capitalize on the previous session's strong move up, instead prompted some selling on Monday, which, in turn, extended support to the GBP/USD pair. The Fed's so-called dot plot showed that the median projection for the federal funds rate stood at 3.4% for 2022 and 3.8% in 2023. Investors, however, took comfort from the fact that policymakers forecasted the rate to decline to 3.4% in 2024 and 2.5% over the long run. This led to the recent sharp pullback in the US Treasury bond yields. Apart from this, signs of stability in the financial markets further undermined the safe-haven greenback.

That said, market participants seem convinced that the Fed would tighten its monetary policy at a faster pace to combat stubbornly high inflation, which shot to over a four-decade high in May. Adding to this, concerns that a more aggressive move by major central banks would pose challenges to global economic growth should further help limit the downside for the buck. Furthermore, expectations that the Bank of England would opt for a more gradual approach to raising interest rates could act as a headwind for the British pound. This, along with the UK-EU impasse over the Northern Ireland Protocol of the Brexit agreement, should cap gains for the GBP/USD pair.

There isn't any relevant economic data due for release from the UK on Monday and the US markets will be closed in observance of Juneteenth National Independence Day. This might further hold back traders from placing aggressive bullish bets around the GBP/USD pair. Hence, it will be prudent to wait for strong follow-through buying before traders start positioning for an extension of the recent bounce from the YTD low touched last week. That said, a scheduled speech by St. Louis Fed President James Bullard might influence the USD price dynamics and provide some impetus to the GBP/USD pair later during the early North American session.

Technical levels to watch

The Canadian dollar ended the week on the defensive. The pair could climb as high as 1.33 on a break above the May high of 1.3077, economists at Scotiabank report.

Key support seen at 1.2865

“USD/CAD gains Friday through 1.2995/00 target a further push on to retest the May high at 1.3077; beyond here and the USD risks pushing on to the 1.33 zone.”

 “Key support for this week is 1.2865 – which may remain out of range for now.”

• GBP/JPY struggles for clear directions after the first weekly loss in five.
• Japan’s economic assessment, Kuroda’s comments fail to impress sellers amid inaction in the bond markets.
• UK fundamentals keep bears hopeful amid fears of economic slowdown.
• BOE’s Haskel, Mann could be eyed for intraday directions, UK PMIs are the key.

GBP/JPY remains directionless after a three-day uptrend, not to forget snapping the four-week uptrend, as traders await commentary from Bank of England (BOE) policymakers heading into Monday’s London open.

The pair’s latest moves portray trader indecision as the Japanese government maintains its economic assessment for June but a lack of action from US bond traders is failing to please yen buyers. Also, the Bank of Japan (BOJ) Governor Haruhiko Kuroda’s comments, suggesting FX rates should reflect fundamentals, also failed to gain major attention.

The UK’s downbeat fundamentals and the BOE’s failure to impress bulls underpins the British Pound’s (GBP) weakness. While the British government braces for inflated pay, UK Junior Treasury Minister Simon Clarke warned that if the government gives above-inflation pay awards, they will be in a difficult place, in terms of bringing down inflation.

Earlier in the day, the Financial Times (FT) mentioned that London City's bosses are warning the UK will fall into a recession this year.

Amid these plays, stock futures print mild gains in the UK and Europe after a downbeat close for US Treasury yields, mainly due to Friday’s softer US data and inaction afterward.

Moving on, BOE Monetary Policy Committee member Jonathan Haskel and Dr. Catherine L Mann will entertain GBP/JPY traders. Though, major attention will be given to the preliminary readings of UK PMIs for June amid impending recession fears.

Technical analysis

A clear rebound from the 50 DMA around 162.65 at the time of publication, GBP/JPY is moving towards the 165.65-70 hurdle before highlighting the “double top” highs near 168.50, potentially with bearish implications if they hold.

Here is what you need to know on Monday, June 20:

Markets started the new week on a cautious tone as investors await speeches by central bankers. The US Dollar Index (DXY), which managed to post modest gains last week, edges lower in the early European session on Monday. European Central Bank (ECB) President Christine Lagarde will testify before the Committee on Economic and Monetary Affairs of the European Parliament at 1300 GMT. Although the US stock and bond markets will be closed in observance of the Juneteenth holiday, St. Louis Federal Reserve President James Bullard is scheduled to speak later in the day. 

The DXY is down nearly 0.3% in the European morning at around 104.40. Over the weekend, Federal Reserve Governor Christopher Waller noted that he would support a 75 basis points rate hike in July if inflation data were to come in line with his expectations. Meanwhile, Cleveland Federal Reserve Bank President Loretta Mester said that it would take two years for inflation to decline back to the Fed's target of 2%.

In the early trading hours of the Asian session on Monday, the People's Bank of China (PBOC) announced that it left the 5-year Loan Prime Rate unchanged at 4.45%. Additionally, the US is reportedly reviewing tariffs on Chinese imports and also evaluating a pause on federal gas tax to bring down prices.

Following Friday's decline, EUR/USD ended the previous week virtually unchanged. In the early European session, the pair is up modestly at around 1.0530. ECB Governing Council members Joachim Nagel and Fabio Panetta will speak later in the day. In the meantime, the data from Germany showed that the annual Producer Price Index in May was 33.6%, compared to the market expectation of 33.5%.

GBP/USD fluctuates in a narrow range above 1.2200 on Monday. The UK's Junior Treasury Minister Simon Clarke said on Monday that he was not expecting a recession in the UK and added that the long-term outlook for the economy was "really positive." These comments, however, failed to help the British pound.

Fueled by the Bank of Japan's (BOJ) inaction, USD/JPY registered impressive gains on Friday before going into a consolidation phase below 135.00 early Monday. The BOJ announced on Monday that it offered to buy unlimited amounts of 5 and 10-year Japanese Government Bonds (JGBs).

Gold lost its traction on Friday amid a rebound witnessed in the US Treasury bond yields and erased a portion of its weekly gains. XAU/USD moves up and down in a narrow range above $1,840 on Monday.

Bitcoin extended its slide and fell below $20,000 for the first time since December 2020 over the weekend. BTC/USD ended up losing more than 20% on a weekly basis and was last seen trading within a touching distance of $20,000. Ethereum recovered modestly after having dropped below the key $1,000 mark on Saturday but failed to gather further momentum. At the time of press, ETH/USD was down 4% on the day at $1,080.

Despite lockdowns in China holding back domestic oil demand the price of black gold has remained above $100. Economists at Deutsche Bank expect oil prices to remain at high levels. 

Chinese demand to recover quickly

“With lockdowns in China being scaled back, we expect Chinese demand to recover quickly, particularly given likely policy stimulus.” 

“Restrictions on Russian supplies are set to remain in place and boosts to global supply look unlikely.” 

“Continued capital discipline in the US means that only a limited increase in US production looks likely over the next 12 months and production remains below pre-Covid levels.”

“We expect OECD inventories will take some time to claw their way back to pre-covid levels.”

In its June economic assessment report, the Japanese government maintained its overall view of the economy but cut its outlook on output.

Key takeaways

Related reads

• BOJ’s Kuroda: Exchange with PM Kishida was over global economy, financial markets

• USD/JPY Price Analysis: Returns to rising channel on responsive buying action, 136.00 eyed

So far this year to 14 June, the lira is already down 23%, after ending 2021 down by 44% against the US dollar. Economists at Commerzbank do not rule out the USD/TRY pair surging above their 18 forecast by end-2022.

Significant USD/TRY overshooting to attract sudden announcements and ad hoc intervention

“As Turkey’s inflation-FX spiral further unfolds, we warn about significant USD/TRY overshooting, which will likely attract sudden announcements and ad hoc intervention by policymakers. In this phase, USD/TRY could overshoot to well beyond 18.00.”

“Whether the response will be meaningful, or a continuation of nonsensical ideas about ‘liraization’ – only time will tell – but, our forecast of 18.00 USD/TRY by year-end does not represent a belief that the exchange rate cannot rise above this level.”

See: USD/TRY to race higher towards the 19 level – TDS

Following the conclusion of the meeting, Bank of Japan (BOJ) Governor Haruhiko Kuroda said on Monday, “the exchange with PM Kishida was over global economy and financial markets.”

Additional quotes

Market reaction

 USD/JPY was last seen trading down 0.09% on the day at 134.81. The pair remains at the mercy of the dynamics of the US dollar and yields amid light trading.

Gold Price seems to have gone into a consolidation phase near $1,850. Economists at Deutsche Bank expect the yellow metal to maintain its safe-haven appeal and forecast XAUUSD at $2,100 in June 2023.

XAUUSD seen at $2,100 on a one-year view

“Rising real rates are a headwind for gold. However, we feel the market is already pricing in peak hawkishness in terms of the rates outlook.” 

“Gold’s hedging characteristics may also come to the fore. With market volatility likely to continue to be driven by concerns regarding inflation, recession and/or geopolitics, we feel gold should be well supported by investor demand.” 

“We forecast XAUUSD at $2,100 in June 2023.”

The Turkish lira is again the worst EM FX performer to the dollar so far in 2022. Economists at TD Securities expect the USD/TRY pair to push towards 19.00 in the coming weeks.

CBRT still dragging its feet on monetary tightening

“The recurrent patterns of TRY conversion into FX deposits suggest that Turkey's dollarization will continue in the months ahead, after a brief reversal in January and February. This should remove the little support the lira has enjoyed earlier this year, and help it sink towards 19.00 vs USD.”

“The CBRT is unlikely to hike interest rates for now, leaving them on hold at 14% for yet another time on 23 June. The summer months, historically prone to causing currency crisis in weak economies, may however force the CBRT to review its position and start moving nominal rates higher.

“We still expect a total of 1,400 bps of tightening in three consecutive months. We only expect this to start in July instead of June now.”

• USD/CHF takes offers to refresh intraday low as sellers poke 11-week-old support line.
• RSI retreat, bear cross on MACD hint at further downside.
• Two-month-old horizontal support in focus, bulls need validation from 50-DMA.

USD/CHF extends pullback from the 50-DMA to renew intraday low amid early Monday morning in Europe. That said, the Swiss currency (CHF) pair hinges on the short-term key supports as the bears keep reins around 0.9645 by the press time.

In addition to the pullback from the 50-DMA, a downward sloping RSI line and a looming bearish signal on the MACD also keep sellers hopeful.

However, a daily closing below the 0.9640 level becomes necessary before the quote drops to a horizontal area comprising multiple lows marked since late April, around 0.9540.

In a case where USD/CHF prices drop below 0.9540, the 0.9500 threshold and the 100-DMA level near 0.9490 will be an important challenge for the pair sellers.

Meanwhile, an upside clearance of the 50-DMA hurdle surrounding 0.9705 could aim for 0.9760 and the 0.9800 resistance levels before challenging a five-week-old horizontal resistance zone near 0.9865-70.

Should the USD/CHF bulls manage to cross the 0.9870 hurdle, the odds of their run-up towards the yearly top near 1.0065 can’t be ruled out.

USD/CHF: Daily chart

Trend: Further weakness expected

GBP/USD has recently hit a low of 1.2050. Economists at Deutsche Bank forecast the pair at 1.20 on a one-year view.

Market expectations of UK interest rate hikes could be too high

“The continued rise in inflation rates in connection with already slowing economic growth is generating headwinds for the GBP and concerns for the Bank of England.”

“Market expectations of UK interest rate hikes could be too high.” 

“GBP/USD is forecast at 1.20 in June 2023.”

UK Junior Treasury Minister Simon Clarke warned in a statement on Monday, if the government gives above-inflation pay awards, they will be in a difficult place, in terms of bringing down inflation.

Key quotes

"We need to be sensible around pay awards."

"We cannot have inflation-busting pay increases because that will in turn drive the problem we're trying to sort."

“We don't expect a recession.”

After a rally towards the 7.00 level, USD/CNY has taken a breather. Economists at Deutsche Bank expect the pair to trade around the 6.75 mark in June 2023.

Yield differential between China and the US could widen

“The yield differential between China and the US could widen due to the weakening of the Chinese economy. However, China's government is likely to use fiscal support to prevent the economic dip from becoming too severe.” 

“We expect the CNY to be around current levels at USD/CNY 6.75 in June 2023.”

Considering preliminary readings from CME Group for natural gas futures markets, open interest reversed a multi-session downtrend and went up by around 1.8K contracts on Friday. On the other hand, volume remained choppy and decreased by around 59.5K contracts.

Natural gas faces the next support near $6.40

Prices of natural gas ended Friday’s session in multi-week lows following fresh cycle peaks past $9.50 earlier in the month. The move was accompanied by increasing open interest, which is supportive of the continuation of the ongoing downtrend to, initially, the May’s low at $6.43 per MMBtu (May 10).

In the view of economists at Deutsche Bank, USD strength could start to peter out in the coming months. They forecast EUR/USD at 1.10 by end-June 2023.

Scope for eurozone policy tightening could eventually bolster EUR

“While the USD should remain in demand in the short-term, it could depreciate in the medium term given that the course of monetary policy in the US is already largely priced in. 

“There is still potential for a more restrictive eurozone monetary policy stance than currently priced in, especially in 2023.”

“We forecast EUR/USD at 1.10 for the end of June 2023.”

Gold Price is attempting a minor recovery above the critical 200-Daily Moving Average (DMA) support now turned resistance at $1,843. In the view of FXStreet’s Dhwani Mehta, XAUUSD is set to extend its struggle around this region.

Upside attempts are likely to have limited legs

“Having recaptured the key 200 DMA barrier at $1,843, gold bulls are struggling to reclaim ground above the horizontal 21 DMA, now at $1,848. A firm break above the latter will put the $1,850 psychological mark to test. Up next, the recent rage highs near $1,858 will test the bearish commitments if bulls manage to flex their muscles.”

“On the downside, the immediate support is likely to emerge at Friday’s low of $1,834, below which XAU bears will aim for the $1,830 round figure. A sharp sell-off could be on the cards on a sustained move below the latter, exposing June 16 low of $1,816. The last line of defense for gold buyers is seen at the rising trendline support at $1,810.”

• Gold Price refreshes intraday high while consolidating the biggest weekly fall in six.
• Hawkish Fedspeak, economic slowdown fears underpin US dollar’s safe-haven demand.
• Powell could defend the greenback bulls while justifying the biggest rate hike since 1994, XAUUSD bears stay hopeful.

Gold Price (XAUUSD) pares the biggest weekly fall in six as the US dollar retreats on the Juneteenth holiday. That said, the bright metal prints mild gains around $1,845 heading into Monday’s European session. However, the corrective pullback appears doubtful as traders await the US PMIs and Fed Chair Jerome Powell’s Testimony amid recession fears.

Gold Price recovers on US dollar pullback

US Dollar Index (DXY) fades Friday’s recovery moves, down 0.23% intraday around 104.40, as the greenback bulls await fresh clues from the Fed policymakers. In doing so, the US dollar gauge consolidates the previous three-week uptrend amid a quiet session during an off in the US equities and bond markets. It’s worth noting that a downtick in the US inflation expectations, as per the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, seemed to have drowned the DXY by refreshing a monthly low near 2.60%.

Also read: Gold Price Forecast: XAUUSD to extend struggle around 200 DMA, with all eyes on Powell

Hawkish Fedspeak exerts downside pressure on XAUUSD

Federal Reserve facade

Federal Reserve Policymakers recently backed the 0.75% rate hike and justified the move during their latest public appearances as soon as the pre-Fed blackout ended, the hawkish Fedspeak weighed on the Gold Price the previous week. Among the key Fed hawks was Minneapolis Fed President Neel Kashkari backed another 75 bps rate hike in July while Cleveland Federal Reserve Bank President Loretta Mester rejected expectations that the inflation will be softer going forward. Additionally, Treasury Secretary Janet Yellen also mentioned her expectations of a slowdown in the economy but ruled out recession concerns.

Powell needs to defend the hawks

On Wednesday, Fed Chair Jerome Powell will need to justify the biggest rate hike since 1994 in front of the Senate Banking Committee. The policymaker is up for testifying on the Semi-Annual Monetary Policy Report that recently mentioned that the Gross Domestic Product (GDP) appears to be on track to rise moderately in the second quarter, per Reuters. It will be a tough job for the Fed Boss to back further aggression in monetary policy amid recessionary fears, failing to do so can extend the latest rebound of the XAUUSD.

PMIs are important too

Having witnessed downbeat US data of late, preliminary readings of June PMIs will be crucial for the gold traders as further softening of data will enable the XAUUSD prices to remain firmer. On Friday, US Industrial Production for May dropped to 0.2% MoM, below 0.4% market forecast and 1.4% prior. The details suggested steady Capacity Utilization and a contraction in the manufacturing output. Forecasts suggest downbeat prints of S&P Global Manufacturing PMI for June versus a bit better services gauge for the said month. As a result, Composite PMI might remain mostly unchanged at 53.7 versus 53.6 prior.

China flashes mixed signals

China fails to bolster Gold Price, despite announcing no change in its monetary policies, as well as witnessing improvement in covid conditions. The reason could be linked to the sluggish economic growth of the world’s second-largest bullion user and the recent hopes of a downbeat 3.0% GDP growth during Q2 2022. The People's Bank of China (PBOC) kept the 5-year and 1-year Loan Prime Rate (LPRs) unchanged at 4.45% and 3.70% respectively during Monday's announcement. That said, the covid numbers in Beijing and Shanghai improved and led to an easing in activity controls during the week. However, Shenzen announced fresh lockdown measures due to local covid instances.

Gold Price technical outlook

Gold Price seesaws around the 200-DMA despite repeated failures to cross a downward sloping resistance line from early March. In addition to the metal’s pullback from a short-term key hurdle, steady RSI and sluggish signals are also suggesting the quote’s further grind towards the south.

That said, the month-start bottom around $1,830 may offer immediate support should the quote drops below the 200-DMA level of $1,843. However, a five-week-old trend line support, close to $1,804 by the press time, will precede the $1,800 threshold to challenge the bear’s entry afterward.

Meanwhile, a clear upside break of the aforementioned resistance line, near $1,855 at the latest, isn’t an open invitation to the XAUUSD bulls as the 50-DMA level surrounding $1,872 and the monthly high near $1,880 will challenge the upside momentum afterward.

Overall, Gold Price is likely to witness further sideways momentum but the overall trend remains bearish.

Gold analysis forecast

• USD/CAD is juggling in a 20-pips range as focus shifts to Canada inflation and Fed Powell’s testimony.
• Canada’s annual inflation is seen higher at 7.5% vs. 6.8% reported earlier.
• Oil prices have plunged broadly as the market has trimmed the demand forecasts vigorously.

The USD/CAD pair is oscillating in a narrow range of 1.2995-1.3015 in the early European session. A mild correction from Friday’s high at 1.3079 is expected to turn into a fresh leg of rally as the loonie bulls are expected to remain weak on higher forecasts for the Consumer Price Index (CPI) figures.

Statistics Canada is expected to report the annual CPI figure at 7.5%, much higher than the prior print of 6.8%. While the core CPI that excludes food and energy prices will land a 5.9% vs.5.7% reported earlier. This will definitely compel the Bank of Canada (BOC) to elevate its interest rates further. It is worth noting that the BOC has already elevated its interest rates by 50 basis points (bps) in June and a similar decision is expected in July monetary policy.

On the oil front, renewed recession fears have brought extreme selling pressure on the oil prices. The black gold has slipped below $110.00 as an extreme tightening policy is trimming the growth forecasts. At the press time, the oil prices are attempting to find a cushion below $110.00. It is worth noting that Canada is the leading exporter of oil to the US. Therefore, lower oil prices result in lower fund inflows for Canada.

Meanwhile, the US dollar index (DXY) is hinting at a bearish Double Distribution Day. The asset balanced in a 104.62-104.75 in early Tokyo and tumbled firmly. Now, the asset is distributing inventory lower in the 104.37-104.46 range. The asset has turned volatile as investors are awaiting the Federal Reserve (Fed) chair Jerome Powell’s testimony, which is due on Wednesday. Fed Powell is expected to dictate the likely monetary policy action of July.

CME Group’s flash data for crude oil future markets showed traders added around 3.6K contracts to their open interest positions at the end of last week, reversing at the same time the downtrend in place since June 7. Volume followed suit and rose for the second straight day, now by around 126.7K contracts.

WTI: Next support emerges at $98.00

Prices of the barrel of WTI extended the leg lower on Friday amidst rising open interest and volume, exposing further retracements in the very near term and with the immediate contention at the May low at $98.23 (May 11).

• Copper drops for the third consecutive day to revisit the lowest levels since August 2021.
• Fears that economic slowdown will dent metal demand joins China’s upbeat copper production to weigh on prices.
• Fed policymakers hint at further rate hikes, softer economic performance to keep markets dicey on Juneteenth holiday.

Copper futures on COMEX stand on slippery grounds near $4.00, poking the lowest levels since August 2021, as economic fears weigh on the industrial metal during early Monday in Europe.

That said, the three-month copper on the London Metal Exchange (LME) was down 0.1% at $8,955 a tonne by 02:42 GMT, after falling to its lowest since Oct. 1 in early Asian trade, said Reuters. The news also mentioned that the most-traded July copper contract in Shanghai fell 1.6% to 68,460 yuan ($10,233.49) a tonne.

The Washington Post (WaPo) raised fears of a tough new economic climate due to the US Federal Reserve (Fed) rate hike of the 75 basis points (bps). The news mentioned that the Fed’s rate hike launched a high-stakes test of the economy's ability to shed its dependence on limitless credit and tolerate higher borrowing costs for consumers, businesses and the government. On the same line were concerns about China’s 3.0% growth in the second quarter (Q2) of 2022.

Among the Fed hawks was Minneapolis Fed President Neel Kashkari backed another 75 bps rate hike in July while Cleveland Federal Reserve Bank President Loretta Mester rejected expectations that the inflation will be softer going forward. Additionally, Treasury Secretary Janet Yellen also mentioned her expectations of a slowdown in the economy but ruled out recession concerns.

Also weighing on the red metal is the People's Bank of China’s (PBOC) no change in monetary policy rates. That said, the PBOC kept the 5-year and 1-year Loan Prime Rate (LPRs) unchanged at 4.45% and 3.70% respectively during Monday's announcement. The Chinese central bank’s inaction contrasts with the Western policymakers' hawkish bias but fails to renew the market’s optimism but failed to renew optimism.

Additionally drowning the metal prices is China's refined copper production in May rose 4.7% year-on-year to 0.91 million tonnes, data from the National Bureau of Statistics showed on Friday, per Reuters.

Moving on, Fed Chairman Jerome Powell’s Testimony and preliminary readings of the US S&P 500 PMIs for June will be important for fresh directions.

Economists at Nomura Holdings said in their latest note that they expect the US economy to witness a recession by the end of 2022, as financial conditions will tighten further on the aggressive Fed’s tightening outlook.

Key quotes

“With rapidly slowing growth momentum and a Fed committed to restoring price stability, we believe a mild recession starting in the fourth quarter of 2022 is now more likely than not.”

Excess savings and consumer balance sheets will help mitigate the speed of economic contraction.”

“Monetary and fiscal policy will be constrained by high inflation.”

 “With monthly inflation through 2022 likely to remain elevated, we believe the Fed response to the downturn will initially be muted.”

“Expect ongoing rate hikes to continue into 2023, but with a slightly lower terminal rate of 3.50-3.75% reached in February, compared to the previous forecast of 3.75-4.00% in March.” 

Also read: US Treasury Secretary Yellen: I expect the economy to slow

• AUD/USD is expected to find bids around 0.6960 as the DXY loses appeal on lower PMI forecasts.
• Fed Powell’s speech will provide insights about the likely monetary policy action next month.
• An accommodative PBOC's policy has supported the antipodean.

The AUD/USD pair has witnessed some long liquidation after a sheer upside move right from the first tick recorded in the early Tokyo session. The major is expected to find support around 0.6960 as the US dollar index (DXY) has witnessed a steep fall. The asset has displayed a bullish open drive session and is expected to extend gains after violating the critical resistance of 0.6972.

The DXY is underperforming on lower forecasts of Purchase Managers Index (PMI) figures, which are due on Thursday. The Composite PMI is seen higher marginally to 53.5 from the prior print of 53.4. While the Manufacturing and Services PMIs are indicating a severe underperformance. The Services PMI is seen significantly lower at 49.1 against the prior print of 53.2. Also, the Manufacturing PMI is expected to shift lower to 54.7 from the former figure of 55.7.

This week, investors’ focus will also remain on the speech from Federal Reserve (Fed) chair Jerome Powell. It is highly likely that the Fed’s Powell will dictate the likely monetary policy action for July, which s due on Wednesday.

On the aussie front, a neutral stance on lending rates by the People Bank of China (PBOC) has supported the antipodean. It is worth noting that aussie is a leading trading partner of China. Therefore, an accommodative policy stance by the PBOC will spurt the aggregate demand and henceforth, more goods and services from the Australian economy.

In the opinion of FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang, GBP/USD should navigate within the 1.2040-1.2400 range in the next weeks.

Key Quotes

24-hour view: “We expected ‘further GBP strength’ last Friday. However, GBP dropped to a low of 1.2174 before rebounding. The current price actions appear to be part of a consolidation phase and GBP is likely to trade sideways for today, expected to be within a range of 1.2150/1.2300.”

Next 1-3 weeks: “Last Friday (17 Jun, spot 1.2355), we highlighted that the recent GBP weakness has ended and we were of the view that strong shorter-term upward momentum could lead to an advance to 1.2460. We did not expect the subsequent sharp pullback to a low of 1.2174. The sharp but short-lived swings have resulted in a mixed outlook. GBP could continue to trade in a choppy manner, likely between 1.2040 and 1.2400.”

Open interest in gold futures markets rose for the second session in a row on Friday, this time by around 5.3K contracts according to advanced prints from CME Group. Volume, instead, shrank for the second consecutive day, now by around 41.2K contracts.

Gold remains capped by $1,880

Gold prices reversed two daily advances in a row on Friday and kept hovering around the key 200-day SMA near $1,840. The downtick was in tandem with increasing open interest, which is supportive of further weakness in the very near term. On the upside, prices of the precious metal appear limited by the June high around $1,880.

FX option expiries for June 20 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

- EUR/USD: EUR amounts        

• 1.0650 317m

- GBP/USD: GBP amounts        

• 1.2400 565m

• NZD/USD retreats from intraday high, consolidates recent losses around yearly low.
• Firmer oscillators, sustained trading above short-term key support lines keep buyers hopeful.
• 200-SMA, monthly peak challenge upside momentum, bears need validation from 0.6280.

NZD/USD stays mildly bid above 0.6300 as it consolidates recent losses around 0.6325 heading into Monday’s European session.

In doing so, the Kiwi pair justifies an upside break of the monthly resistance line, as well as sustained trading above the weekly ascending trend line.

Also keeping buyers hopeful are the bullish MACD signals and an upbeat RSI line that backs the NZD/USD rebound from the yearly low.

However, the latest swing high and the 200-SMA together offer an important hurdle to the north around 0.6400.

Following that, the 61.8% Fibonacci retracement of June 03-14 downside, near 0.6435, could act as a validation point for the rally targeting the monthly peak of 0.6575.

On the flip side, the immediate support line, as well as the previous resistance line, challenge short-term NZD/USD downside around 0.6290 and 0.6280 respectively.

Should the quote drops below 0.6280, the yearly low around 0.6200 and April 2020 peak near 0.6175 might restrict the further declines.

Overall, NZD/USD remains on the bear’s radar even as short-term recovery remains widely anticipated.

NZD/USD: Four-hour chart

Trend: Further recovery expected

FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang noted EUR/USD is expected to trade between 1.0350 and 1.0650 in the next weeks.

Key Quotes

24-hour view: “Our expectations for ‘the rapid rise in EUR to extend’ did not materialize as it dropped to a low of 1.0443. Despite the decline, downward momentum has not improved by much. For today, EUR is likely to consolidate and trade between 1.0445 and 1.0550.”

Next 1-3 weeks: “We highlighted last Friday (17 Jun, spot at 1.0545) that the recent EUR weakness has run its course and EUR has likely moved into a consolidation phase. We expected EUR to trade between 1.0435 and 1.0700. We did not anticipate the sharp pullback to 1.0443. We continue to expect EUR to consolidate, albeit likely within a lower and wider range of 1.0350/1.0650.”

• Asian equities trade mixed with China bucking the bearish mood as PBOC holds benchmark rates unchanged
• Hawkish Fedspeak, central banks hint at global economic slowdown.
• Juneteenth holiday restricts market moves, US PMIs, Fed’s Powell eyed for clear directions.

Asia-Pacific shares struggle to justify a clear trend as markets fear economic slowdown and faster/heavier rate hikes amid a sluggish start to the week, after a super volatile one. However, traders in China appear cautiously optimistic as the key data/events loom. While portraying the mood, the MSCI’s index of Asia-Pacific shares ex-Japan drops 0.25% whereas Japan’s Nikkei 225 index falls 1.15% intraday heading into the European session.

The People's Bank of China (PBOC) kept its key monetary policy rates, namely the 5-year and 1-year Loan Prime Rate (LPRs) unchanged at 4.45% and 3.70% respectively during Monday's announcement.

The Chinese central bank’s inaction contrasts with the Western policymakers' hawkish bias but failed to underpin the markets in Australia, despite having strong trade ties, as a slump in iron ore weigh on Aussie equities, down 0.50% intraday by the press time. It’s worth noting that mixed covid updates from China’s Beijing, Shanghai and Shenzen also challenge the Aussie bulls from cheering PBOC’s status-quo. However, stocks in New Zealand remain mildly bid on upbeat Business NZ PSI for May, 55.2 versus 52.2 prior.

Elsewhere, Indonesia and South Korea remain on the back foot as fears of recession spread across the Asian region. Further, India’s BSE Sensex drop half a percent as traders expect a quarter percent rate hike from the Reserve Bank of India (RBI) despite the recently easy retail inflation data.

On a broader front, the S&P 500 Futures rise 0.35% intraday to 3,690, keeping Friday’s corrective pullback from the yearly low. It’s worth noting that the US 10-year Treasury yields remain static near 3.23% amid holidays in the US.

Also read: S&P 500 Futures stay pressured amid recession, Fed concerns on Juneteenth holiday

Looking forward, ECB President Christine Lagarde is up for testimony and may entertain markets amid the US off. However, major attention will be given to the preliminary readings of the US activity numbers for June and Fed Chair Jerome Powell’s testimony.

• A responsive buying action has pushed the asset back into the Rising Channel formation.
• The 20- and 50-period EMAs have displayed a bull cross, which adds to the upside filters.
• A decisive move above 60.00 by the RSI (14) will strengthen the greenback bulls.

The USD/JPY pair has witnessed a minor correction after failing to overstep Friday’s high at 135.42. The pair is oscillating marginally below 135.00 and a balancing market profile is required to prepare a base for an upside rally.

On an hourly scale, the major has shifted into the Rising Channel chart formation again after a downside break. The upper portion of the above-mentioned chart pattern is placed from June 8 high at 134.48 while the lower portion is plotted from June 9 low at 133.19. A responsive buying action has pushed the asset back into the above-mentioned chart pattern, which signals that the yen bulls are no longer firmer.

The 20- and 50-period Exponential Moving Averages (EMAs) have given a bullish crossover at 133.70, which adds to the upside filters.

Meanwhile, the Relative Strength Index (RSI) (14) has slipped into a 40.00-60.00 range but is expected to rebound again strongly.

Should the asset oversteps Thursday’s high at 134.68, the greenback bulls will negate the Rising Channel’s breakdown, which will empower them to recapture a two-decade high at 135.60. A breach of the latter will expose the asset to record a fresh two-decade high to near 5 October 1998 high at 136.06.

Alternatively, the yen bulls could regain strength if the asset drops below Friday’s low at 132.18. This will drag the asset towards Thursday’s low at 131.50, followed by June 6 low at 130.43.

USD/JPY hourly chart

Paschal Donohoe, chief of the pan-eurozone group of finance ministers, said in an interview with the Financial Times (FT) on Monday, Eurozone is not at risk of a sovereign debt crisis seen a decade ago, as the bloc’s economies are in ‘completely different’ shape at present.

Key quotes

The current circumstances were “completely different from the kind of crisis environment we were in” when the bloc was gripped by a spiraling sovereign debt sell-off in the early 2010s.

The euro area now had “stronger architecture” and “deeper foundations for our common currency.”

“We are all confident about our ability to navigate through the changes that are taking place.”

“The starting positions for member states in terms of their debt and deficit levels is now very, very different to where we were before Covid hit us.”

“We will continue to need to have plans that reduce borrowing in a careful way. The plans to do it will have to be credible. They will have to reflect the fact that we are in an inflationary environment.”

The FT reports that Donohoe’s remarks come as ECB president Christine Lagarde prepares to face questions from MEPs at the European Parliament on Monday over its recent contrasting messages.

Market reaction

EUR/USD is holding the renewed upside above 1.0500, adding 0.28% on the day. The optimistic comments from Donohoe will only aid the rebound in the shared currency against the US dollar.

• USD/INR struggles to benefit from softer USD, downbeat oil prices.
• Fears of inflation join RBI rate-hike concerns and recession woes to weigh on INR.
• Fed Chair Powell’s Testimony will be the week’s key event.

USD/INR remains pressured around the intraday low of 77.90 as US dollar bulls take a breather amid the Juneteenth holiday on Monday. Also keeping the Indian rupee (INR) pair sellers hopeful is the recently softer oil prices and hopes of the RBI’s rate hike.

US Dollar Index (DXY) fades Friday’s recovery moves, down 0.23% intraday around 104.40, as the greenback bulls await fresh clues from the Fed policymakers. In doing so, the US dollar gauge consolidates the previous three-week uptrend amid a quiet session during the Juneteenth holiday.

On the other hand, WTI crude oil prices stay depressed at the monthly low flashed on Friday, down 0.90% intraday around $107.50 by the press time.  The black gold dropped the most since early May on the previous day as markets feared recession and rushed to the US dollar for a haven.

At home, India’s retail inflation eased from an eight-year high to 7.04% in May. However, the bullish bets over the Reserve Bank of India’s (RBI) hawkish move remain intact.

“June inflation is still tracking at about 7%, much above RBI’s upper tolerance band of 6% inflation. Our baseline expectation remains of a 25 bps hike in August with risk skewed toward a larger hike,” said JP Morgan analysts in a note per Reuters. “Much would depend on how external inflationary impulses evolve and whether second-round effects are getting entrenched.”

Despite the latest weakness, the USD/INR bulls stay hopeful as the key US policymakers keep suggesting higher inflation and raise fears of economic slowdown, which in turn should underpin the US dollar’s safe-haven demand. Among them were Minneapolis Fed President Niel Kashkari, US Treasury Secretary Janet Yellen and Cleveland Federal Reserve Bank President Loretta Mester.

Looking forward, USD/INR traders should pay attention to Fed Chairman Jerome Powell’s Testimony for fresh impulse as the Fed Boss is likely to be questioned on inflation woes to justify the recent rate hike. Also important will be the initial readings of the US S&P 500 PMIs for June.

Technical analysis

Despite the latest corrective pullback from the 10-DMA level surrounding 77.90, USD/INR holds onto the downside break of a six-week-old ascending trend line, which in turn suggests further grinding towards the south.

• Gold price has scaled above $1,845.00 firmly as DXY weakens on lower estimates for the US PMI.
• The US Services PMI is seen significantly lower at 49.1 vs. 53.2 reported earlier.
• Investors should brace for a consecutive 75 bps rate hike by the Fed in July.

Gold price (XAU/USD) has displayed a firmer rebound above $1,835.00 in the Asian session after sensing a selling pressure at the open. The precious metal has witnessed a strong rally which has pushed the gold prices above $1,845.00. Considering the bullish momentum after a rebound, the bright metal is expected to kiss the round-level resistance of $1,850.00.

The gold prices are performing well amid weakness in the US dollar index (DXY). The DXY has tumbled to near 104.37 and is expected to find more offers on lower guidance for the Purchase Managers Index (PMI) data. The Composite PMI is seen higher marginally to 53.5 from the prior print of 53.4. The Manufacturing and Services PMIs dictate a severe underperformance. The Services PMI is seen extremely lower at 49.1 against the prior print of 53.2. While the Manufacturing PMI is expected to slip to 54.7 from the former figure of 55.7.

Apart from that, the odds of a consecutive rate hike by 75 basis points (bps) have been bolstered. Fed Governor Christopher Waller has stated, If the data comes in as I expect, I will support a similar-sized move at our July meeting,"

Gold technical analysis

On an hourly scale, the gold price has moved back above the 50% Fibonacci retracement (which is placed from June 12 high at $1,879.26 to June 14 low to $1,805.11) at $1,842.02. The 20- and 50-period Exponential Moving Averages (EMAs) at $1,841.54 and $1,839.76 respectively are expected to display a bearish crossover, which will strengthen the gold bears. Also, the Relative Strength Index (RSI) (14) has rebounded strongly after taking support from 40.00.

Gold hourly chart

• EUR/USD has jumped above 1.0520 as weakness in the DXY has supported the risk-sensitive currencies.
• A bullish open drive session in the asset will keep the shared currency bulls in the dominant position.
• The US MI numbers are expected to display a vulnerable show.

The EUR/USD pair is advancing swiftly higher in the Asian session and has surpassed 1.0520 as the US dollar index (DXY) has lost its grip. The pair has displayed a bullish open drive session as the asset is scaling higher right from the first auction order. On a broader note, the major witnessed a corrective move after failing to cross the psychological resistance of 1.0600. Now, a rebound has been witnessed in the counter, which looks firmer and is expected to add significant gains.

In today’s session, the DXY has witnessed a steep fall right from the open and a downside move has been recorded after oscillation in a 104.62-104.72 range. The DXY is underperforming despite the hawkish comments from Federal Reserve (Fed) policymakers.

Cleveland Fed Bank President Loretta Mester in her interview with CBS News on Sunday dictated that the price pressures won’t get trimmed overnight. It will take a period of two years but will get back to its neutral state. The Unemployment Rate may increase to 4.00-4.2% and the Fed could dictate one more 75 basis points (bps) rate hike in July.

This week, the focus will remain on the Purchase Managers Index (PMI numbers from the US and eurozone. The US Services PMI is seen extremely lower at 49.1 against the prior print of 53.2. While the eurozone Services PMI will shift lower to 55.5 vs. 56.1 reported earlier. The US Manufacturing PMI is expected to slip to 54.7 from the former figure of 55.7. While the eurozone Manufacturing PMI may land at 53.9, lower than the prior figure of 54.6.

South Korea's Finance Minister Choo Kyung-ho said once again on Monday, they would take necessary steps to stabilize the currency market in case of excessive volatility.

Choo, however, said that it is not appropriate to comment on a specific USD/KRW exchange rate level.

Market reaction

USD/KRW was last seen trading at 1,290.12, down 0.11% on the day. The South Korean won (KRW) caught a fresh bid wave on these above comments, rebounding once again from the key support around the 1,296 region.  

US inflation expectations, as per the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, dropped for the second consecutive day by the end of Thursday’s North American session. That said, the inflation gauge dropped to 2.58% at the latest.

Despite the recent pullback in the inflation expectations, the latest Fedspeak continues to highlight fears of high price pressure inside the world’s biggest economy. Among them were Minneapolis Fed President Niel Kashkari, US Treasury Secretary Janet Yellen and Cleveland Federal Reserve Bank President Loretta Mester.

Hence, the market’s disbelief over inflation expectations seems to weigh on the risk appetite, which in turn keeps the sentiment heavy ahead of the key Testimony from Fed Chair Jerome Powell.

It’s worth noting that Fed’s Powell will have a tough task justifying the latest 0.75% rate hike while also uttering the recession woes at the minimum.

For Monday, a Juneteenth holiday in the US will restrict the market performance but the growth fears and chatters surrounding hawkish Fed bets may keep the risk-off mood alive.

Also read: S&P 500 Futures stay pressured amid recession, Fed concerns on Juneteenth holiday

• GBP/USD remains pressured around short-term key technical supports.
• Steady RSI suggests further grinding towards the south.
• Nearby resistance line, 200-HMA challenge buyers before May’s high.

GBP/USD bears flirt with 1.2230 as multiple support catalysts challenge further downside during Monday’s Asian session.

That said, a one-week-old horizontal area and a weekly ascending trend line together constitute the immediate support around 1.2200.

Following that, the 100-HMA level of 1.2165 can challenge the GBP/USD bears before directing them to the monthly low of 1.1933. It’s worth noting, however, that the 1.2000 psychological magnet may also act as a short-term important support.

Given the steady RSI conditions, coupled with the pair’s latest rebound from the nearby supports, the quote may aim for a two-day-old resistance line near 1.2265.

However, any further upside needs validation from the 200-HMA level of 1.2300, as well as the latest peak of 1.2406, to convince the buyers.

Even if the GBP/USD prices manage to cross the 1.2406 hurdle, the previous monthly high around 1.2665 appears a tough nut to crack for the pair bulls.

Overall, GBP/USD prices remain bearish but a short-term corrective pullback can’t be ruled out.

GBP/USD: Hourly chart

Trend: Further downside expected

European Central Bank (ECB) Governing Council member Olli Rehn said over the weekend that he wants to ensure that the fragmentation risks do not cause undue turbulence on government bond markets.

Key quotes

“We are firmly committed to contain unwarranted fragmentation that would impair monetary-policy transmission.”

 “We are fully committed to preventing fiscal dominance -- and/or financial dominance, for that matter.”

“In the case of more profound structural economic weaknesses and debt-sustainability problems, there is always the option to activate Outright Monetary Transactions, which would be preceded by a program of the European Stability Mechanism,” he said, referring to a tool designed a decade ago as ex-ECB President Mario Draghi pledged to do “whatever-it-takes” to save the euro.

The ECB is “likely to be able to exit negative territory in interest rates by the end of the third quarter.”

 The Governing Council held an emergency meeting Wednesday amid a surge in Italian yields. The ECB announced an introduction of a new instrument by its July policy meeting, which has calmed markets somewhat.

Related reads

• French Election: Macron loses control of National Assembly in 'democratic shock'
• EUR/USD Price Analysis: Struggles for clear directions around 1.0500

• Market sentiment remains pessimistic as growth fears join hawkish Fed bets.
• S&P 500 Futures remain depressed around yearly low, yields stay unchanged on Juneteenth holiday.
• Fed’s Powell in focus, updates over China’s covid, Sino-America ties are also important for fresh impulse.

Risk appetite remains sour as fears of economic slowdown join hopes of higher Fed rates during a sluggish Asian session on Monday. However, a light calendar and Juneteenth holiday in the US stock and bond markets limits the activity.

That said, the S&P 500 Futures drop 0.20% intraday to 3,672, reversing Friday’s corrective pullback from the yearly low. It’s worth noting that the US 10-year Treasury yields remain static near 3.23% amid holidays in the US.

The Washington Post (WaPo) raised fears of a tough new economic climate due to the US Federal Reserve (Fed) rate hike of the 75 basis points (bps). The news mentioned that the Fed’s rate hike launched a high-stakes test of the economy's ability to shed its dependence on limitless credit and tolerate higher borrowing costs for consumers, businesses and the government. On the same line were concerns about China’s 3.0% growth in the second quarter (Q2) of 2022.

Further, fears of recession, as well as hawkish Fed bets, were the key catalysts weighing on the market sentiment. Among them were US central bank policymakers namely Minneapolis Fed President Niel Kashkari who backed another 75 bps rate hike in July. Additionally, Treasury Secretary Janet Yellen also mentioned her expectations of a slowdown in the economy but ruled out recession concerns.

Alternatively, the People's Bank of China (PBOC) kept its key monetary policy rates, namely the 5-year and 1-year Loan Prime Rate (LPRs) unchanged at 4.45% and 3.70% respectively during Monday's announcement. The Chinese central bank’s inaction contrasts with the Western policymakers' hawkish bias but fails to renew the market’s optimism.

Also on the positive side is a piece of news from Reuters saying, “President Joe Biden's administration is reviewing the removal of some tariffs on China,” as well as upbeat covid news from Beijing and Shanghai to favor the market’s cautious optimism.

It should be noted that the cautious sentiment ahead of Fed Chairman Jerome Powell’s Testimony may join the US holiday to restrict intraday moves.

French President Emmanuel Macron suffered a major setback after he lost control of the National Assembly in legislative elections on Sunday. His defeat threatens the country’s political stability.

Initial projections by pollsters Ifop, OpinionWay, Elabe and Ipsos showed Macron's Ensemble alliance winning 230-250 seats, the left-wing Nupes alliance securing 141-175 and Les Republicains 60-75.

Finance Minister Bruno Le Maire called the outcome a "democratic shock" and added that if other blocs did not cooperate, "this would block our capacity to reform and protect the French."

Meanwhile, Prime Minister Elisabeth Borne said, “the result is a risk for our country in view of the challenges we have to face," adding that from Monday on, Macron's camp will work to seek alliances.

Market reaction

Amid looming recession fears, the French election disappointment also keeps the euro under check. At the time of writing, EUR/USD is trading around 1.0500, almost unchanged on the day.

Having kept its monetary policy settings unchanged on Friday, despite increasing calls for raising the yield cap, the Bank of Japan (BOJ) on Monday offered to buy unlimited amounts of 5 and 10-year Japanese Government Bonds (JGBs).

By doing so, they continue capping its 10-year rates at 0.25%.

Market reaction

USD/JPY is slipping below 135.00 amid risk-aversion and BOJ’s operation. The pair is down 0.09% on the day at 134.82, as of writing.

• Silver extends Friday’s losses by breaking immediate bullish triangle.
• RSI conditions, 100-HMA probe the further downside, weekly horizontal support also challenges bears.
• Bulls need a clear break of $22.51 to retake control.

Silver (XAG/USD) remains on the back foot for the second consecutive day, down 0.75% around the intraday low of $21.47, as bears cheer a technical breakout during early Monday. Also keeping sellers hopeful is the broad US dollar strength and the bright metal’s failure to cross the $22.00 hurdle.

However, the nearly oversold RSI conditions and the 100-HMA restrict immediate declines of the XAG/USD to around $21.50. Also acting as a downside filter is the one-week-old horizontal support near $21.35.

Should the quote drop below $21.35, the odds of witnessing a fresh monthly low, currently around $20.90, can’t be ruled out. The same highlights the yearly bottom marked in May, close to $20.45.

Meanwhile, the silver buyer’s return needs a clear upside break of the $22.00 hurdle. Though, the 200-HMA level of $21.65 and the aforementioned triangle’s lower line around $21.80 may restrict the immediate recovery of the metal.

In a case where the commodity prices rise beyond $22.00, the $22.30 and a monthly high of $22.51 may rest the XAG/USD bulls before giving them control.

Silver: Hourly chart

Trend: Further weakness expected

The Chinese economy is expected to grow by around 3% in Q2, and it should strive to achieve the annual target of growing 5.5%, The Paper reported, citing Yao Jingyuan, former chief economist and spokesperson of the National Bureau of Statistics (NBS).

Key quotes

“It is not a question of what policy is still lacking, but a matter of implementing the 33 pro-growth measures released by the State Council earlier.”

“Local governments can further reduce the down payment ratio and lower the mortgage rate to boost housing demand, and it is also necessary to offer more support to private and small business to promote employment.”

Related reads

• USD/CNH crosses 6.7150 as PBOC keeps interest rates unchanged at 3.7%
• US reviews China tariffs, possible pause on federal gas tax to curb inflation

• USD/CNG has overstepped 6.7150 as PBOC sounded neutral on interest rates.
• The one-year PLR and five-year PLR have left unchanged at 3.7% and 4.45% respectively.
• The Fed may announce one more 75 bps rate hike in July.

The USD/CNH pair has scaled above 6.7100 after the People’s Bank of China (PBOC) kept a neutral stance on the interest rates. An accommodative monetary policy stance from the PBOC was highly expected by the market participants as the recent curbs in Shanghai and Beijing to contain the spread of the Covid-19 have dented the aggregate demand prospects.

The PBOC has kept its one-year Prime Lending Rate (PLR) at 3.7%, while the five-year PLR has been stable at 4.45%. The Chinese economy is reviving from the lockdown measures levied for a period of two months earlier. A stable inflation rate at 2.1% and higher Retail Sales at -6.7%, significantly higher than the prior print of -11.1% have supported the PBOC to sound neutral on its interest rates. The PBOC will flush more liquidity into the economy to spurt the growth rate going ahead.

Meanwhile, the US dollar index (DXY) is attempting to take support around 104.65 as odds of a rate hike by 75 basis points (bps) are galloping strongly. The US inflation is stable at above 8% despite two rate hikes in March and May but no material impact was noticed on the asset. Therefore, a 75 basis point (bps) interest rate hike has been announced by Federal Reserve (Fed) chair Jerome Powell. Only one Fed policymaker didn’t support the 75 bps rate hike announcement. Now, investors are bracing for a consecutive 75 bps rate hike in July.

• AUD/USD pares intraday gains after PBOC left monetary policy unchanged.
• Downbeat Iron ore prices, Aussie housing market fears join hopes of higher Fed rates, recession chatters to favor bears.
• Covid optimism in Beijing/Shanghai, hopes of US-China trade rebound challenge downside.
• Juneteenth holiday to restrict market moves, comments from RBA’s Lowe, Fed Chair Powell’s testimony will be the key catalysts.

AUD/USD takes offers near 0.6930 while consolidating the daily gains during early Monday. In doing so, the Aussie pair takes clues from China amid fears of global recession and the higher Fed rates.

That said, the People's Bank of China (PBOC) kept its key monetary policy rates, namely the 5-year and 1-year Loan Prime Rate (LPRs) unchanged at 4.45% and 3.70% respectively during Monday's announcement. The Chinese central bank’s inaction contrasts with the Western policymakers hawkish bias but fail to put a bid under the AUD/USD prices.

Also on the positive side is a piece of news from Reuters saying, “President Joe Biden's administration is reviewing the removal of some tariffs on China,” as well as upbeat covid news from Beijing and Shanghai to favor the market’s cautious optimism.

However, nearly 10% drops in iron ore prices, Australia’s key export joins the hawkish Fed concerns, not to forget fears of economic slowdown, to weigh on the AUD/USD prices.

The Washington Post (WaPo) raised fears of a tough new economic climate due to the US Federal Reserve (Fed) rate hike of the 75 basis points (bps). The news mentioned that the Fed’s rate hike launched a high-stakes test of the economy's ability to shed its dependence on limitless credit and tolerate higher borrowing costs for consumers, businesses and the government.

Also supporting the fears of recession, as well as hawkish Fed bets, were the key US central bank policymakers namely Minneapolis Fed President Niel Kashkari who backed another 75 bps rate hike in July. Furthermore, Treasury Secretary Janet Yellen also mentioned her expectations of a slowdown in the economy but ruled out recession concerns.

Amid these plays, the US stock futures print mild losses while the US Treasury yields remain unchanged at 3.23% amid Juneteenth holiday in the US.

Moving on, the Reserve Bank of Australia (RBA) Monetary Policy Meeting Minutes and a speech from RBA Governor Philip Lowe, up for publishing on Tuesday, will be important for the AUD/USD traders. However, major attention will be given to Fed Chairman Jerome Powell’s Testimony for fresh impulse as the Fed Boss is likely to be questioned on inflation woes to justify the recent rate hike.

Technical analysis

The AUD/USD pair’s failure to cross the 100-HMA and a downward sloping trend line resistance from Thursday, around 0.6960, triggered the latest pullback targeting the previous resistance line from early June, close to 0.6875 by the press time.

The People’s Bank of China (PBOC) sets the USD/CNY reference rate at 6.7120 on Monday, compared to the previous close at 6.7160 and Friday's PBOC fix of 6.6923. It's worth noting that markets expected 6.7073 as a fix for the day.

PBOC injects 10 billion yuan via 7-day reverse repos at 2.10% vs prior 2.10%, said the statement per Reuters. 

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.

• The DXY is experiencing hurdles around 104.70 as a recession looks likely on hawkish Fed.
• The US economy could return to a 2% inflation rate in a period of two years.
• An underperformance is expected from the US economy on the PMI front this week.

The US dollar index (DXY) is declining modestly in the Asian session on advancing odds of a recession in the US economy. The DXY has sensed barricades around 104.70 and is expected to extend its losses after slipping below the critical support of 104.60. After a bullish move towards 105.10 on Friday, the asset witnessed a mild correction to near 104.60, which is expected to add losses if it violates.

Fed Mester sees inflation at 2% in two-years

Cleveland Federal Reserve (Fed) President Loretta Mester in an interview with CBS News on Sunday dictated it will take at least two years to achieve inflation near 2%. Also, a slowdown in the growth targets is the expectation but is not predicting a recession situation. The Fed policymaker also see a consecutive rate hike of 75 basis points (bps) in the July monetary policy. A spree of heavy interest rate elevation may spurt the Unemployment Rate above 4% but the Fed is dedicated to doing ‘whatever it takes’ to fix the inflation mess.

Lower forecasts for the US PMI

This week, US Purchase Managers index (PMI) data by the IHS Markit will remain in focus. The economic data is due on Thursday and a vulnerable performance is expected from the data. The Composite PMI is seen higher marginally to 53.5 from the prior print of 53.4. The bifurcation of the Composite PMI into the Manufacturing and Services dictates a severe underperformance. The Services PMI is seen extremely lower at 49.1 against the prior print of 53.2. While the Manufacturing PMI is expected to slip to 54.7 from the former figure of 55.7.

Key data this week: Existing Home Sales, Initial Jobless Claims, S&P Global PMI, Bank Stress Test Info, Michigan Consumer Sentiment Index (CSI), and New Home Sales.

Major events this week:  People’s Bank of China (PBOC) interest rate decision, Reserve Bank of Australia (RBA) minutes, Bank of Japan (BOJ) minutes, European Union (EU) leaders summit.

People's Bank of China (PBOC) kept its key monetary policy rates, namely the Loan Prime Rate (LPRs) unchanged during Monday's announcement.

The Chinese central bank matches wide market expectatinos as it keeps the 1-year and 5-year LPRs unchanged at 4.45% and 3.7% respectively.

Market reaction

As markets already anticipated no change in the PBOC's monetary policy, the event failed to witness any major reaction. Even so, the AUD/USD prices remain mildly bid around 0.6950 by the press time.

Also read: AUD/USD Price Analysis: Corrective pullback jostles with 0.6960 hurdle

About PBOC Interest Rate Decision

The PBoC Interest Rate Decision is announced by the People´s Bank of China. If the PBoC is hawkish about the inflationary outlook of the economy and rises the interest rates it is positive, or bullish, for the CNY. Likewise, if the PBoC has a dovish view on the Chinese economy and keeps the ongoing interest rate, or cuts the interest rate it is negative, or bearish.

• Gold remains sidelined despite the bounce off intraday low, flashed biggest weekly fall in a month at the latest.
• Fears of economic slowdown, higher Fed rates underpin US dollar’s safe-haven demand.
• Fed Chair Powell’s testimony will be crucial after recent inflation fears triggered 75 bp rate hike.
• Headlines surrounding China appear to challenge intraday bears amid a quiet session.

Gold Price (XAU/USD) picks up bids to consolidate recent losses at around $1,840 during Monday’s Asian session, following the heaviest weekly fall since early May. While headings surrounding China appear to favor the corrective pullback, fears of global recession and higher Fed rates keep the metal buyers cautious amid a quiet session.

That said, a piece of news from Reuters saying, “President Joe Biden's administration is reviewing the removal of some tariffs on China,” joins upbeat covid news from Beijing and Shanghai to favor the market’s cautious optimism, which in turn favors the gold buyers.

On the other hand, the Washington Post (WaPo) raised fears of a tough new economic climate due to the US Federal Reserve (Fed) rate hike of the 75 basis points (bps). The news mentioned that the Fed’s rate hike launched a high-stakes test of the economy's ability to shed its dependence on limitless credit and tolerate higher borrowing costs for consumers, businesses and the government.

Also supporting the fears of recession, as well as hawkish Fed bets, were the key US central bank policymakers namely Minneapolis Fed President Niel Kashkari who backed another 75 bps rate hike in July. Furthermore, Treasury Secretary Janet Yellen also mentioned her expectations of a slowdown in the economy but ruled out recession concerns.

Amid these plays, Wall Street benchmarks closed mixed and the US Treasury yields remained pressured. However, the S&P 500 Futures print mild gains by the press time.

Moving on, gold traders should pay attention to Fed Chairman Jerome Powell’s Testimony for fresh impulse as the Fed Boss is likely to be questioned on inflation woes to justify the recent rate hike.

Also read: Gold Price holds above key level, focus shifts to Powell's testimony

Technical analysis

Gold remains inside a one-week-old bullish trend channel formation, despite repeatedly failing to cross the confluence of the 100 and 200 SMAs. That said, steady RSI and an impending bear cross of the MACD hint at the metal’s further downside.

However, a clear break of the $1,830 becomes necessary for XAU/USD sellers to retest the monthly horizontal support surrounding $1,805. Following that, the previous month’s low of $1,786 will be crucial for the metal sellers to watch.

Alternatively, the aforementioned SMA confluence around $1,846-48 challenges the immediate XAU/USD upside before the rising channel’s resistance line, at $1,867 by the press time.

In a case where gold prices rally beyond $1,867, the odds of witnessing a run-up towards the one-month-old resistance line near $1,880 can’t be ruled out.

Gold: Four-hour chart

Trend: Bearish

• USD/CHF is auctioning in a 0.9687-0.9712 range as investors await US PMI.
• The SNB elevates its interest rates by 50 bps for the first time in the last 15 years.
• Both Manufacturing and Services PMI are expected to fall on renewed recession fears in the US.

The USD/CHF pair is displaying back and forth moves in a narrow range of 0.9687-0.9712 in the early Tokyo session. On a broader note, the asset has rebounded firmly after re-testing its previous lows at 0.9629 with lower selling pressure. The greenback witnessed extreme selling pressure against the Swiss franc last week after the Swiss National Bank (SNB) announced a rate hike by 50 basis points (bps) on Thursday.

Officially, the interest rates by the SNB have reached -0.25%. For the last 15 years, the SNB was maintaining a steady stance on the interest rates to make the Swiss franc less attractive as it will bring more business to the Swiss economy. Considering the inflation shocks, the SNB has followed the footprints of other Western leaders and has announced a jumbo rate hike. An unexpected announcement of a rate hike by SNB chair Chris Jordan has cleared that the Swiss franc is not overvalued anymore and higher interest rates will support the Swiss franc bulls going forward.

Meanwhile, the US dollar index (DXY) is trading lackluster in the Asian session at around 104.66 despite rising chances of a consecutive 75 basis points (bps) rate hike announcement by the Federal Reserve (Fed). Price pressures will take a little longer time to get converted into price stability. Going forward, investors' focus will remain on the US PMI numbers.

The Composite PMI is seen higher marginally to 53.5 from the prior print of 53.4. The bifurcation of the Composite PMI into the Manufacturing and Services dictates an underperformance. The Services PMI is seen extremely lower at 49.1 against the prior print of 53.2. While the Manufacturing PMI is expected to slip to 54.7 from the former figure of 55.7.

• EUR/USD bears take a breather after three-week downside, sidelined of late.
• Key HMAs restrict immediate moves below weekly resistance line.
• Firmer RSI hints at further recovery but bulls need validation from 1.0650 to retake control.

EUR/USD pares recent losses around 1.0500 during a quiet Asian session on Monday. In doing so, the major currency pair probe the three-week downtrend as traders struggle for clear directions.

That said, a two-day-old rising support line joins the 100-HMA to restrict short-term declines of the pair around 1.0460. Also keeping the bulls hopeful is the upward sloping RSI (14) line, not bought.

However, the 200-HMA and one-week-long resistance, respectively around 1.0540 and 1.0560, could test the EUR/USD bulls afterward.

Even if the quote rises past 1.0560, the June 10 swing high around 1.0650 could act as the last defense of the EUR/USD bears.

Meanwhile, the aforementioned support confluence near 1.0460 holds the key to the EUR/USD pair’s slump towards the yearly low of 1.0360.

During the fall, the 1.0400 level may offer intermediate support ahead of the year 2017’s trough close to 1.0340.

Overall, EUR/USD stays on the way to refresh yearly low but bears have limited downside to cheer.

EUR/USD: Hourly chart

Trend: Limited recovery expected

• WTI fades bounce off monthly low, remains pressured of late.
• OPEC’s Barkindo hints at higher output, Biden administration eyes pause on the federal gas tax.
• Beijing’s covid news fails to tame recession fears, hawkish Fed bets add strength to the bearish bias.
• Oil refiners’ meeting with Biden administration will be important to watch, Fed’s

WTI crude oil prices retreat towards the monthly low, despite taking rounds to $108.50 during Monday’s Asian session, as fears of economic slowdown join hopes of higher output. Also weighing on the energy benchmark could be the headlines suggesting relief from the Biden administration during this week’s oil refiners’ meeting.

OPEC Secretary-General Mohammad Barkindo crossed wires late last week while saying that 9.7 million barrels per day of oil will be back by August. The OPEC Chief also mentioned, “The common goal with non-OPEC partners has always been to maintain market stability, not to raise or lower prices.”

Elsewhere, the fears of economic slowdown and the resulting decline in the oil demand also exert downside pressure on the black gold prices of late. Recently, US Treasury Secretary Janet Yellen expected the economy to slow. On the same line were Fed policymakers who eyed rate hikes while fearing that the higher inflation could weigh on the economic outlook. Cleveland Federal Reserve Bank President Loretta Mester, Minneapolis Fed President Niel Kashkari and Fed Board of Governors member Christopher Waller are among the Fed hawks expecting high inflation, softer economic growth and the need for faster rate hikes.

It should be noted that news from Xinhua suggesting Beijing’s receding covid woes and a gradual unlock, once again, put a floor under the oil prices. However, chatters surrounding a possible pause on the federal gas tax from US President Joe Biden’s administration, during this week’s meeting with the oil refiners, weigh on the WTI crude oil prices.

In addition to the oil players’ gathering, Testimony from Fed Chairman Jerome Powell will also be an important event for the WTI traders to watch for clear directions.

Technical analysis

An upward sloping support line from early December 2021, around $106.00 by the press time, restricts short-term WTI declines. However, buyers could wait for a clear upside break of the late March swing high, near $115.85, to retake control.

• AUD/USD picks up bids to renew intraday high, consolidates recent losses after two-week downtrend.
• Convergence of 100-HMA, two-day-old resistance line challenges immediate upside.
• RSI hints at further recovery, 200-HMA holds the key to bull’s conviction.
• Sellers can keep yearly low on radar, previous resistance line may offer intermediate bounces.

AUD/USD renews intraday high around 0.6960 as it pares losses made during the last two weeks amid Monday’s Asian session.

In doing so, the Aussie pair justifies a trend line breakout on the RSI (14), as well as a bounce off the resistance-turned-support line from June 08.

However, a confluence of the 100-HMA and a downward sloping trend line resistance from Thursday, around 0.6960, appears a tough nut to crack for the AUD/USD bulls.

Following that, a run-up towards the 0.7000 psychological al magnet can’t be ruled out. However, the 200-HMA hurdle surrounding 0.7040 may challenge the pair buyers afterward.

On the contrary, the previous resistance line from early June, close to 0.6875 by the press time, precedes the monthly low of 0.6850 to restrict the short-term AUD/USD downside.

In a case where the quote drops below 0.6850, the multi-month low marked in May around 0.6830 appears the last defense for the pair buyers before flashing the 0.6800 threshold on the chart.

AUD/USD: Hourly chart

Trend: Further recovery expected