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• NZD/USD justifies Tuesday’s Doji formation to pare weekly gains and renews intraday low of late.
• New Zealand Trade Balance widens in May, Export and Imports rise from revised down priors.
• Cautious sentiment ahead of Fed Chair Powell’s Testimony appears to weigh on previously upbeat mood.
• NZ Credit Card Spending for May could offer immediate directions.

NZD/USD refreshes intraday low around 0.6320 as traders consolidate recent gains following New Zealand’s (NZ) downbeat trade data during Wednesday’s Asian session. Also exerting downside pressure on the Kiwi pair is the market’s anxiety ahead of the key Testimony from Fed Chair Jerome Powell.

New Zealand Trade Balance dropped to $263M MoM versus $440M prior (revised from $584M). Further details suggest that the Exports and Imports came in as $6.95B and $6.69B respectively compared to $6.16B and $5.72B revised down previous figures in that order.

Other than the NZ trade data, the mild losses of S&P 500 Futures and two basis points (bps) of a downtick by the US 10-year Treasury yields also portray the market’s cautious mood and weigh on the NZD/USD prices.

That said, the Kiwi pair rose during the last two days amid receding fears of the US recession, mainly propelled by US President Joe Biden and Treasury Secretary Janet Yellen. Wall Street’s jump after witnessing the biggest weekly loss in two years also favored the NZD/USD buyers.

Additionally, downbeat US data added strength to the Kiwi pair as the US Existing Home Sales dropped to the lowest levels in two years when talking the annualized number. On the same line, the Chicago Fed National Activity Index also dropped to 0.01 in May versus a revised down 0.04 prior.

It should be noted that the hawkish Fedspeak probed the NZD/USD bulls. On Tuesday, Richmond Federal Reserve President Thomas Barkin said that there will be no rapid return for the U.S. economy to the experience of the previous decade of stable growth, jobs and inflation, Reuters reported.

To sum up, NZD/USD pair portrays the market’s anxiety as Fed Chair Powell has a tough task to justify the biggest rate hike since 1994 while also balancing the growth optimism. On an immediate basis, NZ Credit Card Spending for May, expected 2.0% versus 1.1% prior, will be important to watch.

Technical analysis

Tuesday’s Doji formation, as well as the sustained trading below the 21-day EMA level of 0.6380, keeps NZD/USD sellers hopeful to visit the yearly low surrounding 0.6200.

• The EUR/JPY is printing gains of 1.53% in the week.
• The sentiment is mixed and remains fragile due to the global economic outlook.
• EUR/JPY Price Forecast: Double top in the daily chart looms.

The EUR/JPY begins the Asian session on the wrong foot, recording decent losses of 0.13% as market sentiment deteriorates with Asian equity futures mixed. In contrast, US stocks and DAX futures start to trade in the red. At the time of writing, the EUR/JPY trades around the 143.80 area.

A mixed market mood threatens to increase appetite for safe-haven peers, meaning the Japanese yen has the upper hand. Wall Street’s skepticism that Tuesday’s rally means that equities reached a bottom opens the door for further losses. Fed speaking continued, led by Thomas Barkin, Richmond’s Fed President, who said that the Fed should raise rates as fast as it can without triggering a recession in the US.

EUR/JPY Price Forecast: Technical outlook

Daily chart

From a technical perspective, the EUR/JPY might nearly form a double top in the 143.80-144.20s area. Also, traders need to take notice of the Relative Strength Index (RSI), which, although it remains in bullish territory, illustrates that the EUR/JPY’s last two higher highs were printed on RSI’s lower peaks, suggesting that buyers were booking profits.

4-hour chart

The EUR/JPY  illustrates the cross as upward biased, based on pure market structure; nevertheless, unless it breaks above the June 8 daily high at 144.25, that would leave the pair exposed to selling pressure.

1-hour chart

The EUR/JPY depicts a negative divergence between the cross-currency price action and the Relative Strength Index (RSI), which is within an overbought territory. However, the EUR/JPY might snap higher for a re-test of the YTD highs around 144.25. If the EUR/JPY buyers fail to break above 144.01, a fall towards the June 21 daily low at 142.00.

Therefore, the EUR/JPY first support would be 143.46. Once broken, the next support would be 143.00. A breach of the latter would tumble the EUR/JPY towards 142.00.

• GBP/USD fades upside momentum after two-day advances, retreats of late.
• Sustained trading beyond the key HMAs, bullish RSI formation keep buyers hopeful.
• Short-term triangle restricts immediate moves ahead of UK CPI data for May.

GBP/USD struggles to extend the weekly rebound as bulls take a breather around 1.2275 during Wednesday’s Asian session. In doing so, the cable pair funnels down to the short-term triangle break.

However, the quote’s successful trading above the 100-HMA and 200-HMA, as well as the RSI’s support to the recent higher lows on prices, keeps the pair buyers hopeful.

That said, the latest pullback remains elusive until the quote stays above the 200-HMA support of 1.2230. Before that, the stated triangle’s support line and the 100-HMA may entertain GBP/USD sellers around 1.2265 and 1.2250 respectively.

In a case where the cable pair remains weak past 1.2250, weekly horizontal support near 1.2200 and Friday’s low of 1.2172 should gain the bear’s attention.

Meanwhile, recovery moves need validation from the 1.2310 hurdle, comprising the aforementioned triangle’s resistance line.

Following that, the mid-June swing high of 1.2406 and early month bottom around 1.2430 may rest the GBP/USD pair buyers before directing the run-up towards the monthly peak of 1.2616.

It should be noted that the UK Consumer Price Index (CPI) is likely to increase to 9.1% in May from 9.0%, which in turn suggests more urgency on the part of the Bank of England (BOE) to propel rates. The same could favor the GBP/USD buyers in case of firmer data.

GBP/USD: Hourly chart

Trend: Further upside expected

• GBP/JPY has displayed a momentum loss on higher forecasts for the UK Inflation.
• The BOJ minutes will disclose the ideology behind keeping a neutral stance on the interest rates.
• The annual inflation rate of 2.9% in Japan is majorly contributed by soaring oil and food prices.

The GBP/JPY pair has witnessed a steep fall in early Tokyo after exhaustion in the upside momentum kicked in as investors are shifting their focus towards the UK Consumer Price Index (CPI) and minutes of the Bank of Japan (BOJ)’s June monetary policy meeting. Earlier, the cross displayed a sheer upside move to near 167.86 after giving an upside break of Friday’s high at 166.22.

As per the market consensus, the annual UK CPI is seen at 9.1%, marginally higher than the prior print of 9%. In comparison with the Western leaders, the UK economy is seldom operating at a whooping above 9% inflation rate. One could get an idea from that how much the households in the UK would be facing the headwinds of depreciated paychecks.

An annual inflation rate above 9% is sufficient to advance the odds of a recession in an economy. The Bank of England (BOE) is bound to tighten its policy, however, lower growth prospects are not providing much freedom to the central bank. This is restricting the BOE not to thinking beyond a quarter-to-a-percent rate hike as a higher rate elevation will shrink liquidity from the economy at a much more rapid pace.

On the Tokyo front, investors are awaiting the release of the BOJ’s minutes, which will dictate the ideology behind sticking to an ultra-loose monetary policy despite soaring price pressures. Well, one could understand through scrutiny that the inflation rate at 2.9% is highly contributed by expensive fossil fuels and costly food prices. However, the commentary from the BJ on the same would be worth watching.

• EUR/USD remains mildly bid after two-day uptrend, sidelined of late.
• Risk-on mood, hawkish ECBspeak join downbeat US data to underpin bullish bias.
• Powell’s Testimony eyed amid talks over longevity of Fed’s 75 bps rate hike.

EUR/USD holds onto the previous two-day gains around 1.0535-40 during Wednesday’s initial Asian session. The major currency pair’s latest rebound could be linked to the softer US dollar, as well as hawkish comments from the European Central Bank (ECB) policymaker. However, cautious sentiment ahead of Fed Chair Jerome Powell’s Testimony on the bi-annual Monetary Policy Report restricts immediate moves of the quote.

European Central Bank (ECB) Governing Council member Olli Rehn said on Tuesday, “it is very likely that September rate hike is bigger than 25 bps.” His comments raised doubts about the ECB’s latest verdict suggesting a 0.25% rate hike in July and September, which in turn propels the EUR/USD prices.

On the other hand, Richmond Federal Reserve President Thomas Barkin said on Tuesday that there will be no rapid return for the U.S. economy to the experience of the previous decade of stable growth, jobs and inflation, Reuters reported. The policymaker also favored higher rates.

Furthermore, US President Joe Biden’s firm rejection of the recession fears seems to gain the market’s acceptance and underpin the firmer sentiment amid a lack of major negatives as the US traders began the trading week. Following Biden’s comments, his Economic Aide Heather Boushey also conveyed hopes of avoiding the recession. It’s worth noting that US President Biden’s readiness for the gas tax holiday and softer US data also underpinned the positive mood. Additionally, US Treasury Secretary Janet Yellen said that the traditional recession measure of two consecutive quarters of negative growth 'has typically worked' but recessions aren't all alike.

Talking about the data, US Existing Home Sales dropped to the lowest levels in two years when talking the annualized number. Further, the Chicago Fed National Activity Index also dropped to 0.01 in May versus a revised down 0.04 prior.

Against this backdrop, the US Dollar Index (DXY) dropped for the second consecutive day, to 104.40 by the press time whereas Wall Street pared the biggest weekly loss in two years. Further, the US 10-year Treasury yields also rose to 3.27% at the latest.

Looking forward, various ECB policymakers are up for speeches and may entertain EUR/USD traders. However, Powell’s art of defending the tighter monetary policies and the rate hikes will be crucial for the pair traders to watch for clear directions.

Technical analysis

The first daily closing above the 10-DMA, around 1.0500 by the press time, in nearly three weeks enables EUR/USD bulls to aim for early June’s swing low near 1.0630.

• The AUD/JPY remains boosted by a risk-on mood, though sentiment remains fragile.
• AUD/JPY Price Forecast: Negative divergence emerging in the month/weekly chart loom and might open the door for further losses.

The Australian dollar rallied 130 pips vs. the Japanese yen on Tuesday due to the stubbornness of the Bank of Japan (BoJ), which pledged to its ultra-loose monetary policy and is the only central bank in the G8 that showed no intentions of tightening policy in the near term. At 95.06, the AUD/JPY is barely up by 0.01% as the Asian session begins, though, in the last couple of days, it has been gaining 1.50%.

Asian futures are trading in the green, setting cash equity markets for a higher open. Nevertheless, sentiment remains fragile. Although China’s Covid-19 news shows that authorities remain in control, additional lockdowns could shift investors’ mood and drag the AUD/JPY down.

AUD/JPY Price Forecast: Technical outlook

Monthly chart

The AUD/JPY monthly chart shows that the exchange rate approached near the May 2015 highs but retreated 50 pips shy and printed a six-year-highs. Failure at the aforementioned kept the AUD/JPY consolidating and opened the door for a reversal towards the September 2017 highs around 90.30.

Weekly chart

The AUD/JPY weekly chart illustrates the pair as upward biased on pure market structure. Nevertheless, a negative divergence between AUD/JPY’s price action and the Relative Strength Index (RSI) suggests that the cross might be headed downwards. Traders should be aware that, albeit a negative divergence shows, the current price action opens the door for a re-test of May 2015 highs around 97.30.

Daily chart

The AUD/JPY daily chart is still upward biased, though the last two higher highs, being April 20 at 95.74 and June 8 at 96.88, were reached on RSI’s lower highs, meaning that buyers are not committing to lift the AUD/JPY to higher prices, opening the door for a shift in the trend.

Digging a little deep, if the AUD/JPY exchange rate breaks above April’s 20 swing high at 95.74, that would open the door for a test of May’s 2015 high at 97.30. Otherwise, failure to break above the 78.6% Fibonacci retracement alongside RSI’s acceleration downwards might open the door for a fall towards the September 2017 high-turned-support at 90.30.

• AUD/USD seesaws above 0.6950 after two-day rebound, paring Friday’s heavy losses.
• Market sentiment improves amid softer US data, pre-Powell consolidation and Biden’s optimism.
• RBA Minutes, Lowe’s speech added strength to the upside momentum, hawkish Fedspeak fails to propel USD.
• Australia’s Westpac Leading Index may entertain traders, Fed Chair Powell’s testimony is the key catalyst.

AUD/USD dribbles around 0.6970, after paring Friday’s heavy losses in the last two days, as buyers turn cautious ahead of Fed Chair Jerome Powell’s Testimony. However, receding fears of recession and an absence of major negatives, as well as the Reserve Bank of Australia’s (RBA) hawkish bias, keeps the Aussie bulls hopeful during the early hours of Wednesday’s Asian session.

US President Joe Biden’s firm rejection of the recession fears seems to gain the market’s acceptance and underpin the firmer sentiment amid a lack of major negatives as the US traders began the trading week. Following Biden’s comments, his Economic Aide Heather Boushey also conveyed hopes of avoiding the recession. It’s worth noting that US President Biden’s readiness for the gas tax holiday and softer US data also underpinned the positive mood.

On the same line were the recent comments from US Treasury Secretary Janet Yellen who said that the traditional recession measure of two consecutive quarters of negative growth 'has typically worked' but recessions aren't all alike.

That said, the US Existing Home Sales dropped to the lowest levels in two years when talking about the annualized number. Further, the Chicago Fed National Activity Index also dropped to 0.01 in May versus a revised down 0.04 prior.

At home, the RBA Minutes and Governor Philip Lowe both teased higher rates moving forward, while also suggesting the economic strength to avoid the pessimism.

Elsewhere, Richmond Federal Reserve President Thomas Barkin said on Tuesday that there will be no rapid return for the U.S. economy to the experience of the previous decade of stable growth, jobs and inflation, Reuters reported. The policymaker also favored higher rates.

Amid these plays, Wall Street posted the notable gains after the biggest weekly loss in years while the US 10-year Treasury yields also rose to 3.27% at the latest.

Moving on, Australia’s Westpac Leading Index for May, prior -0.15%, can offer immediate directions to the AUD/USD pair. However, major attention will be given to Fed Chair Jerome Powell’s Testimony.

Read: S&P 500 bounces back from oversold, but what’s around the corner?

Technical analysis

AUD/USD grinds inside a 40-pip trading area above 0.6940 comprising the weekly support line and the 10-DMA.

• The greenback bulls are facing barricades at the downward sloping trendline placed from 1.3079.
• A Positive Divergence signals resumption in the dominant trend after a corrective move.
• The RSI (14) is oscillating in a 40.00-60.00 range which indicates a consolidation ahead.

The USD/CAD pair is displaying back and forth moves in a narrow range of 1.2910-1.2922 in the early Tokyo session. Earlier, the greenback bulls witnessed a corrective move after failing to sustain above the 1.3050 on Friday.

On an hourly scale, the major has displayed a Positive Divergence, which indicates a resumption of an uptrend after a corrective move. A Positive Divergence was recorded after the asset made a higher low at around 1.2907 while the momentum oscillator Relative Strength Index (RSI) (14) made a lower low. This dictates an oversold situation in an uptrend which is considered a bargain buy for the market participants. The dotted downward sloping trendline placed from Friday’s high at 1.3079 will act as a major hurdle going forward.

The major is auctioning between the 50- and 200-period Exponential Moving Averages (EMAs) at 1.2952 and 1.2895 respectively, which signals a consolidation ahead.

A decisive move above the 50-period EMA at 1.2952 will trigger the Positive Divergence and eventually will active the greenback bulls for an upside move towards the psychological resistance and Friday’s high at 1.3000 and 1.3079 respectively.

Alternatively, the Positive Divergence formation could negate if the asset drops below Thursday’s low at 1.2861. This will drag the asset towards June 10 high at 1.2813, followed by May 23 low at 1.2766.

USD/CAD hourly chart

“I believe there is a path to bringing down inflation while maintaining a strong labor market,” said US Treasury Secretary Janet Yellen per Reuters.

Additional comments

Market reaction

The news fails to gain any major attention from the market during the generally inactive early Asian session. That said, AUD/USD remains sidelined around 0.6970 while the S&P 500 Futures track Wall Street’s gains.

Richmond Federal Reserve President Thomas Barkin said on Tuesday that there will be no rapid return for the U.S. economy to the experience of the previous decade of stable growth, jobs and inflation, Reuters reported. 

Key quotes

''We're about two years into a quite unstable time.''

 "It seems to me highly unlikely you go from very stable to very volatile to very stable again...continued volatility around some of these economic indicators is a more likely scenario than a return to that kind of stability."

''There could be some months, or even quarters ahead, when inflation readings will oscillate between pre-pandemic levels and higher ones.''

''There also is a real possibility that deglobalization and systemic labor market shortages could cause persistent headwinds to keeping inflation down."That's a risk I am very attuned to." 

• Gold price is gauging support around $1,830.00 ahead of Fed Powell.
• Fed Powell may dictate the ideology behind announcing the 75 bps rate hike in June.
• The momentum oscillator RSI (14) is advocating a consolidative move ahead.

Gold prices (XAU/USD) are testing the waters after a strong rebound below $1,830 in the late New York session. The precious metal has displayed a firmer responsive buying action but needs more filters to confirm a bullish reversal. Broadly, a gradual downside move could be named to the recent move in the asset as investors are keeping an eye on Federal Reserve (Fed) chair Jerome Powell’s testimony.

The Fed has already elevated its interest rates by 75 basis points (bps) to 1.50-1.75% officially this month. It would be worth noting the guidance on upcoming monetary policies. Apart from that, Fed Powell in May monetary policy conference dictated that a 75 bps rate hike is not into consideration. In spite of that, Fed Powell went beyond his statement and featured a bumper rate hike. It is important to understand the ideology behind selecting the 75 bps rate hike.

Meanwhile, the US dollar index (DXY) has turned sideways ahead of Fed Powell’s testimony. On Tuesday, the DXY rebounded firmly after hitting the round-level support of 104.00. The 10-year US Treasury yields remained flat on Tuesday at around 3.30%.

Gold technical analysis

The trendline placed from June 16 high at $1,857.40, adjoining Friday’s high at $1,853.04 will act as a major resistance for the gold prices going forward. The precious metal is auctioning below the 21-period Exponential Moving Average (EMA) at $1,835.24, which signals a short-term weakness in the counter.  Meanwhile, the Relative Strength Index (RSI) (14) has shifted into a 40.00-60.00 range, which signals a consolidation ahead.

Gold hourly chart

• USD/JPY bears could be about to move in and cap the rally. 
• A drop below 136.57 could be the catalyst for a near term run to 136.10 and beyond.

With the divergence between the Bank of Japan and the Federal Reserve, the yen has been crushed to multi-year levels and the following illustrates the prospects of a move even lower according to the monthly structure: 

USD/JPY monthly chart

As illustrated, the price is reaching for blue skies mas it clears 2002 levels and eyes the body of the monthly reversal candle from August 1998. The mid point of that candle is as high as 141.86. 

USD/JPY weekly chart

However, RSI bearish divergence is playing out on the lower time frames, such as the above weekly chart and below on the daily chart.

A bearish correction could be on the cards:

USD/JPY daily chart

From a daily perspective, the prior lows near 131.50, if broken, will open the risk of a test below 130.00 and 127.00 thereafter, both of which are levels of liquidity and below areas of an imbalance in price. 

From an hourly perspective, the is starting to round off. The significant downside prospects will kick in on a break of 136.10 and 135.06 respectively as midpoints of hourly order blocks.

From a 5-min chart's perspective, the price could be on the verge of a break of structure (BoS) of 136.57, resulting in a bearish head and shoulders (H&S) and a significant move to the downside as per the hourly levels identified. 

• The NZD/USD remains within familiar levels, though up by 0.12%.
• Worst than expected NZ consumer sentiment, put a lid on the NZD/USD.
• An upbeat market mood kept the greenback on the defensive.

The New Zealand dollar gains some ground vs. the greenback on Tuesday as the New York session begins to wane. The NZD/USD is up by 0.12% after reaching a daily high of around 0.6363 but failed to break resistance near 0.6370, opening the door for a pullback. At the time of writing, the NZD/USD is trading at 0.6336.

NZ Consumer sentiment plunges, though the NZD/USD stayed afloat

A risk-on mood keeps the greenback heavy. US equities are set to finish the day higher, between 2.41% and 2.93%. Meanwhile, the NZD/USD struggled to push higher, courtesy of June’s dismal NZ Consumer confidence, which plummeted to the lowest level on record, falling from 92.1 to 78.7.

“The combination of rising mortgage rates and increases in living costs has already taken a large bite out of disposable incomes. And with interest rates set to rise even further, many households will find the pressure on their finances becoming more intense over the coming months,” Westpac analysts wrote.

In the meantime, the US economic docket featured some Fed officials crossing wires. Thomas Barkin, Richmond’s Fed President, said he decided on 75 bps in June on the University of Michigan (UoM) Consumer sentiment and inflation expectations reports. Furthermore, he added that 50 or 75 bps in July are reasonable and commented that inflation would go down once supply chain issues are resolved.

Earlier, the Chicago Fed National Activity Index for May came at 0.01, the lowest in eight months, trailing April’s 0.40. Of late, US Existing Home Sales dropped by 3.4% to 5.41 million in May 2022, the lowest level since June 2020.

In the week ahead, traders should prepare for Fed Chair Jerome Powell’s appearance at the US Senate Banking Committee, where senators would question him regarding the status of the US economy.

Key Technical Level

What you need to take care of on Wednesday, June 22:

US Federal Reserve chief Jerome Powell will testify before Congress. His pre-prepared remarks will be out ahead of the event. Market players will be looking for hints on future quantitative tightening. Additionally, the UK will post updates on inflation data.

The American dollar edged modestly lower against most major rivals on Tuesday amid a better market mood. The USD/JPY pair, however, soared to a fresh multi-year high of  136.61, holding nearby at the end of the US session. The yen's collapse is mostly due to the Bank of Japan's stubborn commitment to its ultra-loose monetary policy.

Global indexes edged higher, with Wall Street posting substantial gains and limiting demand for safety. US government bond yields ticked higher, but not enough to revive inflation-related concerns.

Meanwhile, central bankers keep hinting at aggressive measures. Bank of England Chief Economist Huw Pill said they would certainly be ready to act if they see evidence of persistent price pressures. Reserve Bank of Australia Governor Philip Lowe opened the door for a 50 bps rate hike in July. Finally, European Central Bank Governing Council member Olli Rehn said it is very likely that the September rate hike would be bigger than the 25 bps planned for July.  

 The EUR/USD pair trades around 1.0530, little changed on a daily basis. GBP/USD posted a modest advance and now trades around 1.2280. The better tone of equities helped commodity-linked currencies to advance against their American rival. AUD/USD is up to 0.6970, while USD/CAD trades in the 1.2910 price zone.

Gold is battling with the $1,830 level under pressure. Crude oil prices saw little change on Tuesday, with WTI now trading at around $109.50 a barrel. 

• GBP/USD is riding a positive wave or risk sentiment. 
• The bears will need to see a break of 1.22 the figure whereas bulls have sights on a break of 1.2340.

At 1.2270, GBP/USD is trading on the bid between a low of 1.2239 and 1.2324. The price is currently higher by 0.24% and correcting from last week's dip from 1.24 the figure. Overall, the tone is risk-on and positive for sterling with a softer US dollar despite a focus on higher global rates and central banks. 

However, following last week's rout in equities, there has been some bargain hunting on Wall Street in stocks as investors move in on the energy and tech sectors, dragging the benchmarks higher in line with a broader global bid in equities. MSCI's broadest index of Asia-Pacific shares outside Japan rose 1.3%, moving higher from a more than five-week low and set for its best day in around two weeks. Japan's benchmark Nikkei average gained 2.22%. 

European shares also closed higher for a second consecutive day on Tuesday. The Stoxx Europe 600 gained 0.35%, London's FTSE 100 added 0.42%, France's CAC rose 0.75% and Germany's DAX edged up by 0.20%. The Swiss Market Index was off 0.06%. On Wall Street, all sectors in stocks are in the green and the Dow Jones Industrial Average jumped is now over 2% higher, with S&P 500 up 2.56% to 3,761 and the Nasdaq Composite 2.8% higher. 

The risk-on mood is benefitting sterling as the greenback loses its safe-haven bid, weighed down below the 105 level as per the DXY, an index that measures the greenback vs a basket of currencies. At the time of writing, DXY is trading at 104.41 within a range of 103.938 and 104.536. 

With all of the positive action in the markets, the elephant in the room stays with higher risks of a global slowdown, and specifically, UK growth fears will remain a thorn in the side of the pound. Nevertheless, net short GBP positions have dropped back for a third consecutive week in the run-up to the June 13 Bank of England policy meeting. The hawkish tone by some MPC members has been GBP supportive. 

The BoE is likely to step up the intensity of its tightening, analysts at ANZ Bank argued. ''MPC member Catherine Mann has noted that demand is strong and that she voted for a 50bp rate rise at last week’s meeting.''

''The BoE has noted that the pace of rate increases may well accelerate in the months ahead as inflation is poised to move to double digits. In sum, central bank hawkishness continues to broaden, and that’s likely to keep risk markets fragile and weigh on global growth prospects in the short to medium term.''

GBP/USD technical analysis

The above bullish scenario identifies the price imbalance between the current resistance, 1.2340, and prior consolidation near 1.25 the figure that occurred before the significant price drop into test 1.19 the figure. On the downside, the bears would be in control on a break of the support zone that consists of both horizontal and dynamic support around 1.2250 and 1.2180. This could lead to mitigation of the price imbalance between 1.2172 and 1.1998:

• A risk-on market mood was no excuse for silver to advance, boosted by a soft US dollar.
• US Treasury yields fell, except for the 10-year TIPS, a headwind for silver prices.
• Silver Price Forecast (XAG/USD): In consolidation in the $21.50-$22.00 range.

Silver (XAG/USD) snaps two consecutive days of losses and edges higher by 0.50% in the mid-North American session as US traders return from a long weekend. At the time of writing, the XAG/USD is trading at $21.70, gaining $0.10.

Global equities are rallying, depicting a risk-on mood. In the meantime, the greenback is almost flat, as illustrated by the US Dollar Index, parked around 104.412, down by 0.01%. The US 10-year Treasury yield ascends three basis points, sitting at 3.298%, failing to drag the white-metal price down.

In the meantime, the US 10-year Treasury Inflation-Protected Securities (TIPS), a proxy for real yields, shifted positive and is yielding 0.696%, up by one basis point, a headwind for precious metals prices.

During the day, XAG/USD reached a daily high of around $21.94, but buyers lacked the strength to challenge the $22.00 figure, last tested on June 13. Consequently, the silver price fell, though it stayed around the $21.70 area.

Data-wise, the US economic docket featured some Fed speaking. Thomas Barkin, Richmond’s Fed President, commented that he decided on 75 bps in June on the University of Michigan (UoM) Consumer sentiment and inflation expectations reports. Furthermore, he added that 50 or 75 bps in July are reasonable and commented that inflation would go down once supply chain issues are resolved.

Earlier, the Chicago Fed National Activity Index for May came at 0.01, the lowest in eight months, trailing April’s 0.40. Of late, US Existing Home Sales dropped by 3.4% to 5.41 million in May 2022, the lowest level since June 2020.

In the week ahead, traders should prepare for Fed Chair Jerome Powell’s appearance at the US Senate Banking Committee, where he will be questioned about the US economy.

Silver Price Forecast (XAG/USD): Technical outlook

XAG/USD illustrates that the non-yielding metal is consolidating, though forming a bullish flag, within the $21.50-$22.00 range. Nevertheless, unless XAG buyers achieve a daily close above $22.00, silver bias will remain headed to the downside. Additionally, a two-month-old downslope trendline passes near the $22.00 figure, which means that any test could find some sellers lying around.

That said, the XAG/USD’s first resistance would be June 16 high at $21.96. Break above would expose the $22.00 mark, followed by the trendline mentioned above near $22.10. On the flip side, the XAG/USD first support would be $21.50. A breach of the latter would expose the May 19 swing low at $21.28, followed by a test of $21.00.

Key Technical Levels

• Gold is grappling with headwinds from either side, but technically, the price is destined lower. 
• The bears have moved in following a restest of important resistance on the 4-hour chart. 

At $1,833.90, the gold price is trading around flat by mid-day New York trade and has stuck to a $1,830.83 and $1,843.66 range so far in a fickle trading environment. There has been some bargain hunting on Wall Street following last week's sell of in stocks as investors move in on the energy and tech sectors, dragging the benchmarks higher with energy leading the pack. 

Gold is failing to benefit from a softer US dollar and risk-on environment as the wider focus stays on the rate hike narrative. Nevertheless, all sectors in stocks are in the green and the Dow Jones Industrial Average jumped is now over 2% higher, with S&P 500 up 2.56% to 3,761 and the Nasdaq Composite 2.8% higher. 

However, US 10-year Treasury yields are up over 1% which has dimmed appeal for the yellow metal, coinciding with the Federal Reserve's biggest interest rate hike since 1994 made earlier this month with more of the same expected in July from the US central bank. 

Gold prices remain anchored after Chair Jerome Powell tactfully manufactured a sell-the-news rally following a 75bp hike. Additionally, and as analysts at TD Securities pointed out, ''with equity markets trading in bear-market territory, gold offers an attractive less correlated stream of returns than other traditional havens.''

''For the time being, these forces have allowed gold to avoid a large-scale liquidation event, but proprietary traders continue to hold a massive amount of potentially complacent speculative length in the yellow metal. Ultimately, this still leaves the bias to the downside under the weight of a hawkish Fed.''

In this regard, this week's main event will be  Fed Chair Powell’s semi-annual monetary policy report to Congress. ''Given the dramatic breakout in inflation, we expect Powell to robustly emphasise the Fed’s inflation credentials in front of lawmakers who face mid-term elections in November,'' analysts at ANZ Bank explained. 

Central banks in general are moving in line with the European Central Bank looking to soon move to incremental 50bps moves and the Bank of England singing from the same hymn sheet, seeking to step up the intensity of its tightening.

ECB President Lagarde re-iterated guidance this week that interest rates will rise 25bp in July. Analysts at ANZ Bank noted that the ECB is accelerating work on an anti-fragmentation tool and argue that the latter is ''necessary to enable the ECB to raise interest rates and meet its 2% inflation target over the medium term.''

''We think once the anti-fragmentation tool is designed and adopted, it will pave the way for a more rapid tightening in monetary policy.'' 

Stronger rate hikes, rising yields and strengthening currencies are a headwind for gold and the sell-off in the equity markets hasn't added any safe-haven demand.

On the other hand, investors are watchful for whether the central banks can balance out the risks of higher rates and stronger currencies vs. the gloomy economic backdrop and increasing supply risks which could ultimately serve to support gold in the longer term. Inflation and economic uncertainties usually spur safe-haven buying of gold but rising interest rates increase the opportunity cost of the non-yielding bullion.

Gold technical analysis

The 4-hour chart above illustrates that the price is starting to melt to the downside following a restest of the M-formation's neckline and a subsequent retest of an order block.

The expectations are bearish with MACD piling up in negative territory which opens the prospects of a move towards the mid-month lows. This is an area of inefficiency from where the price rallied sharply but left behind a price imbalance between there and $1,813 that is vulnerable to mitigation.

The following attempts to illustrate the market structure from a bearish bias more clearly:

• The shared currency extended its gains in the week by 0.42%.
• The US dollar falls courtesy of an upbeat market mood.
• ECB’s Rehn backs a move above 25 bps in the ECB’s September meeting.
• Fed’s Barkin supported a 50/75 bps rate hike in July and said inflation would go down once supply chain issues were resolved.

The EUR/USD climbs for the second consecutive day, though struggled to get near the 1.0600 figure, as sellers dragged the major from daily highs around 1.0582 towards the 1.0530s area during the New York session. At the time of writing, the EUR/USD is trading at 1.0529, registering a decent gain of 0.18%.

A risk-on impulse weighs on the greenback, so the euro rises

Sentiment is positive, as global equities are rallying. As risk appetite increases, safe-haven assets like the US Dollar remain on the defensive. In the meantime, on Monday, the ECB President Lagarde affirmed that the central bank would lift rates in July and remained flexible about the size of the rate hike in September.

Although Lagarde’s comments lifted the EUR/USD near the 1.0600 figure, buyers lacked the strength to push the major above it, and it fell. The interest rate differential between the ECB and the Fed would likely favor the greenback, which is almost flat, as shown by the US Dollar Index.

Additionally to Lagarde’s commentary, the ECB Chief Economist Philip Lane said that he does not see the need to revisit the plan after July’s decision on the rate increase and added that there is no preview beyond September of what will be the appropriate pace of tightening.

On Tuesday, ECB’s Rehn, one of the hawks of the central bank, said that inflation in the EU has broadened and remains stronger and added he backs up a rate increase of more than 25 bps in September.

Elsewhere, Fed speakers had been unleashed and are crossing wires. The Richmond Fed President Thomas Barkin said that the Fed would have to restrict monetary policy, but the question is how much. He emphasized that the Fed needs to be flexible and commented that after the UoM survey, he felt it was possible to go 75 bps.

Barkin added that 50 or 75 bps in July are reasonable and commented that inflation would go down once supply chain issues are resolved.

In the meantime, the US economic docket featured the Chicago Fed National Activity Index, which went down to an eight-month low of 0.01 in May from 0.40 in April. Later, Existing US Home Sales declined by 3.4% to 5.41 million in May 2022, the lowest level since June 2020.

Key Technical Levels

On Wednesday, inflation data from Canada will be released. Market consensus sees a 1% increase in the Consumer Price Index. Analysts at TD Securities expect a 0.9% increase fueled by gasoline and food prices. They consider declines in USD/CAD are likely hard to sustain. 

Key Quotes: 

“We look for CPI to strengthen to 7.2% y/y in May, fueled by another large contribution from gasoline and food prices. Core components should also see another strong gain, led by shelter and airfares/travel services. The BoC's core measures should firm by 0.1pp on average (to 4.3%) and we do not anticipate a significant impact from new basket weights.”

“Despite inflation, the BOC (Bank of Canada) will struggle to keep up with the Fed on tightening. Dips in USD/CAD are likely hard to sustain, especially as the impact of higher rates begins to filter into the data in the coming weeks. 1.2860/00 key support and 1.3080 notable resistance in USD/CAD.”

According to the Research Department at BBVA, Treasury yields are likely to rise further, peaking at the time when the Federal Reserve end with tightening monetary policy. They point out current Treasury yield spreads seem to continue to price in a soft landing.

Key Quotes: 

“Slowing demand to bring down inflation without significant pain is “not getting any easier”; markets (still?) price in a soft landing.”

“With the Fed set to hike rates to a “modestly restrictive level” by year-end, the tightening pace is already faster than the one seen in the 1994-95 hiking cycle.”

“Market-based inflation expectations point to continued confidence that, over the longer term, the Fed will be able to bring down inflation to the 2.0% target.”

“Futures markets are currently pricing that the fed funds rate will peak above 3.5% in mid-2023 which is broadly in line with the updated fed funds rates central tendency FOMC projections.”

“With a flat yield curve ahead, we expect both 2-and 10-year yields to keep moving in sync, while shorter-term Treasury yields continue to catch up, driven by upcoming Fed hikes.”

• The AUD/USD is upward biased in the near term, boosted by RBA’s Lowe, saying that a 25-50 bps increase in the July meeting is on the cards.
• Fed’s Barkin backed a 75 bps rate hike in the July meeting.
• AUD/USD Price Forecast: Buyers struggling at 0.7000 might open the door for a fall to the 0.6900 mark.

AUD/USD edges up after beginning the week on the wrong foot, jumping from 0.6915 daily lows towards 0.6990 highs, closing to the 0.7000 threshold. At 0.6969, the AUD/USD reflects an upbeat market mood, portrayed by European and US equities recording robust gains on Tuesday.

RBA's Lowe boosts the AUD/USD

Sentiment stays positive once US traders return from a long weekend due to a holiday. The AUD/USD got a boost since the Asian session when the Reserve Bank of Australia (RBA) Governor Philip Lowe stated that rates were still “very low for an economy with low unemployment and that is experiencing high inflation.”

Lowe added that price pressures would continue building up and expects local inflation to reach 7% by the end of the year. He forward guided traders, saying that at the July 5 meeting, they would expect 50 or 25 bps by that meeting.

In the meantime, Fed speakers continue to dominate the headlines. Richmond’s Fed President Thomas Barkin said that the Fed would have to restrict monetary policy, but the question is how much. He emphasized that the Fed needs to be flexible and commented that after the UoM survey, he felt it was possible to go 75 bps.

Barkin added that 50 or 75 bps in July are reasonable and commented that inflation would go down once supply chain issues are resolved.

Data-wise, the US economic docket featured the Chicago Fed National Activity Index, which went down to an eight-month low of 0.01 in May from 0.40 in April. Later, Existing US Home Sales declined by 3.4% to 5.41 million in May 2022, the lowest level since June 2020.

AUD/USD Price Forecast: Technical outlook

The AUD/USD continues to push towards the 0.7000 figure but failed to reclaim the threshold since Monday. Tuesday’s daily high, at 0.6993, fell shy of reaching the figure and was followed by a dip towards the 0.6960 area. Traders should be aware that zooming into the 1-hour chart, the AUD/USD 200-hour simple moving average (SMA) is acting as dynamic support, and was the reason AUD buyers failed to reclaim 0.7000.

The AUD/USD 1-hour chart depicts the pair as upward biased but consolidating in the 0.6960-90 area. That said, the AUD/USD first resistance would be the R1 daily pivot at 0.6990. Break above would expose the R2 daily pivot at 0.7030, followed by last week’s daily high at 0.7069. On the flip side, the major’s first support would be the daily pivot at 0.6950. A breach of the latter would expose additional support levels like the S1 pivot at 0.6910, followed by the 0.6900 figure.

Data released on Tuesday showed retail sales in Canada rose 0.9% on April, surpassing expectations, even as March’s figures were revised higher. According to analysts at the National Bank of Canada expect retail sales to moderate amid price increases and higher interest rates. 

Key Quotes:

“Consumer expenditures on goods came out a little better than expected. In addition, the prior month was upwardly revised. The monthly print was held back again by motor vehicle/part dealers as lack of supply remains characteristic. Nonetheless, core retail sales (which excludes gas and autos) rose 1.0%, marking a fourth consecutive monthly increase.”

“Retail sales were driven up in part by outsized gains in general merchandise and miscellaneous stores, which increased at their fastest pace in 10 and 14 months respectively. Perhaps the most surprising element of the report was volume retail sales which rose 0.9% in the month, suggesting a negligible price effect in the month.”

“The Statistics Canada preliminary estimate for May suggest a 1.6% increase in nominal sales. For the following months, we expect retail sales to moderate in an environment where consumers are being hit by both price increases and higher interest rates. Fortunately, the labour market remains strong, and the still high savings rate should allow consumption to continue to expand.”
 

The Bank of France announced on Tuesday that it cut the growth forecast for 2022 to 2.3% from 3.4%. In 2023, the central bank expects the French economy to expand by 1.2%, compared to 2% in its previous forecast.

The Bank of France raised its inflation outlook to 5.6% in 2022 and to 3.4% in 2023, from 3.7% and 1.9%, respectively. 

Market reaction

EUR/USD lost its traction and erased a portion of its daily gains after this report. As of writing, the pair was trading at 1.0530, where it was still up 0.2% on a daily basis.

• USD/MXN drops for the third day, amid an improvement in market sentiment.
• Negative bias while under 20.25, next support at 20.05.
• Key resistance at the 200-day SMA at 20.42.

The USD/MXN is falling for the third consecutive day. It bottomed at 20.13, the lowest level in a week. It is hovering around 20.19, off lows. The break under 20.00 triggered more losses.

Technical indicators in the daily chart show the RSI and Momentum moving south, supporting a negative bias in the very short-term. If USD/MXN remains under 20.25, the doors for a slide to 20.05 will remain open.

A rebound back above 20.25 would alleviate the bearish pressure. The next key level is the 200-day Simple Moving Average awaits near 20.42. If it continues to rise, attention would turn again to the 20.70 area.

Last week the 20.70 zone capped the upside. A break higher would clear the way for a test of a downtrend line at 20.80. Above a visit to 21.00 and more seems likely.

USD/MXN daily chart

"We need to raise rates as fast as feasible but you don't want to break things," Federal Reserve Bank of Richmond President Thomas Barkin said on Tuesday, as reported by Reuters.

Additional takeaways

"Goods demand should come back to something like normal."

"Services inflation interacts a lot with labor market."

If inflation keeps escalating, not much reason to stop raising rates."

"Our difficult task is there could be a couple of strong inflation readings interspersed with weak ones."

"I ask myself if we have real rates where we need them to have impact on the US economy we need to."

"Urgency is high on getting inflation down."

"Hard to put a timetable on when inflation will get back to 2%."

"Tweaking balance sheet reduction could be sensible but it's down the road."

"I am still sceptical on the need for central bank digital currency."

Market reaction

The US Dollar Index recovered modestly after these comments and was last seen posting small daily losses at 104.30.

• US dollar posts mixed results on Tuesday.
• Stocks rise sharply in Wall Street.
• GBP/USD holds a positive very-short term bias, but limited while under 1.2300.

The GBP/USD is rising for the second day in a row, supported by a decline of the US dollar across the board amid risk appetite. The pair peaked at 1.2323 and then pulled back after being unable to hold above 1.2300.

Cable’s slide eventually found support around the 1.2250 area and then bounced back to the upside, unable to recover 1.2300. It is hovering around 1.2270/80, up 30 pips for the day.

The US dollar is mostly lower on Tuesday as stocks rise. After the worst week in years, US indices are rising sharply with the S&P 500 up 2.52% and the Nasdaq making gains of 3.15%. US yields are marginally higher, with the US 10-year at 3.28% and the 30-year at 3.35%.

Economic data released on Tuesday in the US, showed Existing Home sales prices reached a record high in May of $407.600. The annual rate of sales declined from 5.6 to 5.41 million. It was the fourth monthly decline in a row. On Wednesday, Fed Chair Powell will deliver the semiannual testimony at Congress.

In the UK, rail workers are holding a 24-hour strike, the biggest in more than 30 years. The union rejected the latest offer from companies. The Bank of England is expected to continue to raise the key interest rate to curb inflation.

Huw Pill, Chief Economist at the BoE said the central bank is prepared to sacrifice growth to fight against inflation. “While that may seem like an obvious statement, the bank is doing a better job of addressing the tradeoffs involved than it did earlier this year, when it seemed reluctant to hike rates. Pill added that the bank was prepared to act “more aggressively.”  Of note, Saunders, Mann, and Haskel dissented last week in favor of a larger 50 bp move.  We suspect that 6-3 vote has already shifted to at least 5-4 in favor of a 50 bp hike at the next meeting”, explained analysts at BBH.

Technical levels

Federal Reserve Bank of Richmond President Thomas Barkin said on Tuesday that he will remain focused on actual inflation and expectations between now and the July policy meeting, as reported by Reuters.

Additional takeaways

"I supported 75 bps rate hike at June meeting."

"Inflation is high and broad-based."

"We want to get back to 2% goal as fast as we can without breaking anything."

"After Michigan survey, I felt it was possible to do a 75 bps hike."

"It was a pronounced increase in inflation last month."

"I am also watching signals on the demand side."

"I was in agreement with Powell's comments at the press conference."

"I want positive forward-looking real rates across the curve."

"You have to be flexible."

"Very hard to parse the impact of balance sheet reduction."

"Economy is normalizing."

"Lot of pressures caused by reaction to pandemic such as supply chain issues are going to settle, that will bring down pressures on inflation."

"We are going to have to restrict monetary policy, question is how much."

"We'll see how much as we get into it."

Market reaction

These comments don't seem to be having a noticeable impact on the dollar's performance against its rivals. As of writing, the US Dollar Index was down 0.13% on the day at 104.27.

German Economy Minister Robert Habeck said on Tuesday that the reduced gas supply had "another dimension" and that it was an economic attack by Russia against Germany, as reported by Reuters.

Habeck further argued that the gas supply situation could become worse than the coronavirus pandemic.

Market reaction

These comments don't seem to be having a noticeable impact on the shared currency's performance against its major rivals. As of writing, the EUR/USD pair was trading at 1.0565, where it was up 0.53% on a daily basis. 

• US stocks jumped following a US bank holiday, up between 1.78% and 3.07%.
• The Nasdaq Composite leads the pack, followed by the S&P 500 and the Dow Jones.
• US Treasury yields edge up while the US Dollar Index drops.

US stocks are opening with hefty gains, following a dismal week, which dragged the SP 500 officially to a bear market after plunging more than 20% from all-time-highs, but as North American traders returned from a long weekend, US equities depict an upbeat market mood.

The S&P 500 is gaining some 2.51%, trading at 3,766.49, while the tech-heavy Nasdaq Composite (NDQ) is back above the 11,000 threshold, rallying 3.07%, at 11,130.10. The laggard in the session, but jumping more than 500 points, is the Dow Jones Industrial Average (DJIA), up 1.78%, advancing to 30,419.48.

In the meantime, the US Dollar Index extends its losses in the week and sits around 104.290, down by 0.11%. US Treasury yields remain elevated, and the US 10-year note yields 3.288%, up by two basis points.

Fundamentally nothing has changed, and some financial analysts perceive the rally as a “death cat bounce.” Last Wednesday, the US Federal Reserve hiked 75 bps rates, the biggest move since 1994, and Fed’s Chief Powell said that although those moves would not be “common,” he stated that in July, another 75 bps might be on the table.

Sector-wise, the leading gainers are Energy, up 4.85%, followed by Consumer Discretionary and Technology, each recording gains of 3.42% and 2.91%, respectively. The laggards but also positive in the day are Utilities, Consumer Staples, and Materials,  up by 1.27%, 1.40%, and 1.60% each.

In the commodities complex, the US crude oil benchmark, WTI, grinds higher by 2.69%, trading at $110.88 BPD. At the same time, precious metals like gold (XAU/USD) followed suit, edging higher 0.29%, exchanging hands at $1845.65 a troy ounce.

SP 500 Chart

Key Technical Levels

• Existing Home Sales in US fell more than expected in May.
• US Dollar Index holds above 104.00 after the data.

Existing Home Sales in the United States declined by 3.4% to a seasonally adjusted annual rate of 5.41 million in May, the data published by the National Association of Realtors (NAR) showed on Tuesday. This reading came in worse than the market expectation for a decline of 0.2%.

"At $407,600, the median existing-home sales price exceeded $400,000 for the first time and represents a 14.8% increase from one year ago," the monthly publication further read. "The inventory of unsold existing homes rose to 1.16 million by the end of May, or the equivalent of 2.6 months at the current monthly sales pace."

Market reaction

The US Dollar Index largely ignored this data and was last seen losing 0.15% on the day at 104.25.

• USD/CAD witnessed some follow-through selling for the second straight day on Tuesday.
• Rising oil prices, upbeat Canadian data underpinned the loonie and exerted pressure.
• Rallying US bond yields acted as a tailwind for the USD and helped limit deeper losses.

The USD/CAD pair managed to find decent support near the 1.2900 mark on Tuesday and trimmed a part of its heavy intraday losses. The pair was seen trading around the 1.2935-1.2940 region during the early North American session, still down nearly 0.30% for the day.

Worries about tightening global supplies allowed crude oil prices to regain positive traction and move away from a one-month low, which, in turn, underpinned the commodity-linked loonie. The Canadian dollar drew additional support from upbeat domestic data, showing that Retail Sales recorded growth of 0.9% in April as against the previous month's upwardly revised reading of 0.2%. Excluding autos, core retail sales rose 1.3% during the reported month versus 0.6% anticipated.

That said, the emergence of some US dollar dip-buying offered some support to the USD/CAD pair. Expectations that the Fed would retain its aggressive policy tightening stance, along with the risk-on impulse, pushed the US Treasury bond yields higher. This, in turn, acted as a tailwind for the buck and helped limit deeper losses for the major. Spot prices, for now, seem to have stalled the recent pullback from the YTD peak, around the 1.3080 region touched last Friday.

It, however, remains to be seen if the USD/CAD pair is able to attract fresh buying as the focus now shifts to the latest Canadian consumer inflation figures, due for release on Wednesday. Investors will further take cues from Fed Chair Jerome Powell's two-day congressional testimony before placing directional bets. In the meantime, the broader risk sentiment and the US bond yields might influence the USD, which, along with oil price dynamics could provide some impetus to the pair.

Technical levels to watch

Senior Economist at UOB Group Alvin Liew and Rates Strategist Victor Yong review the latest FOMC event (June 15).

Key Takeaways

“The 14/15 Jun 2022 FOMC was hawkish as the Fed accelerated its rate hike cycle by lifting the policy Fed Funds Target rate (FFTR) by 75bps to 1.50-1.75%, and it signaled clearly that ongoing rate hikes will be appropriate with its focus on reining in inflation. This was the biggest rate hike and only the second time the Fed hiked by 75bps, since 1994. But FOMC Chair Powell’s comments in his press conference was less hawkish as he reiterated that the US economy is well-positioned to deal with higher rates and assured markets that a 75bps hike is not a “common” occurrence.”

“The other key focus was the latest Dot-plot chart which showed FOMC policymakers pivoting to an even faster pace of tightening as they now gravitate towards the view of the Fed policy rate at 3.4% by end 2022 (markedly higher from 1.9% in Mar 2022 FOMC) which implies at least three more 50bps and one 25bps rate hikes in the remaining 4 FOMC meetings in 2022 (i.e. Jul, Sep, Nov and Dec).”

“Reflecting the Fed’s underestimations about inflation, the headline PCE inflation forecasts were again adjusted materially higher to 5.2% for 2022 (from 4.3% in Mar FOMC). But it was growth revisions that caught the attention, as 2022 GDP growth outlook has been revised markedly lower to 1.7% (from 2.8% made in Mar FOMC) and growth will remain low at 1.7% in 2023 (from 2.2% in Mar FOMC), both below trend growth. Unemployment was also not spared in the latest report, likely reflecting the negative impact of the Fed’s accelerated rate hikes on the US labor market situation, with jobless rate exceeding 4% by 2024.”

“FOMC Outlook –  Even Higher, CPI inflation the key determinant: Powell clearly highlighted the importance of headline CPI inflation to inflation expectations (and by that extension, to Fed policy). We will mark the Jun CPI (due on 13 Jul 2022, 8:30pm SGT) as the key determinant of whether we get a 50bps or 75bps hike for the next FOMC on 26/27 Jul. Currently, we are projecting US CPI inflation coming in at 0.8% m/m, 8.4% y/y in Jun (from 1% m/m, 8.6% y/y in May). Thus, inflation is still elevated and accelerating sequentially but the headline print will be off its peak (i.e. lower at 8.4% versus 8.6%), so that will warrant a 50bps hike for July, in our view. However, if inflation accelerates more than 0.8% m/m, and prints above 8.6% y/y for Jun, then that will mean a stronger response from the Fed is required, i.e. 75bps.”

“In addition to the move in Jul, we expect another two more 50bps rate hikes in Sep and Nov FOMC before ending the year with a 25bps hike in Dec. Including the 150bps of hikes to date, this implies a cumulative 325bps of increases in 2022, bringing the FFTR higher to the range of 3.25-3.50% by end of 2022, a range largely viewed as above the neutral stance (which is seen as 2.25-2.50%, the Fed’s long run projection of FFTR). We maintain our forecast for two more 25bps rate hikes in 2023, but likely to be brought forward to the first three months of 2023, bringing our terminal FFTR to 3.75-4.00% by end 1Q-2023.”

“Rates Outlook: Overall, the message from Jun’s FOMC has not changed our cyclical market views on the yield curvature and the SG versus US yield spreads. We continue to see the upside potential being capped on both (i.e. curve steepening and SG discount narrowing) in the near term. The updated Jun Dot plot was shifted higher, and the gap between peak FF and long-term neutral FF was widened. This was in line with what we had laid out in our May Monthly FX + Rates report. On the back of our US macro team’s FF forecast update, we recalibrate out end 2022 10Y UST forecast to 3.80% and see increases in the bond yield tapering off into 2023.”

• USD/TRY advances to new peaks north of 17.00.
• The lira depreciates more than 30% so far this year.
• The CBRT meets later in the week to decide on rates.

The Turkish lira sinks to new lows vs. the greenback and pushes USD/TRY to new highs for the year around 17.3500 on Tuesday.

USD/TRY stronger ahead of CBRT event

The selling pressure around the Turkish currency picks up pace on Tuesday and motivates USD/TRY to add to gains recorded at the beginning of the week further north of the 17.00 mark.

The move higher in spot comes despite the offered stance in the greenback and follows usual concerns around the lira and the inability of the government and/or the Turkish central bank (CBRT) to tackle inflation and somehow restore some credibility to the beleaguered currency.

On the latter, the CBRT meets on Thursday amidst consensus for another “on hold” decision despite inflation ran at more than 70% from a year earlier in May.

Furthermore, the lira has depreciated more than 30% and remains the worst EM performer so far this year. It is worth recalling that the currency lost 44% vs. the US dollar in 2021.

What to look for around TRY

USD/TRY keeps the underlying upside bias well and sound and now surpasses the 17.00 mark, an area last traded back in December 2021.

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

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

Key events in Turkey this week: Consumer Confidence (Wednesday) - CBRT interest rate decision (Thursday) – Capacity Utilization, Manufacturing Confidence (Friday).

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

USD/TRY key levels

So far, the pair is gaining 0.16% at 17.3433 and faces the next up barrier at 17.3499 (2022 high June 21) seconded by 18.2582 (all-time high December 20) and then 19.00 (round level). On the flip side, a breach of 16.3136 (monthly low June 3) would aim to 16.1431 (low May 27) and finally 15.6684 (low May 23).

GBP/USD gained past 1.23 before paring gains. Economists at Scotiabank expect the pair to challenge again the big figure.

Support aligns at the mid-1.22s

“The GBP is still holding relatively close to the 1.23 area and is likely to make another push above it while it holds a bullish trend from its mid-May lows.” 

“Support is the mid-1.22s followed by ~1.2225 and the big figure.” 

“Resistance past the daily high of 1.2324 is 1.2340/50.”

EUR/USD pushes higher. However, as markets are already positioned for a hawkish European Central Bank (ECB), the shared currency is unlikely to enjoy further gains, economists at Scotiabank report.

Strong PMI data out on Thursday could give the EUR a near-term push

“With markets already positioned for a more aggressive hiking schedule for the ECB, we spot limited immediate tailwinds for the EUR – particularly as a big hike is still two months away.” 

“Strong PMI data out on Thursday could give the EUR a near-term push to extend its recovery since mid-May.”

The oil market is focused on supply constraints, so prices are likely to remain elevated. Strategists at Société Générale forecast the black gold at $130 in Q3 and $120 in Q4.

Oil prices could drop to $75-80 in a recession scenario

“With the oil industry underinvested and demand returning to normal, we expect oil prices to remain elevated: $130/bbl in Q3 and $120/bbl in Q4, with an upside risk to $150/bbl.”

“If the upside risk scenario materialises (on further supply disruption or OPEC failing to meet its production target), the subsequent demand destruction may not lead to the same downward trajectory as in 2008 (in a recession scenario, prices could drop to $75-80/bbl). The reason is the underinvestment in both upstream and downstream operations and the lack of refining capacity.”

Strategists at Société Générale do not expect to see a supply deficit in the copper market. Therefore, the metal is set to move downward over the coming months.

Copper’s long-term outlook is firmly bullish

“There is no such deficit in the copper market, where the SG Commodities strategy team sees both medium-term supply and demand being bearish.” 

“Prices should remain on a downward trend over a 12-month investment horizon ($9,000/t forecasted by the end of the year and $8,500 by 2Q23), as strong mine supply floods the copper market.”

“The longer-term outlook is firmly bullish with the take-off of green transition consumption and an inexorable decrease in copper ore grade.”

AUD/USD gained traction on Tuesday and climbed toward 0.70. Economists at Rabobank expect the pair to edge higher towards the 0.73 by end-2022- 

GBP/AUD to move towards the 1.73 area

“We expect AUD/USD can creep higher on a 12-month view based on Australia’s relatively sound economic outlook. However, the aussie is likely to be sensitive to risks regarding Chinese economic output and to broader concerns regarding slowing global growth.” 

“We expect AUD/USD to hold close to current levels on a one-month view and rise moderately to the 0.73 area by year-end.” 

“We would prefer to buy AUD vs. GBP and see scope for another move to the GBP/AUD 1.73 area.”

The S&P 500 posted its worst week since 2020. The index could tumble as low as 2525 on a 70’s stagflation backdrop, economists at Société Générale report. 

S&P 500 may go to 3300 before bouncing back later in the year

“Our downbeat thesis for US Equities reflects the following factors: a) Fed hikes are taking place in a slowing growth environment, and b) we have never seen hikes and quantitative tightening in the same year.”

“We see S&P 500 fair value at 3850 points, with a volatile profile. The index may go to 3300 before bouncing back later in the year.”

“We do not factor in a recession or stagflation as a base case, but a typical recession would lead the S&P 500 down to 3200 while a 70’s style stagflation backdrop could push the index to 2525.”

• USD/JPY gained strong positive traction on Tuesday and rallied to its highest level since 1998.
• The Fed-BoJ policy divergence, the risk-on impulse weighed on the JPY and extended support.
• Weaker USD might hold back bulls from placing fresh bets amid slightly overbought conditions.

The USD/JPY pair caught aggressive bids on Tuesday and surged past the 136.00 mark, hitting its highest level since October 1998 during the early North American session. The pair was last seen trading around the 136.25 region, up over 0.85% for the day.

The Japanese yen has been the worst-performing G10 currency since March amid the ultra-loose monetary policy stance adopted by the Bank of Japan. This has resulted in a further widening of the Japan-US interest rate differential. Apart from this, the strong rally in the global equity markets weighed heavily on the safe-haven Japanese yen and acted as a tailwind for the USD/JPY pair.

The risk-on impulse, along with expectations that the Fed would retain its aggressive policy tightening stance, pushed the US Treasury bond yields higher. This was seen as another factor that impressed bullish traders and provided an additional lift to the USD/JPY pair. The strong move up could also be attributed to some technical buying above the 135.50-135.60 double-top resistance.

Furthermore, oscillators on the daily chart are hovering near the overbought territory. This, in turn, warrants caution before placing fresh bullish bets amid modest US dollar weakness. Hence, a subsequent move up is likely to confront resistance near a two-week-old ascending trend-line, currently around mid-136.00s. Nevertheless, the USD/JPY pair now seems to have confirmed a fresh bullish breakout and any meaningful corrective pullback could be seen as a buying opportunity.

Technical levels to watch

Gold remains anchored near $1,850. In the view of strategists at TD Securities the bias is still skewed to the downside under the weight of a hawkish Federal Reserve.

Risk assets attempt to stage a relief rally

“While trend followers are forced to buy their length back at higher prices, this flow is likely being met with a reversal in safe-haven length as risk assets attempt to stage a relief rally.” 

“Looking forward, higher rates should again force prices and long exposure in gold lower.”

Bond yields have picked up significantly over the past month. In the view of economists at Danske Bank, yields are set to tick up further but recession fears will likely dominate over time.

Yields still likely to increase

“We forecast the US economy to tip into a mild recession in 2023. While we expect inflation – not least, underlying inflation – to remain high next year, weaker US growth indicators will likely tend to push yields down although central banks will probably not cut short rates as early as in 2023.”

“We now expect the US 10Y Treasury yields to climb to 3.75% in the course of the next three months. We previously expected an increase to 3.5% in six months.”

• Gold struggled to gain any meaningful traction and remained confined in a range below 200-DMA.
• Broad-based USD weakness offered support to the metal and helped limit any meaningful downfall.
• The risk-on impulse, rising US bond yields continued acting as a headwind and capped the upside.

Gold reversed an intraday dip to the $1,830 area, or a three-day low, though struggled to capitalize on the attempted recovery and remained below the very important 200-day SMA. Having seesawed between tepid gains/minor losses, the XAUUSD now seems to have stabilized in neutral territory and was seen trading below the $1,840 level during the early North American session.

Signs that there will not be any consensus for a 100 bps Fed rate hike move in the foreseeable future prompted fresh selling around the US dollar on Tuesday. This, in turn, was seen as a key factor that extended some support to the dollar-denominated commodity. That said, a combination of factors held back traders from placing aggressive bullish bets around gold.

The risk-on impulse - as depicted by the strong rally in the global equity markets - kept a lid on any meaningful upside for the safe-haven XAUUSD. Apart from this, expectations that the Fed would retain its aggressive policy tightening stance, pushed the US Treasury bond yields higher. This further acted as a headwind for the non-yielding gold.

The two-way/directionless price move witnessed since Monday points to indecision among traders over the next leg of a directional move for the XAUUSD. That said, the recent breakdown through a multi-week-old trading range and acceptance below a technically significant moving average (200-DMA) favours bearish traders and supports prospects for further losses.

Hence, any meaningful upside could be seen as a selling opportunity and runs the risk of fizzling out rather quickly. Traders, however, might refrain from placing aggressive bets ahead of Fed Chair Jerome Powell's testimony on Wednesday and Thursday. In the meantime, the broader risk sentiment, the US bond yields and the USD price dynamics might provide some impetus to gold.

Technical levels to watch

• Chicago Fed's National Activity Index edged lower in May.
• US Dollar Index trades with modest losses below 104.50.

The Federal Reserve Bank of Chicago's National Activity Index fell to 0.01 in May from 0.4 (revised from 0.47) in April. This data shows that the US economy expanded at its historical average in May. 

"The CFNAI Diffusion Index, which is also a three-month moving average, moved down to +0.27 in May from +0.39 in April.," the Chicago Fed further noted in its publication. "Forty-seven of the 85 individual indicators made positive contributions to the CFNAI in May, while 38 made negative contributions."

Market reaction

This report doesn't seem to be having a noticeable impact on the dollar's performance against its rivals. As of writing, the US Dollar Index was down 0.15% on the day at 104.25.

• Retail Sales in Canada rose more than expected in April.
• USD/CAD trades in negative territory below 1.2950 after the data.

The monthly data published by Statistics Canada showed on Tuesday that Retail Sales in Canada rose by 0.9% in April to C$60.72 billion. This print came in better than the market expectation for an increase of 0.8% and followed March's expansion of 0.2% (revised from 0%).

The publication further revealed that Retail Sales are expected to grow by 1.6% in May.

Market reaction

With the initial reaction, the USD/CAD pair edged lower and was last seen losing 0.32% on a daily basis at 1.2938.

S&P 500 has fallen to channel support from April at 3637/33. Analysts at Credit Suisse look for this to hold for a temporary consolidation/recovery phase to emerge that could potentially extend into the 3838/3900 mid-June price gap.

A temporary and corrective consolidation/recovery phase can emerge 

“Resistance is seen moving to 3728 initially, above which can add weight to our view for a recovery back to the top of the price gap from last Wednesday/Thursday at 3783/90, potentially into the more important mid-June price gap at 3838/3900. We look for this to then prove a major barrier for an eventual resumption of the core downtrend.” 

“Below 3633 can see support next at the lower end of the downtrend channel, today seen at 3620, with our core support/objective still at the 50% retracement at 3505, also the location of the 200-week average.”

• Silver gained some positive traction on Tuesday, though lacked any follow-through.
• Bulls seem struggling to make it through the 200-period SMA on the 4-hour chart.
• The neutral technical setup warrants caution before placing fresh directional bets.

Silver attracted fresh buying near the mid-$21.00s region on Tuesday and inched back closer to the previous day's swing high during the first half of the European session. The white metal was last seen trading around the $21.65 region, up nearly 0.50% for the day.

Looking at the broader picture, the XAG/USD has been oscillating in a familiar range over the past four sessions and continued with its struggle to make it through the 200-period SMA on the 4-hour chart. The said barrier, currently around the $21.80 area, is closely followed by the $21-90-$22.00 supply zone, which should act as a pivotal point.

Meanwhile, technical indicators on hourly/daily charts, so far, have struggled to gain any meaningful traction and warrant caution before placing aggressive directional bets. This further makes it prudent to wait for a sustained move in either direction before traders start positioning for a firm near-term trajectory for the XAG/USD.

A convincing break through the $21.50-$21.45 horizontal support would be seen as a fresh trigger for bearish traders. The XAG/USD might then drop back to the $21.00 mark en-route the monthly low, around the $20.90 region. The depreciating move could get extended and drag spot prices to the YTD low, around the $20.45 region set in May.

On the flip side, sustained strength beyond the $22.00 mark should pave the way for a move towards an intermediate resistance near the $22.30 area en-route the $22.50-$22.60 supply zone. Some follow-through buying would shift the bias in favour of bullish traders and allow the XAG/USD to reclaim the $23.00 round-figure mark.

Silver 4-hour chart

Key levels to watch

UOB Group’s Senior Economist Julia Goh and Economist Loke Siew Ting comment on the recently published May trade balance figures.

Key Takeaways

“Export growth accelerated to a six-month high of 30.5% y/y in May (from revised +20.8% in Apr), in line with Bloomberg consensus (+30.3%) but undershooting our estimate (+35.5%). Import growth also hit a six-month high of 37.3% (Apr: revised +22.1%). This trimmed the trade surplus by 8.3% y/y to MYR12.6bn (Apr: +15.3% to MYR23.5bn) marking the smallest trade surplus since May 2020. This would weigh on the 2Q22 current account balance following an unexpected decline in 1Q22 current account surplus to the lowest since 2Q13 at MYR3.0bn or 0.7% of GDP.”

“May’s export gain continued to be propelled by higher commodity price earnings amid decent demand particularly for electrical & electronics (E&E), refined petroleum, and palm oil-based products. Overseas shipments to almost all export destinations recorded positive annual expansion.”

“While elevated global commodity prices continue to provide a boost to export earnings, we see Malaysia’s overall trade outlook facing multiple headwinds going into 2H22. This includes the Russia-Ukraine conflict, aggressive Fed rate hikes alongside Quantitative Tightening, and China’s zero-COVID stance which are fanning recession fears that will eventually weigh on export orders. We maintain our full-year export growth projection of 8.0% for this year (YTD as of May: 23.5%, BNM est: 10.9%, 2021: 26.0%).”

• EUR/USD keeps the march north unabated and tests 1.0580 .
• There is a 4-month resistance line around 1.0700.

EUR/USD extends the buying bias for the second session in a row and climbs to the 1.0580/85 band on Tuesday.

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 1.0642 prior to the 4-month line around 1.0700. Spot needs to clear the latter to mitigate the selling pressure and allow for 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 1.1155.

EUR/USD daily chart

UOB Group’s Senior Economist Julia Goh and Economist Loke Siew Ting assess the latest approved investment figures in Malaysia.

Key Takeaways

“Total approved investments normalised to MYR42.8bn in 1Q22 (or -56.6% y/y from record MYR98.7bn in 1Q21) following a high base of comparison whereby a megaproject was approved in the same period last year. Bulk of 1Q22 approvals was channelled to the manufacturing sector (MYR30.0bn or 70.0% of total approved investment), with the electrical & electronics (E&E) subindustry remaining the top beneficiary. The real estate and agriculture sub-sectors were the biggest recipients of approved investments in the services and primary sectors respectively.”

“Foreign direct investment (FDI) remained a key source of overall committed investments, totalling MYR27.8bn or 65.0% of total approved investment. Top FDI sources in 1Q22 were Germany (MYR8.9bn or 32.0% of total approved FDI), Brunei (MYR5.1bn or 18.3%), the USA (MYR3.9bn or 14.0%), Hong Kong (MYR3.3bn or 11.9%), and Japan (MYR3.2bn or 11.5%), which collectively accounted for 87.7% of total FDI approved in the manufacturing, services and primary sectors.”

“Going forward, the government’s approach to managing endemic COVID, targeted trade and investment missions, and medium-term prospects are expected to support Malaysia’s investment momentum amid multiple external headwinds on the horizon. MIDA has identified a pipeline of potential investments worth MYR150.4bn and proposed investments of MYR14.4bn. As such, we maintain our total approved investment projection at MYR200bn for 2022 (2021: MYR309.4bn, prepandemic five-year average: MYR204.5bn).”

• DXY extends the downside pressure and pierces 104.00.
• The next support comes at the 103.40 region.

DXY adds to the negative start of the week and briefly visits the area below the 104.00 support on Tuesday.

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 at 103.41 (June 16) is expected to remain on the cards in the near term ahead of the interim 55-day SMA at 102.53.

As long as the 4-month line around 101.85 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 97.67.

DXY daily chart

Canadian Retail Sales Overview

Statistics Canada is scheduled to publish the monthly Retail Sales figures for April later this Tuesday at 12:30 GMT. The headline sales are estimated to rise by 0.8% during the reported month as against the flat reading reported in March. Excluding autos, core retail sales probably climbed by 0.6% in April, marking a sharp deceleration from the 2.4% increase in the previous month.

How Could it Affect USD/CAD?

Ahead of the key release, an uptick in crude oil prices underpinned the commodity-linked loonie and dragged the USD/CAD pair lower for the second successive day amid broad-based US dollar weakness. Spot prices dropped to a three-day low, though managed to find decent support near the 1.2900 round-figure mark. Stronger domestic data would be enough to provide a fresh lift to the Canadian dollar and pave the way for an extension of the pair's recent pullback from the YTD peak, around the 1.3080 region touched last Friday.

Conversely, a softer reading could allow the major to gain some traction. That said, any immediate market reaction is more likely to remain limited as the focus remains on the latest Canadian consumer inflation figures, due for release on Wednesday. Traders might also prefer to wait on the sidelines ahead of Fed Chair Jerome Powell's testimony on Wednesday and Thursday. Nevertheless, a big divergence from consensus estimates might still infuse some volatility around the USD/CAD pair and allow traders to grab short-term opportunities.

Key Notes

 •  USD/CAD ends the bullish correction

 •  USD/CAD Weekly Forecast: US dollar stars at the Fed after party

 •  USD/CAD drops to 1.2900 neighbourhood amid rising oil prices, softer USD

About Canadian Retail Sales

The Retail Sales released by the Statistics Canada is a monthly data that shows all goods sold by retailers based on a sampling of retail stores of different types and sizes. The retail sales index is often taken as an indicator of consumer confidence. It shows the performance of the retail sector in the short term. Generally speaking, the positive economic growth anticipates bullish movements for the CAD.

Economist at UOB Group Lee Sue Ann reviews the latest BoE meeting (June 16).

Key Takeaways

“The Bank of England (BOE)’s Monetary Policy Committee (MPC), at its meeting in Jun, voted by a majority of 6-3 to increase the Bank Rate by 25bps to 1.25%. This is the fifth consecutive policy meeting since Dec that the BOE has raised its key interest rate, taking it to the highest level since 2009 in a bid to fight surging inflation.”

“Importantly, the forward guidance language for higher interest rates was much stronger, endorsed by all the BOE’s voters. In comparison, two members had declined to put forth guidance that more hikes were needed in May. The BOE also raised its forecast for the peak of inflation this year to ‘slightly above’ 11%, reflecting the planned increase in the energy price cap in Oct, and said it now expects the economy to contract in the current quarter.”

“We are thus now pencilling in more rate hikes in the coming months. We look for an additional 100bps hike for the rest of this year, after which we expect the BOE to press pause on its hiking cycle. This should see the Bank Rate at 2.25% by year-end.”

• EUR/JPY accelerates gains and surpasses the 143.00 mark.
• Immediately to the upside now appears the YTD peak beyond 144.00.

EUR/JPY rises for the third consecutive session and breaks above the 143.00 mark on Tuesday.

The cross keeps well and sound the 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 2022 high 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 137.30, the short-term outlook for the cross should remain bullish.

EUR/JPY daily chart

Germany’s Finance Minister Christian Lindner said on Tuesday that high inflation in Germany was eroding economic foundations, as reported by Reuters.

"We must expect 30 billion euros in 2023 for interest payments rather than 4 billion euros previously expected," Lindner added.

Earlier in the day, German Chancellor Olaf Scholz reiterated that they must prevent a lasting inflation spiral.

Market reaction

These comments don't seem to be having an impact on risk sentiment. As of writing, Germany's DAX Index was up 1% on the day at 13,400 points.

The results of the latest manufacturing trends survey conducted by the Confederation of British Industry (CBI) pointed to an unexpected softening in price pressures.

The Domestic Price Expectation sub-index of the survey declined to its lowest level since September at +58 in June from +75 in May.

Commenting on the survey, "We may be seeing the first signs that weaker activity is beginning to slow the pace of price increases in the sector," CBI deputy chief economist Anna Leach said, as reported by Reuters.

Market reaction

This report doesn't seem to be having a significant impact on the British pound's market valuation. As of writing, GBP/USD was up 0.35% on the day at 1.2293.

• Copper price stages a solid comeback amid supply disruptions woes.
• Comex copper recaptures the $4-mark, USD weakness underpins.
• Risk flows boost the metal but recession and China covid concerns loom.

Copper price on Comex has snapped a three-day downtrend this Tuesday, staging an impressive rebound from the lowest level since January 2021 reached at $3.94 on Monday.

The turnaround in the price of the red metal is mainly driven by the risk-on market profile, as investors take stock of the recent sell-off in global markets amidst aggressive Fed’s tightening expectations and looming recession risks.

The safe-haven US dollar extends the previous downfall, in the wake of a better market mood, helping copper price recover some ground. Easing trade tensions between the US and China is also boding well for the commodity. “Biden has said he is considering removing some of the tariffs imposed on hundreds of billions of dollars worth of Chinese goods by his predecessor in 2018 and 2019 amid a bitter trade war between the world's two largest economies,” Reuters reported early Tuesday.

Additionally, the non-ferrous metal also capitalizes on the emerging supply disruption concerns after workers at Chile's state-owned Codelco, the world's largest copper producer, will start a nationwide strike on Wednesday to protest the government and the company's decision to close a troubled smelter.

Meanwhile, falling copper stockpiles at the LME-registered warehouse add to supply concerns, underpinning copper price. Despite the abovementioned positive catalysts for copper, the so-called economic bellwether remains at the mercy of the broader market sentiment.

Copper buyers remain wary over the fresh lockdowns in China’s Shenzhen and Macau cities, as covid flareups spread to the southern part of the country. Further, the central banks’ tightening outlook-induced recession fears also remain a drag on the metal’s recovery.

• GBP/USD gained traction for the second straight day amid broad-based USD weakness.
• The risk-on impulse was seen as a key factor that undermined the safe-haven greenback.
• Fed rate hike bets, dovish BoE expectations, recession fears, Brexit woes might cap gains.

The GBP/USD pair added to the previous day's modest gains and scaled higher for the second successive day on Tuesday. The steady intraday ascent extended through the first half of the European session and lifted spot prices to a two-day high, around the 1.2325 region in the last hour.

The risk-on impulse - as depicted by the strong rally across the global equity markets - undermined the safe-haven US dollar. Apart from this, signs that there will not be any consensus for a 100 bps rate hike in the foreseeable future exerted heavy downward pressure on the USD, which, in turn, extended support to the GBP/USD pair.

Fed Governor Christopher Waller said on Sunday that he was "all in" on bringing down inflation and was open to another rate hike of 75 bps in July, though ruled out the more extreme scenario of a 100 bps hike. The markets, however, seem convinced that the Fed would stick to its aggressive policy tightening path to curb soaring inflation.

Furthermore, concerns that rapid interest rate hikes by major central banks would pose challenges to the global economic recovery should keep a lid on any optimistic move in the markets. The fundamental backdrop favours the USD bulls, warranting some caution before placing aggressive bullish bets around the GBP/USD pair.

On the other hand, the Bank of England is expected to adopt a more gradual approach to raising interest rates amid recession fears. This, along with the UK-EU impasse over the Northern Ireland Protocol of the Brexit agreement, should act as a headwind for the British pound and further contribute to capping gains for the GBP/USD pair.

This makes it prudent to wait for strong follow-through buying before positioning for an extension of the recent bounce from the YTD low, around the 1.1935 region touched last week. Traders now eye the US Existing Home Sales data, which, along with the US bond yields and the broader risk sentiment, will influence the USD and provide a fresh impetus to the GBP/USD pair.

Technical levels to watch

FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang still see USD/CNH sticking to the 6.6600-6.7400 range for the time being.

Key Quotes

24-hour view: “Our view for USD to ‘trade between 6.6920 and 6.7250’ yesterday was incorrect as it plummeted to 6.6694 before rebounding. Despite the rapid decline, downward momentum has not improved by much. While there is scope for USD to weaken from here, a sustained decline below 6.6700 is unlikely. Resistance is at 6.6980 followed by 6.7100.”

Next 1-3 weeks: “Our update from yesterday (20 Jun, spot at 6.7080) still stands. As highlighted, the recent build-up in downward momentum has eased and USD is likely to trade between 6.6600 and 6.7400 for now. Looking ahead, a clear break of 6.6600 would indicate that USD is ready to head lower towards 6.6300.”

EUR/USD has preserved its bullish momentum and climbed above 1.0550. The pair eyes 1.06 as bulls remain interested, FXSTreet’s Eren Sengezer reports.

The next bullish target for the pair is located at 1.06

“Later in the session, Existing Home Sales data from the US will be looked upon for fresh impetus. The market consensus points to a 0.2% decrease in May. In case the report reveals a bigger than expected contraction, it could have a negative impact on risk mood and help the dollar hold its ground. On the other hand, the greenback should stay on the back foot if Wall Street's main indexes continue to rise decisively after the opening bell.”

“Right above the 200-period SMA on the four-hour chart at 1.0585, 1.06 (psychological level, Fibonacci 61.8% retracement of the latest downtrend, 100-period SMA) forms key resistance. In case this level fails, additional gains toward 1.0660 (static level, former support) could be witnessed.”

“1.0560 (Fibonacci 50% retracement) now aligns as initial support before 1.0520 (Fibonacci 38.2% retracement) and 1.0500 (psychological level, 50-period SMA).”

European Union (EU) leaders are expected to maintain the sanctions against Russia at a summit this week, Reuters reports, citing a draft document.

The draft document mentions that the EU leaders may consider a possible next round, this time targeting gold.

The latest version of their draft conclusions read, “Work will continue on sanctions, including to strengthen implementation and prevent circumvention."

Although no new package is currently being prepared, work is ongoing to identify sectors that could be hit, the officials said.

Gold is one of the possible next targets, officials familiar with the discussions said, adding that “it was not yet clear whether the measure could ban export to Russia, imports from Russia or both.”

Market reaction

Gold Price is seeing fresh demand on the above report, heading back towards $1,840. At the time of writing, XAUUSD is trading 0.50% higher at $1,837.

• A combination of supporting factors pushed NZD/USD higher for the second straight day.
• The risk-on impulse undermined the safe-haven USD and benefitted the risk-sensitive kiwi.
• Hawkish Fed expectations, rising US bond yields to limit the USD losses and cap the major.

The NZD/USD pair attracted some buyers for the second straight day on Tuesday and climbed back to the 0.6365-0.6370 hurdle during the early part of the European session.

The US dollar came under renewed selling pressure amid signs that there will not be any consensus for more aggressive Fed rate hikes in the foreseeable future. Fed Governor Christopher Waller - a known hawk - said on Sunday that he was open to another rate hike of 75 bps in July, though ruled out the extreme scenario of a 100 bps hike. Apart from this, a generally positive tone around the equity markets further undermined the greenback's safe-haven demand and benefitted the risk-sensitive kiwi.

The markets, however, seem convinced that the Fed would stick to its policy tightening path to combat stubbornly high inflation, which surged to over a four-decade high 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. This, in turn, pushed the US Treasury bond yields higher, which, along with recession fears, acted as a tailwind for the USD and capped the upside for the NZD/USD pair.

Investors remain concerned that a more aggressive move by major central banks to tackle inflation would pose challenges to the global economic recovery. This might keep a lid on any optimistic move in the markets, which, in turn, supports prospects for the emergence of USD dip-buying and warrants caution before placing bullish bets around the NZD/USD pair. Traders now look forward to the release of the Existing Home Sales data from the US for some impetus later during the early North American session.

Technical levels to watch

Gold has fallen slightly to $1,835 on Tuesday. Economists at Commerzbank recapitulate what the Swiss Federal Customs Administration reported today. India, with just shy of 36 tons of gold imported from Switzerland, stands out.

Robust gold demand in India

“As the Swiss Federal Customs Administration has reported, Switzerland exported a good 105 tons of gold in May. Less than half of this total went to China and India.”

“At 10 tons, gold exports to China were the lowest in 14 months. This may well be related to the coronavirus lockdowns that had severely restricted public life.” 

“India imported just shy of 36 tons of gold from Switzerland – the highest figure in six months. The gold price in Indian rupees had dropped sharply from mid-April to mid-May, apparently prompting Indians to buy gold. The Indian central bank had already reported gold imports of more than 100 tons in May.” 

“Switzerland exported virtually no gold at all to the US or UK in May. However, this comes as no surprise given that gold ETFs were not in demand and registered outflows.”

• AUDUSD fades the upside below the key Fibo 38.2% Fibo level.
• USD sell-off fails to impress amid covid lockdowns in Southern China.
• Daily RSI remains below 50.00, keeping the bearish bias intact.

AUDUSD is retreating from daily highs of 0.6988, as bulls take a breather after the latest leg higher. Investors assess the comments from the Reserve Bank of Australia (RBA) Governor Philip Lowe, as well as, the June meeting minutes.

The extended rebound in the aussie comes on the heels of the ongoing sell-off in the US dollar across its major peers, as risk-on flows dominate the European session and dent the buck’s safe-haven appeal. Markets seem to be shrugging off the looming recession risks.

Bulls, however, sense caution amid fresh lockdowns in Shenzhen and Macau, as covid outbreaks spread to southern China. “A single local case in Shenzhen detected on Saturday triggered mass testing and neighborhood lockdowns in some parts of the technology hub. Two cases were eventually reported for Saturday, with none on Sunday,” per Bloomberg.

All eyes now remain on the US housing data and the prepared remarks of Fed Chair Jerome Powell’s testimony, which will be due on the cards later in the NA session.

From a short-term technical perspective, AUDUSD has stalled its upside, as bulls lost momentum once again below the critical 0.7000 level, which is the 38.2% Fibonacci Retracement (Fibo) level of the latest decline from the June 7 highs of 0.7247 to the June 14 lows of 0.6850.

That said, the aussie could ease further towards the 23.6% Fibo level of the same descent at 0.6944 should bears take over control.

Monday’s low of 0.6917 will be next on sellers’ radars. The 14-day Relative Strength Index (RSI) is trading flatlined but below the 50.00 level, suggesting that upside attempts are likely to remain shallow.

AUD/USD: Daily chart

Alternatively, if the price manages to find acceptance above the aforesaid critical resistance at 0.7000, then a fresh upswing towards 0.7050 cannot be ruled out. At that price zone, Friday’s high and 50% Fibo level coincide.

A sustained move above that barrier is needed to regain the upside traction towards the confluence of the 61.8% Fibo level and bearish 21-Daily Moving Average (DMA).

AUD/USD: Additional levels to consider

European Central Bank (ECB) Governing Council member Olli Rehn said on Tuesday, “it is very likely that September rate hike is bigger than 25 bps.”

More comments

Also read: ECB's Rehn: Inflation provided reason to expedite normalisation of policy

Separately, ECB policymaker Kazimir was reported, as saying that negative rates "should be a thing of history" by September.

Market reaction

EUR/USD was last seen trading up 0.57% on the day at 1.0567. 

• EUR/USD: Bulls remain in control and climbs to 3-day highs near 1.0570

• Gold oscillated in a narrow trading band below the 200-DMA for the second straight day.
• The risk-on impulse, rising US bond yields, aggressive Fed rate hike bets exerted pressure.
• Modest USD weakness offered some support to the metal and warrants caution for bears.

Gold continued with its struggle to gain any meaningful traction on Tuesday and remained confined in a narrow trading band for the second successive day. The XAUUSD seesawed between tepid gains/minor losses through the early European session and was last seen trading in neutral territory, around the $1,835 area, just below the very important 200-day SMA.

The risk-on impulse - as depicted by a generally positive tone around the global equity markets - turned out to be a key factor that acted as a headwind for the safe-haven gold. Apart from this, a pickup in the US Treasury bond yields further contributed to capping the upside for the non-yielding yellow metal. The markets seem convinced that the US central bank would stick to its aggressive policy tightening path to combat stubbornly high inflation. This, in turn, assisted the US bond yields to stall the post-FOMC retracement slide from over a decade high.

The US dollar, however, struggled to attract buyers, instead was pressured by signs that there will not be any consensus for a 100 bps rate hike in the foreseeable future. Fed Governor Christopher Waller said on Sunday that he was "all in" on bringing down inflation and was open to another rate hike of 75 bps in July, though ruled out the more extreme scenario of a 100 bps hike. This was seen as the only factor that offered some support to the dollar-denominated gold and helped limit the downside, at least for the time being, warranting caution for bearish traders.

The mixed fundamental backdrop might hold back traders from placing aggressive directional bets ahead of Fed Chair Jerome Powell's testimony on Wednesday and Thursday. In the meantime, traders on Tuesday will take cues from the release of Existing Home Sales data from the US. This, along with the US bond yields, will influence the USD price dynamics. Apart from this, traders will take cues from the broader market risk sentiment to grab short-term opportunities around gold.

Extra gains in USD/JPY need to surpass the 136.00 level in the short term, according to FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang.

Key Quotes

24-hour view: “Our view for ‘the rapid rise in USD to extend’ did not materialize as it eased off to 134.52 before rebounding to end the day little changed at 135.08 (+0.09%). The price actions appear to be part of consolidation phase and USD is likely to trade sideways for today, expected to be within a range of 134.60/135.50.”

Next 1-3 weeks: “There is no change in our view from yesterday (20 Jun, spot at 135.20). As highlighted, 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 133.90 (‘strong support’ was at 133.50 yesterday) within these few days.”

• EUR/USD adds to Monday’s gains north of 1.0500.
• The dollar remains offered as US markets reopen.
• EMU Current Account deficit came at €5.4B in April.

The optimism around the single currency remains well and sound in the first half of the week and now lifts EUR/USD to new 3-day highs near 1.0570.

EUR/USD underpinned by dollar weakness

EUR/USD advances for the second session in a row on Tuesday, always on the back of the persistent selling pressure around the greenback and the mixed performance in US yields.

In the German money markets, the 10y bund yields surpass the 1.75% area and trade at shouting distance from last week’s peaks past 1.90%.

Spot seems to have seen its upside reinvigorated following Monday’s comments from ECB’s Lagarde, who announced a 25 bps rate hike at the July meeting and opened the door to a similar move in September.

In the domestic calendar, the EMU’s Current Account showed a €5.4B deficit in April. In the NA session, the Chicago Fed National Activity Index and Existing Home Sales are due later ahead of the speech by Richmond Fed T.Barkin (2024 voter, hawk).

What to look for around EUR

EUR/USD keeps the recovery-mode unchanged and manage to regain the area further north of the 1.0500 yardstick so far this week.

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, while hawkish comments from ECB-speakers also collaborate with the upbeat mood around the euro.

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: 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 0.51% at 1.0564 and the immediate up barrier comes at 1.0601 (weekly high June 15) followed by 1.0642 (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).

"With inflation rising sharply, there has been good reason to expedite the normalisation of monetary policy," European Central Bank Governing Council member Olli Rehn said on Tuesday, as reported by Reuters.

"The impacts of Russia's brutal war are being felt around the world and people are having to pay higher prices for energy and food," Rehn added.

Market reaction

The shared currency continues to gather strength following these comments. As of writing, the EUR/USD pair was trading at 1.0570, where it was up 0.57% on a daily basis.

Bank of England Chief Economist Huw Pill reiterated on Tuesday that they will certainly be ready to act if they see evidence of persistent price pressures, as reported by Reuters.

Additional takeaways

"I see further tightening ahead in coming months."

"When we assess inflation pressure, we need to take into account the exchange rate."

"We see ourselves as steering a narrow path between persistent inflation pressure and recession."

"Terms of trade shock means UK will be poorer, UK must decide how that reduction in income will be distributed."

Market reaction

The British pound holds its ground after these comments and the GBP/USD pair was last seen rising 0.4% on the day at 1.2300.

Here is what you need to know on Tuesday, June 21:

The US Dollar Index continues to push lower toward 104.00 early Tuesday after having closed the first day of the week in negative territory. The market mood improves in the European morning with the US stock index futures rising more than 1% following the long weekend. Cleveland Fed President Loretta Mester and Richmond Fed President Thomas Barkin are scheduled to speak later in the day. FOMC Chairman Jerome Powell's prepared remarks to be delivered at the semi-annual testimony on Wednesday are expected to be released as well.

The trading action remained subdued throughout the day on Monday. While testifying before the European Parliament, European Central Bank President Christine Lagarde said a recession in the eurozone was not their baseline scenario and reiterated that they intend to raise key rates by 25 basis points (bps) in July. Meanwhile, US President Joe Biden said they could decide whether to pause the federal gasoline tax by the end of the week.

During the Asian trading hours, Reserve Bank of Australia Governor Philip Lowe said that Australians should be prepared for more interest rate hikes. Lowe added that they will discuss whether they should raise the policy rate by either 25 or 50 bps at the July meeting. AUD/USD gained traction on Tuesday and climbed toward 0.7000. 

USD/CAD closed in negative territory and extended its slide toward 1.2900 early Tuesday. Later in the session, Statistics Canada is expected to report that Retail Sales in Canada rose by 0.8% in April after having stayed unchanged in March.

Despite the broad dollar weakness, USD/JPY manages to hold above 135.00. Japanese Prime Minister Fumio Kishida argued earlier in the day that they should not tweak the monetary policy now.

EUR/USD gathered bullish momentum and climbed toward 1.0550. "There is no preview beyond September of what will be the appropriate pace for tightening," ECB Chief Economist Philip Lane said earlier in the day but these comments don't seem to be having an impact on the shared currency's performance against its rivals.

Bank of England policymaker Catherine Mann argued on Monday that a 50 bps rate increase could reduce the risk of domestic inflation being boosted by weaker sterling. GBP/USD regained its traction and was last seen trading within a touching distance of 1.2300.

Gold is edging lower toward $1,830 on Tuesday. The benchmark 10-year US Treasury bond yield is up more than 0.5%, making it difficult for XAU/USD to capitalize on the dollar weakness.

Bitcoin extends its recovery and trades above $21,000 following the sharp decline witnessed over the weekend. Ethereum is up more than 2% at $1,150 after having ended the day flat on Monday.

• A combination of factors dragged USD/CAD lower for the second straight day on Tuesday.
• Rising oil prices underpinned the loonie and exerted pressure amid modest USD weakness.
• Hawkish Fed expectations should limit deeper USD losses and extend support to the major.

The USD/CAD pair extended its retracement slide from the YTD peak, around the 1.3075-1.3080 area set on Friday and witnessed some follow-through selling for the second successive day on Tuesday. The downward trajectory dragged spot prices to a three-day low, closer to the 1.2900 mark during the early European session and was sponsored by a combination of factors.

Crude oil prices gained some positive traction and built on the overnight bounce from the vicinity of a one-month low amid worries about tightening global supplies, which benefitted the commodity-linked loonie. On the other hand, a generally positive tone around the equity markets undermined the safe-haven US dollar and exerted downward pressure on the USD/CAD pair.

That said, growing market concerns about slowing global economic growth and fuel demand could act as a headwind for crude oil prices. Furthermore, expectations that the Fed would tighten its monetary policy at a faster pace to curb soaring inflation could lend support to the USD. This should help limit deeper losses for the USD/CAD pair, warranting caution for bears.

The markets seem convinced that the US central bank would stick to its aggressive policy tightening path and have been pricing in another 75 bps rate hike at the next FOMC meeting in July. The bets were reinforced by a fresh leg up in the US Treasury bond yields, which supports prospects for the emergence of USD dip-buying and should lend support to the USD/CAD pair.

Hence, it would be prudent to wait for strong follow-through selling before confirming a near-term top for the USD/CAD pair and positioning for any meaningful corrective slide. Traders now look forward to the release of Canadian monthly Retail Sales figures, which, along with Existing Home Sales data from the US, might provide some impetus to the USD/CAD pair.

In the opinion of FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang, NZD/USD is likely to trade within the 0.6200-0.6410 range in the next few weeks.

Key Quotes

24-hour view: “We expected NZD to trade within a range of 0.6270/0.6350 yesterday. NZD subsequently traded within a range of 0.6304/0.6362 before closing at 0.6330 (+0.25%). The underlying tone has firmed somewhat and NZD is likely edge higher from here. That said, a clear break of 0.6380 appears unlikely. On the downside, a break of 0.6290 (minor support at 0.6305) would indicate that the current mild upward pressure has eased.”

Next 1-3 weeks: “We continue to hold the same view as yesterday (20 Jun, spot at 0.6320). As highlighted, the outlook for NZD is mixed and it is likely to trade sideways within a relatively broad range of 0.6200/0.6410.”

The Bank of England (BoE) hiked its policy rate by "only" 25 bps, with three members voting for a larger move. The GBP weakened more than 1% against the USD in the immediate wake of the announcement, before it erased losses. Economists at HSBC expect a weaker GBP over the medium-term.

The wording on guidance changed to be marginally more hawkish

“On 16 June, the BoE voted to raise its policy rate by 25 bps to 1.25%, as widely expected. The vote was 6-3, with Michael Saunders, Catherine Mann and Jonathan Haskel voting for a 50 bps hike.”

“The BoE changed the wording on guidance: ‘The Committee would be particularly alert to indications of more persistent inflationary pressures, and would if necessary act forcefully in response’. The use of the word ‘forcefully’ may be seen to be opening the door to larger moves in the future, but conditional on it being necessary. In the end, the increased hawkishness in the communications at this meeting is quite marginal.”

“Over the medium-term, we continue to expect the GBP to weaken further against the USD, built on more measured steps at the BOE compared to the Fed’s ongoing marked tightening. The UK may also face structural challenges over a longer term.”

Indian rupee retreats to 78.00. Economists at Société Générale expect INR’s trend weakness to persist.

USD/INR seen moving back to 77 over a 12- month horizon

“The dollar is expected to peak in 3Q but remain strong for the rest of this year. A dollar-oil double whammy firmly skews the risks to the upside in USD/INR this year.”

“We expect USD/INR to weaken to 80 by 3Q22 before starting to improve, moving back to 77 over a 12- month horizon.”

The weakening of global risk appetite has been a major obstacle for the Australian dollar as the focus has shifted to the worsening global growth outlook. Therefore, economists at ANZ Bank have downgraded the AUD/USD year-end forecast to 0.75.

RBA market pricing remains rich

“A peak in the USD is largely dependent on a peak in rate expectations, which until recently was appearing to be the case as markets acclimatised to multiple 50 bps hikes. Renewed downward pressure on the AUD is a real possibility amid significant volatility as markets re-calibrate tightening expectations.”

“We still think that RBA market pricing remains rich, and so the local tightening cycle is unlikely to provide a lasting boost to the AUD, particularly given the focus on offshore forces.” 

“The attention on growth and inflation woes will mean the AUD largely moves to the beat of global risk appetite for now. As such, we have downgraded our year-end forecasts to 0.75.”

The US Dollar Index (DXY) remains near the year’s highs. Economists at ING expect DXY to move within last week's 103.40-105.80 range.

Any dollar downside today is likely to be limited

“US may look at a temporary tax holiday on gasoline. Let's see how this gasoline tax holiday story develops and what size of fiscal stimulus it represents. This should be another factor keeping the dollar strong this summer.”

“Expect DXY to trade well within the confines of last week's 103.40 to 105.80 wild range.”

“The next big dollar input will be when Fed Chair Jerome Powell delivers his semi-annual monetary policy testimony to the Senate – which judging from the latest FOMC meeting should be pretty hawkish and means that any dollar downside today is likely to be limited.”  

• USD/CHF has delivered a downside break of the entire day’s consolidation at 0.9660.
• The unexpected 50 bps rate hike by the SNB has shocked the FX domain.
• A sideways move is expected in the DXY ahead of Fed Powell.

The USD/CHF pair has slipped below 0.9660 as the US dollar index (DXY) has surrendered its recovered gains and is declining towards an intraday low at 104.23. The asset has auctioned in a narrow range of 0.9657-0.9679 in the Asian session and now a downside break looks imminent. On a broader note, the asset has turned balanced in a 0.9620-0.9724 range from the past three trading sessions after displaying a vertical downside move from Wednesday’s high at 1.0045.

An unexpected move of elevating interest rates by 50 basis points (bps) from the Swiss National Bank (SNB) has shocked the FX domain. Last week, SNB Governor Chris Jordan was expected to dictate its usual neutral stance on the interest rates. However, a rate hike announcement and that too by 50 bps results in an extreme sell-off in the asset.  This cleared that the Swiss franc is no more overvalued and is not going to tackle the greenback with bare hands.

Officially, the SNB’s interest rate has elevated to -0.25% after a 50 bps rate hike. Considering the runaway inflation in the global markets, the Swiss economy could witness some consequences in the later stages. Therefore, a gradual tightening move seems lucrative for the economy and for the currency.

The DXY is on the verge of violating Monday’s low at 104.23 as a rebound in the risk-on impulse has diminished the safe-haven’s appeal. A decisive move by the DXY will be taken after the release of the Federal Reserve (Fed) chair Jerome Powell’s testimony, which will guide the FX domain above the likely monetary policy action in July.

• USD/JPY extended its sideways/consolidative price move for the second straight day on Tuesday.
• The Fed-BoJ policy divergence, the risk-on impulse undermined the JPY and extended support.
• Modest USD weakness held back bulls from placing fresh bets and capped the upside for the pair.

The USD/JPY pair struggle to gain any meaningful traction and remained confined in a narrow trading band, around the 135.00 psychological mark through the early European session on Tuesday. This subdued price action for the second successive day marks a consolidation phase following the recent strong bullish run to a 24-year high touched last week.

The widening Japan-US interest rate differential, along with the risk-on impulse, undermined the safe-haven Japanese yen and acted as a tailwind for the USD/JPY pair. It is worth recalling that 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 Japanese central bank 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 led to a fresh leg up in the US Treasury bond yields, which was seen as another factor lending support to the USD/JPY pair.

The fundamental backdrop favours bullish traders, though modest US dollar weakness kept a lid on any meaningful upside for the USD/JPY pair, at least for the time being. Even from a technical perspective, the USD/JPY pair, so far, has been struggling to make it through the 135.50-135.60 resistance zone. This makes it prudent to wait for strong follow-through buying before positioning for any further near-term appreciating move.

Market participants now look forward to the US economic docket, featuring the release of Existing Home Sales later during the early North American session. This, along with the US bond yields, might influence the USD price dynamics and provide some impetus to the USD/JPY pair. Traders will further take cues from the broader market risk sentiment to grab short-term opportunities.

Key levels to watch

Sustained strength beyond the 135.50-135.60 area would be seen as a fresh trigger for bulls 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 the next relevant hurdle near the mid-136.00s.

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

EUR/USD is consolidating near 1.05. Economists at ING expect the world’s most popular currency pair to move within a 1.04-1.06 range.

EUR/USD could go below parity were conditions to deteriorate further

“At 1.05, EUR/USD is not particularly cheap based on our medium-term fair value models – and could go below parity were conditions to deteriorate further.”

“1.0400-1.0600 looks like the near-term EUR/USD trading range, with rallies likely to be limited ahead of tomorrow's Senate testimony from Powell.”

• WTI fades bounce off monthly low during the second positive day.
• 13-day-old horizontal resistance guards immediate upside, 61.8% Fibonacci retracement level lures bears.
• Weekly descending trend line adds to the upside filters.

WTI crude oil pares daily gains around $109.30 as bulls fail to extend the previous day’s bounce off the monthly low heading into Tuesday’s European session.

In doing so, the black gold retreats from the fortnight-long horizontal resistance amid sluggish RSI (14).

That said, the pullback moves direct WTI sellers towards the 61.8% Fibonacci retracement level of May-June upside, around $106.40.

However, the quote’s weakness past $106.40 will be challenged by the May 19 swing low of $103.00 and the $100.00 psychological magnet before directing the black gold towards the previous monthly low near $97.20.

Alternatively, upside momentum needs to cross the immediate horizontal hurdle surrounding $110.35.

Following that, a convergence of the 200-SMA and 50% Fibonacci retracement level could challenge the WTI buyers at around $111.85.

In a case where the energy benchmark rises past $111.85, a one-week-old descending resistance line close to $113.00 appears the last defense for the bears.

Overall, crude oil prices are likely to witness further downside but the bears need confirmation from $106.40.

WTI: Four-hour chart

Trend: Further weakness expected 

Interest rate differentials and expectations remain primary drivers of EUR/USD. Therefore, the pair could extend its downtrend in the near-term but the medium-term outlook appears to be supportive for the euro, economists at ANZ Bank report.

Rate differentials are key

“The fact that the Fed has signalled its intent to return interest rates to neutral quickly while the ECB has not embraced that debate yet, is also supporting the USD. In the near-term, therefore, USD strength can run further. However, we are not convinced that the medium-term outlook is of persistent USD gains.”

“Firstly, we expect the ECB to turn more hawkish. Secondly, we believe the ECB is determined to prevent fragmentation. Thirdly, the EA policy mix is turning positive for the EUR as fiscal policy expands. Expansionary fiscal and tighter monetary policy provide a supportive backdrop to the euro area whose terms of trade will also recover over the medium-term.”

Fed repricing is driving USD higher. Although it is difficult to go against dollar strength at present, economists at ANZ Bank still expect dollar strength to wane later in the year.

Peak dollar in questiom

“The USD is set to stay strong in the near-term and could even overshoot as the US Fed hikes aggressively and risks to the global growth outlook rise.”

“We still see dollar strength waning later in the year as US inflation finally peaks and the Fed reverts to smaller hikes or even contemplates a pause.”

Germany's BDI warned of an inevitable recession in Europe’s largest economy, in the face of a halt in Russian gas deliveries.

Additional takeaways

Market reaction

EUR/USD is catching a fresh bid above 1.0500 in the last minutes, shrugging off the dire German economic outlook. The pair is adding 0.20% on the day to trade at 1.0527, as of writing.

Gold came under renewed pressure, with the US 10-year yield hitting 3.5% and the US dollar appreciating. Economists at ANZ Bank believe the gloomy economic backdrop should strengthen gold’s appeal.

The sell-off in equity markets hasn’t added any safe haven demand

“The risk-off sentiment is not supportive, with gold and equity markets moving in tandem. Nevertheless, further weakness coupled with slowing economic growth should enhance gold’s haven appeal.”

“Investment demand remains weak. The premium for physical gold turned positive in China and India, but demand in China has been weighed down by lacklustre retail jewellery sales. Indian gold imports rebounded in May driven by the traditional wedding season. That said, off-season months could see physical demand weaken.”

• GBP/USD has picked significant bids around 1.2260 on higher forecasts for the UK Inflation.
• The annual UK CPI figure is seen marginally higher at 9.1%.
• Fed Powell’s testimony will bring a decisive move in the DXY.

The GBP/USD pair declined after failing to surpass the critical hurdle of 1.2280 but has bounced back after hitting a low of 1.2259. Broadly, the asset is auctioning in a balanced market profile as investors are awaiting the release of the UK Consumer Price Index (CPI), which is due on Wednesday.

As per the market consensus, the UK Office for National Statistics is expected to report the annual CPI at 9.1%, marginally higher than the former figure of 9%. While the core CPI will slip to 6% vs. 6.2% reported earlier. It looks like the food and oil prices have a significant impact on the UK inflation figure. This will compel the Bank of England (BOE) to raise interest rates significantly to contain the price pressures.

It is worth noting that the BOE has less freedom to elevate interest rates as the Unemployment Rate has increased to 3.8% from the prior print of 3.7%. Also, the growth prospects are not promising. Higher interest rates are expected to be backed by upbeat growth prospects and a lower jobless rate. Unavailability of the same is restricting the BOE to take bold decisions.

On the dollar front, the US dollar index (DXY) has advanced gradually after printing an intraday low of 104.23. The Fed showed a historic move last week after elevating the interest rates by 75 basis points (bps) for the first time in the past 25 years. The DXY took the burden of the bumper interest rate announcement and now a sideways move is expected ahead of Fed chair Jerome Powell’s testimony.

• GBP/JPY extends four-day uptrend, stays firmer around one-week high.
• Double-top formation, sluggish RSI tests buyers amid recent inaction.
• Weekly support line adds to the downside filters before 200-HMA, monthly low.
• Six-year high, marked in June, could lure bulls on an upside break of 166.30.

GBP/JPY remains mildly bid around 165.75, following a four-day uptrend, as bulls renew the run-up towards a short-term key hurdle heading into Tuesday’s London open.

The cross-currency pair’s latest strength could be linked to the pair’s U-turn from the 200-HMA, as well as the ability to stay beyond the three-day-old support line.

However, the double-top bearish chart pattern and recent sluggish RSI challenge the bulls.

That said, a clear upside break of the double tops bear 166.30 appears necessary for the GBP/JPY bulls to aim for the monthly high of 168.73, also the highest levels since early 2016.

During the run-up, the 166.70 and the 167.00 threshold may entertain the pair buyers.

Alternatively, pullback remains elusive until the quote stay above the previously stated support line, near 165.00 by the press time.

Even if the quote drop below 165.00, the 200-HMA level surrounding 164.60 will act as an additional filter to the south before directing the bear to the monthly low of 160.00.

GBP/JPY: Hourly chart

Trend: Pullback expected

The comments by the first Vice Prime Minister of the Russian government, Andrey Belousov, on the ruble are very interesting. The government is considering a return to an exchange rate target and seems to plan to abandon the free float, economists at Commerzbank report.

A USD/RUB exchange rate of 70-80 would be ideal

“Apparently, a USD/RUB exchange rate of 70-80 would be ideal, and Russia should return to this range as quickly as possible, according to Belousov.”

“I don’t particularly want to go on about my view on the government’s considerations. Above all, I want to point out that a return to the old exchange rate regimes could possibly constitute an option for the government and might lead to the corresponding fluctuations in the ruble exchange rates if they were to become a reality.”

A  speech by Reserve Bank of Australia (RBA) Central Bank Governor Philip Lowe indicated that the central bank is rather evaluating going by 25 bps or 50 bps at the coming meeting. In case the RBA fails to deliver a 50bps rate hike, the AUD/USD could drop below 0.69 once again, economists at Commerzbank report.

Aggressive market expectations do not support AUD

“According to Central Bank Governor Lowe, the RBA will discuss at the next meeting whether it will raise by 25 or 50 basis points. This takes a 75 bps move in July off the table, but another 50 bps is a possible.” 

“The market is now pricing in a very tight RBA rate cycle, expecting a key rate of 3,5-4% by the end of the year. As the market was very nervous and risk averse last week these restrictive expectations were unable to support AUD. The collapse of the iron ore prices is also putting pressure on AUD, moreover, there are concerns about the Chinese economy as a result of the covid measures there.”

“The environment for AUD remains difficult. If the RBA were to disappoint market expectations, which are already quite aggressive, next week and not deliver a 50 bps rate step, AUD/USD might ease below the 0.69 mark again.”

With inflation rising almost across the board, almost all central banks are raising interest rates rather quickly. This means that countries where the central bank is not raising interest rates are experiencing and will continue to experience a sharp depreciation of their exchange rates, according to analysts at Natixis.

Almost all central banks are raising interest rates fairly quickly

“In a configuration where the vast majority of central banks are raising interest rates and long-term interest rates are rising almost everywhere, countries that keep interest rates low will be penalised by capital outflows and a sharp depreciation of their exchange rates, which is already evident.”

“Except in the extreme case of a central bank that is not interested in inflation or the exchange rate, these countries will eventually have to raise their interest rates as well.”

GBP/USD is seen navigating the 1.2040-1.2400 range in the next weeks, suggested FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang.

Key Quotes

24-hour view: “We highlighted yesterday ‘the current price actions appear to be part of a consolidation phase’ and we expected GBP to ‘trade sideways within a range of 1.2150/1.2300’. Our view for sideway-trading was not wrong even though GBP traded within a much narrower range than expected (1.2201/1.2277). Further sideway-trading appears likely, expected to be within a range of 1.2190/1.2300.”

Next 1-3 weeks: “We continue to hold the same view as from yesterday (20 Jun, spot 1.2225). As highlighted, the recent sharp but short-lived swings have resulted in a mixed outlook and GBP could continue to trade in a choppy manner, likely between 1.2040 and 1.2400.”

Bank Indonesia (BI) will hold the monthly governor board meeting on 22-23 June. Here you can find the expectations as forecast by the economists and researchers of six major banks regarding the upcoming central bank's decision. 

The BI is expected to hold its benchmark seven-day reverse repurchase rate unchanged at 3.50%, however, there is still a slim chance to see a 25 bps hike to 3.75%.

ANZ

“BI’s upcoming rate decision will probably boil down to how the IDR holds up. Unless the current pressure on the IDR abates in the lead-up to the meeting, we think the more prudent move is a rate hike or at least clear signals that a rate lift-off is near. The absence of a change in stance could risk BI being perceived as the standout regional laggard and intensify pressure on the IDR.”

Standard Chartered

“We expect BI to maintain the 7-day reverse repo rate at 3.5% to anchor IDR stability and keep financing costs low to support the recovery. BI is likely to sound more vigilant amid aggressive Fed policy normalisation, highlighting its commitment to maintain macroeconomic stability. We think BI will maintain its current policy settings of responding to tighter external financing by accelerating IDR liquidity absorption through (1) faster RRR hikes, (2) intervening in the spot and domestic NDF markets to stabilise the IDR, and (3) continuing to allow higher bond yields to respond to spikes in UST yield. We maintain our view that BI’s first policy rate hike will be in Q3, which will be preceded by a normalisation of the open market operations (OMO) curve.”

TDS

“We expect BI to deliver a hawkish hold as it just upgraded its headline inflation forecast which we think is a signal to gradually tune markets to a shift in policy stance to a likely hike in July.”

ING

“We expect BI to finally deliver a rate hike although Governor Perry Warjiyo may opt to start off the hiking cycle with a token 25 bps increase, citing the simultaneous increase in reserve requirements.”

SocGen

“We expect the BI to stay put for one last time though a hike cannot be ruled out. With the peak inflation theory falling through and the Fed finally raising the policy rate by 75 bps as inflation spiked beyond expectations, the BI may find it difficult to continue to hold on as global risk-off sentiment rises further. However, we expect the BI to stay pat during its June meeting and eventually start raising the policy rate starting from 3Q22.”

BBH

“Headline inflation rose 3.55% YoY in May, the highest since December 2017 and near the top of the 2-4% target range. We think this lays the groundwork for liftoff this week. If not, then the next meeting on July 21.”

Gold Price is replicating the recovery moves seen in Asia on Monday, although the critical 200-Daily Moving Average (DMA) at $1,844 remains a tough nut to crack, FXStreet’s Dhwani Mehta reports.

XAUUSD faces a wall of resistance around $1845-$1850

“Bulls are struggling just below the 200 DMA at $1,844. The next strong resistance is seen at the mildly bearish 21 DMA at $1,847. Buying resurgence above the latter could challenge the $1,850 psychological level. Daily closing above that price zone is need to take on the recent range highs near $1,858.”

“Friday’s low of $1,834 is the level to beat for XAU bears, below which a fresh downswing will kick off towards the $1,820 round level. The June 16 low of $1,816 will be next on sellers’ radars. The rising trendline support at $1,809 is the line in the sand for gold optimists.”

• EUR/USD takes offers to drop back towards intraday low on US dollar recovery.
• Fears of aggressive central bank actions join the return of full markets to renew USD buying.
• Measured comments from ECB policymakers, firmer US Treasury yields exert additional downside pressure.
• Second-tier US data and risk catalysts may entertain traders ahead of Powell’s Testimony.

EUR/USD extends pullback from daily highs to pare intraday losses around 1.0520 heading into Tuesday’s European session.

The major currency pair’s latest weakness could be linked to the US dollar’s rebound while tracking the firmer yields, as well as the return of the full markets. Also weighing on the quote are recent comments from the European Central Bank (ECB) policymakers which sound comparatively less hawkish than their US Federal Reserve (Fed) counterparts.

US Dollar Index (DXY) consolidates the week-start losses around 104.00 as the risk-on mood fades The market sentiment improved on Monday amid the Juneteenth holiday in the US as well as recently downbeat US data and softer US inflation expectations, as per the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data. It’s worth noting that the US inflation expectations refreshed monthly low on Friday.

On Monday, European Central Bank (ECB) President Christine Lagarde reaffirmed plans to raise the ECB’s interest rates twice this summer. Following that, ECB Chief Economist Philip Lane said, per Reuters, “The European Central Bank (ECB) will not revisit its decision to raise interest rates by 25 basis points at its July 21 meeting.”

It should be noted that the Fed policymakers’ hawkish bias suggesting a 0.75% rate hike has an upper hand over the ECB’s rejection of no major rate lifts than what’s already announced. This allows the US dollar to remain firmer versus the bloc’s currency.

Against this backdrop, the S&P 500 Futures rise around 1.6%, up for the second consecutive day, as it flashes the 3,735 level at the latest. On the same line, the US 10-year Treasury yields extend Friday’s gains to begin the week’s trading around 3.3%, up four basis points (bps) by the press time.

While the return of full markets and the US dollar moves are the key for intraday EUR/USD forecasts, Chicago Fed National Activity Index and the US Existing Home Sales for May could also entertain traders. Even so, major attention will be on Fed Chair Jerome Powell’s Testimony on the bi-annual Monetary Policy Report.

Technical analysis

Failure to provide a daily closing beyond the 21-day EMA hurdle, around 1.0575 by the press time, keeps EUR/USD bears hopeful to revisit the yearly low surrounding 1.0350.

Economists at Goldman Sachs warned over the increasing chances of a US recession this year while downgrading their GDP growth forecasts for the economy.

Key quotes (via Bloomberg)

“Now see a 30 per cent probability of entering a recession over the next year, compared to 15 per cent previously, and a 25 per cent conditional probability of entering a recession in the second year if one is avoided in the first, they wrote in a research note on Monday (June 20). That implies a 48 per cent cumulative probability in the next two years compared to a 35 per cent estimate previously.”

"We now see recession risk as higher and more front-load.”

"The main reasons are that our baseline growth path is now lower and that we are increasingly concerned that the Fed will feel compelled to respond forcefully to high headline inflation and consumer inflation expectations if energy prices rise further, even if activity slows sharply."

"One additional concern this time is that the fiscal and monetary policy response might be more limited than usual."

Economists maintained their second-quarter growth forecast of 2.8%, they cut their outlook from the third quarter of this year through to the first quarter of 2023, and now forecast growth of 1.75%, 0.75% and 1%, respectively, in each of those quarters.

• Gold price has plunged below the critical support of $1,836.00 firmly.
• Investors have shifted the spotlight on Fed Powell’s testimony.
• The market participants should brace for underperformance from the US PMI.

Gold price (XAU/USD) has witnessed a steep fall after failing to sustain above the critical hurdle of $1,840.00 in the early European session. The precious metal is hovering around the cushion of $1,835.00 and an extension of a downside move looks possible as uncertainty ahead of the Federal Reserve (Fed) chair Jerome Powell’s testimony cannot be ruled out.

The US dollar index (DXY) has displayed a modest rebound after re-testing Monday’s low at 104.23. A sideways move is expected from the DXY as investors are awaiting Fed’s testimony to take informed decisions. Apart from Fed’s testimony, US Purchase Managers Index (PMI) will remain in focus, which is 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.

Gold technical analysis

The gold prices have given a downside break of the Descending Triangle whose horizontal support 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 has acted as a major barricade for the gold bulls.

Gold bulls witnessed a steep fall after failing to defend the 50-period Exponential Moving Average (EMA) at $1,838.26. Meanwhile, the Relative Strength Index (RSI) has slipped into the bearish range of 20.00-40.00, which signals more downside ahead.

Gold intraday chart

FX option expiries for June 21 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

- EUR/USD: EUR amounts        

• 1.0470-80 824m
• 1.0495-00 340m
• 1.0560-65 320m
• 1.0575-85 1.0b
• 1.0650 470m

- GBP/USD: GBP amounts        

• 1.2350 229m

- USD/JPY: USD amounts                     

• 134.00 1.35b
• 134.50 685m

- USD/CHF: USD amounts        

• 0.9720 310m

- AUD/USD: AUD amounts  

• 0.6850-60 720m
• 0.6895-00 540m
• 0.7000 1.2b
• 0.7010-15 727m
• 0.7025 330m
• 0.7070 402m

 - USD/CAD: USD amounts       

• 1.2930 317m

- NZD/USD: NZD amounts

• 0.6500 369m

- EUR/GBP: EUR amounts

• 0.8450 340m

- EUR/CHF: EUR amounts

• 1.0100 347m
• 1.0250 895m
• 1.0270-75 330m

AUD/JPY: AUD amounts

• 95.00 609m

• USD/TRY pauses three-day uptrend but bears appear cautious.
• Turkish government proposes a 1 trillion lira supplementary budget in parliament.
• US dollar pullback, and risk-on mood exert additional downside pressure.

USD/TRY dribbles around 17.32 as the pair traders fail to benefit from the Turkish government’s budget proposal amid a sluggish session during early Tuesday morning in Europe.

“Turkey's government has submitted a proposal to parliament for a supplementary budget of some 1 trillion lira ($57.74 billion) to cover rising costs of tackling a currency slide, soaring energy prices and rampant inflation, the state-run Anadolu news agency said on Monday,” per Reuters.

The news also mentioned that the proposal will have to be passed first by a commission in parliament and later by the general assembly. Parliament usually breaks from early July to early October.

Despite the hopes of stimulus, the USD/TRY remains on the front foot around the yearly high, despite the latest pause after the three-day uptrend, mainly on President Tayyip Erdogan’s push for no rate hikes despite record-high inflation.

While failing to cheer the stimulus hopes, the USD/TRY also ignores a pullback in the US dollar, as well as firmer market sentiment.

US Dollar Index (DXY) extends the week-start losses to 104.41, down 0.07% intraday by the press time, which in turn allows the commodities and Antipodeans to cheer the risk-on mood. The greenback’s weakness could be linked to the recently downbeat US data and softer US inflation expectations, as per the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data. It’s worth noting that the US inflation expectations refreshed monthly low on Friday.

Amid these plays, the S&P 500 Futures rise around 1.6%, up for the second consecutive day, as it flashes the 3,735 level at the latest. On the same line, the US 10-year Treasury yields extend Friday’s gains to begin the week’s trading around 3.3%, up four basis points (bps) by the press time.

Moving on, USD/TRY traders will pay attention to the risk catalysts and the Chicago Fed National Activity Index and the US Existing Home Sales for May. However, major attention will be on Fed Chair Jerome Powell’s Testimony on the bi-annual Monetary Policy Report.

Technical analysis

A clear downside of the six-week-old ascending trend line, around 17.40 by the press time, favors the USD/TRY pullback towards the early June peak near 17.20 before directing the bears towards the 17.00.

• DXY navigates the low-104.00s and adds to Monday’s losses.
• US yields edge a tad higher following Monday’s inactivity.
• Chicago Fed Index, Existing Home Sales next on tap.

The US Dollar Index (DXY), which gauges the greenback vs. a bundle of its main competitors, adds to the pessimism seen at the beginning of the week and retests the 104.20 area on turnaround Tuesday.

US Dollar Index vigilant ahead of Powell

The index loses ground for the second session in a row and extends the negative start of the week, although it manages well to keep business above the 104.00 mark for the time being.

In the meantime, the US cash markets return to the normal activity following Monday’s Juneteenth holiday and show a small improvement in yields in the short end and the belly of the curve.

The dollar is expected to remain vigilant on the ongoing debate over another probable 75 bps rate hike by the Federal Reserve in July, while speculation that the US economy could slip back to recession remains on the rise.

In the docket, the Chicago Fed National Activity Index is due seconded by Existing Home Sales and the speech by Richmond Fed T,Barkin (2024 voter, hawk).

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 0.06% at 104.41 and faces the next support at 102.53 (55-day SMA) followed by 101.29 (monthly low May 30) and then 100.24 (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).

• AUD/USD is expected to hover below 0.6980 as investors await Fed Powell’s testimony.
• The RBA sees no harm to the Unemployment Rate while addressing the inflation mess.
• The DXY is defending Monday’s low but is expected to remain on the tenterhooks.

The AUD/USD pair has witnessed selling pressure around 0.6980 despite the positive minutes from the Reserve Bank of Australia (RBA). The asset has experienced offers after attempting to surpass the critical hurdle of 0.6980 for the third time from Monday. On a broader note, the asset is displaying a sideways move ahead as investors are counting on the release of the Federal Reserve (Fed) chair Jerome Powell’s testimony for a decisive move.

As per the RBA minutes, the extent of the rate hike announcement for July monetary policy will be 25 basis points (bps) or 50 bps. It is worth noting that the RBA doesn’t see any signs of recession in the current horizon. Household spending is resilient despite depreciated paychecks due to higher price pressures. As per the minutes, the jobless rate is going to remain untouched while fixing the inflation mess, which indicates that the labor market in the Australian economy is extremely tight.

The central bank is focusing on bringing the annual wage growth of 3.5% in order to counter the inflationary pressures as significantly lower wage growth than the price pressures will trim the consumer confidence in the economy.

Meanwhile, the US dollar index (DXY) has witnessed a minor bounce after re-testing Monday’s low at 104.23. The DXY is expected to remain on the sidelines till Fed Powell’s testimony on Wednesday. Investors should focus on further guidance on interest rates to be provided by Fed Powell in his testimony. Apart from that, the dictation on the current status of annual inflation, Core Consumer Price Index (CPI), and the labor market will be of high significance.

• EUR/GBP holds onto downside break of weekly bullish channel, stays pressured around intraday low.
• Convergence of 200-HMA, 61.8% Fibonacci retracement challenges further downside.
• Bulls need to cross 0.8640 to retake control, sellers approach monthly low.

EUR/GBP remains depressed at around 0.8575 as sellers attack short-term key support confluence ahead of Tuesday’s European session.

The cross-currency pair’s latest losses could be linked to the downside break of a one-week-old bullish channel. Also keeping the bears hopeful is the steady RSI and the quote’s sustained trading below the 100-HMA.

However, the 200-HMA and 61.8% Fibonacci retracement of June 09-15 upside challenge the EUR/GBP pair’s immediate downside around 0.8575.

Should the sellers manage to conquer the 0.8575 support, Thursday’s bottom around 0.8510 precedes the 0.8500 threshold and the monthly low of 0.8485 to lure the bears.

Meanwhile, the 100-HMA and support line of the aforementioned channel guard short-term upside near 0.8590-95.

Following that, the stated channel’s resistance line, around 0.8635, will be decisive for the EUR/GBP buyers.

In a case where EUR/GBP rises past 0.8635, the June 15 swing low near 0.8675 can entertain the buyers ahead of directing them to the monthly peak of 0.8721.

Overall, EUR/GBP bears are in the driver’s seat but the downside appears to have a limited room.

EUR/GBP: Hourly chart

Trend: Further downside expected

EUR/USD is expected to keep the side-lined trading well and sound for the time being, noted FX Strategists Lee Sue Ann and Quek Ser Leang.

Key Quotes

24-hour view: “We expected EUR to ‘consolidate and trade between 1.0445 and 1.0550’ yesterday. EUR subsequently traded within a narrow range of 1.0473/1.0545 before closing slightly higher at 1.0509 (+0.10%). Momentum indicators are mostly neutral and further consolidation would not be surprising. Expected range for today, 1.0470/1.0560.”

Next 1-3 weeks: “There is not much to add to our update from yesterday (20 Jun, spot at 1.0485). As highlighted, EUR is likely to consolidate and trade within a range of 1.0350/1.0650.”

Japanese Prime Minister Fumio Kishida said on Tuesday, the monetary policy should not be tweaked now.

Additional quotes

Market reaction

Kishida’s comments triggered a fresh yen selling vs. the US dollar, driving USD/JPY to 135.12.

• USD/CAD takes offers to refresh daily low, extends the week-start pullback.
• Oil prices benefit from cautious optimism, softer US dollar.
• Yields fail to underpin greenback’s rebound amid market’s indecision ahead of Fed’s Powell.
• Canada Retail Sales, second-tier US data can offer immediate directions.

USD/CAD remains on the back foot around 1.2950, extending the previous day’s losses towards refreshing the daily low near 1.2930 ahead of Tuesday’s European session. The Loonie pair’s latest weakness could be linked to the US dollar’s broad weakness, as well as a rebound in Canada’s key export item, namely WTI crude oil.

US Dollar Index (DXY) extends the week-start losses to 104.35, down 0.14% intraday by the press time, which in turn allows the commodities and Antipodeans to cheer the risk-on mood. The greenback’s weakness could be linked to the recently downbeat US data and softer US inflation expectations, as per the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data. It’s worth noting that the US inflation expectations refreshed monthly low on Friday.

On the other hand, WTI crude oil prices hold onto the previous day’s rebound from the monthly low, up 0.90% intraday around $109.80 at the latest.

The black gold appears to benefit from the firmer sentiment, as well as the cautious mood over the supply concerns amid a fresh bout of geopolitical tensions between Russia and Ukraine.

On a positive note, headlines suggesting an improvement in China’s covid conditions and the US readiness to ease the Trump-era tariffs on the dragon nation seem to favor the market sentiment.

While portraying the mood, the S&P 500 Futures rise around 1.6%, up for the second consecutive day, as it flashes the 3,735 level at the latest. On the same line, the US 10-year Treasury yields extend Friday’s gains to begin the week’s trading around 3.3%, up four basis points (bps) by the press time.

Looking forward, Canada’s Retail Sales for May, expected 0.8% versus 0.0% prior, will be important for the USD/CAD traders. Also, the Chicago Fed National Activity Index and the US Existing Home Sales for May could entertain intraday traders. However, major attention will be on Fed Chair Jerome Powell’s Testimony on the bi-annual Monetary Policy Report.

Technical analysis

USD/CAD holds onto the downside break of a one-week-old ascending trend line, previous support while keeping 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.

• A rebound in the positive market sentiment has supported the Asian equities.
• Oil prices are in recovery mode as supply constraints to remain for a prolonged period.
• The DXY is expected to extend losses as investors have shrugged-off uncertainty over Fed Powell’s testimony.

Markets in the Asian domain are firmer on the improved risk appetite of investors. A strong rebound in the risk-on impulse has underpinned the risk-perceived assets, whose effect is clearly reflected in the Asian equities. The Asian indices are following the footprints of S&P500 futures and are advancing higher. It seems like the market participants have ignored the uncertainty over the Federal Reserve (Fed) chair Jerome Powell’s testimony and have started pouring funds into the risk-sensitive assets.

At the press time, Japan’s Nikkei225 surged 2.27%, China A50 added 0.33%, Hang Seng gained 1.50%, and Nifty50 jumped 1.25%.

The Chinese economy has shown some signs of reversal in the downside trend of the aggregate demand as their oil imports from Russia have jumped significantly. The economy has recorded a 55% addition in the oil imports in May.

On the oil front, oil prices are picking bids below $110.00 after a significant fall recorded on Friday. The black gold has rebounded strongly as investors are giving more priority to the supply constraints rather than focusing on the expected demand slump due to recession fears going forward. The supply constraints are expected to remain for a prolonged period as gauging an alternative to Russia for addressing the demand for fossil fuels is not a cakewalk.

Meanwhile, the US dollar index (DXY) is hovering around its intraday low at 104.22 and a downside move is expected as investors have shrugged off the uncertainty over the Fed Powell’s testimony. Traders should focus on the guidance to be provided on upcoming monetary policy action.

• NZD/USD extends recovery from 200-HMA towards nearby resistance line.
• Firmer RSI, sustained trading above weekly support line and 100-HMA favor buyers.
• Bulls keep their eyes on 0.6430 before eyeing the monthly top.

NZD/USD refreshes intraday high around 0.6345 while stretching the week-start rebound from the 200-HMA during early Tuesday morning in Europe.

In doing so, the Kiwi pair buyers aim for a downward sloping resistance line from Thursday, around 0.6355 by the press time.

Underpinning the latest run-up of the pair is the firmer RSI (14), as well as the quote’s ability to stay firmer past the one-week-old support line and the 100-HMA.

That said, a clear upside break of the 0.6355 appears necessary for the NZD/USD bulls before the previous weekly top surrounding 0.6400 could lure the bulls.

Should NZD/USD bulls keep reins past 0.6400, the 0.6430 resistance level may act as the last defense for the bears before fueling the quote towards the monthly high near 0.6575.

Meanwhile, pullback moves remain elusive until staying beyond the 200-HMA level of 0.6322.

Even if the NZD/USD prices drop below 0.6322, a convergence of the 100-HMA and a one-week-old rising support line, appears a tough nut to crack for the pair sellers around 0.6305.

It’s worth noting that the 0.6300 round figure could act as a validation point for the kiwi pair’s downside past 0.6305.

NZD/USD: Hourly chart

Trend: Further upside expected

• USD/JPY is oscillating around 135.00 as investors await the release of the BOJ minutes.
• The DXY is underperforming on soaring market sentiment.
• Fed Powell’s testimony will dictate the likely monetary policy action in July.

The USD/JPY pair is displaying lackluster performance in the Asian session. The asset is juggling in a narrow range of 134.92-135.21 right from the first tick. Usually, an inventory distribution move in the early hours of the trading session calls for an imbalance move in the breakout direction. Considering the broader note, the asset is firmer after a responsive buying move from Thursday’s low at 131.49. Therefore, a bullish imbalance move is more likely.

The market participants are awaiting the release of the Bank of Japan (BOJ)’s June meeting minutes. Traders should be aware of the fact that the BOJ kept a dovish stance on the interest rates. Taking into account, the soaring price pressures due to supply chain disruption and the Russia-Ukraine war, world central banks have elevated their interest rates vigorously. The Swiss National Bank (SNB) has also elevated its lending rates by 50 basis points (bps).

Now, the BOJ is seldom operating on ultra-loose monetary policy to spurt the aggregate demand in the economy. The annual inflation rate in the Japanese economy has climbed above its desired levels. However, the core Consumer Price Index (CPI) is significantly lower due to costly fossil fuels and food prices. It would be worth noting the comments over the core CPI by BOJ’s Kuroda and its Co.

On the dollar front, the US dollar index (DXY) is expected to slip below Monday’s low of 104.23 amid a soaring market mood. The FX domain is keeping an eye on the Federal Reserve (Fed) chair Jerome Powell’s testimony. Fed Powell will dictate the likely monetary policy action for July’s policy.

• USD/INR refreshes intraday high amid crude oil rebound, ignores softer USD.
• Fears of India’s elevated inflation join hopes of Fed’s aggression to propel the pair.
• Juneteenth holiday, lack of major data/events failed to impress buyers.
• Second-tier US data, risk catalysts can provide short-term directions ahead of Powell’s Testimony.

USD/INR picks up bids to refresh daily top around 78.00, following a sluggish week-start, as inflation fears weigh on the Indian rupee (INR) buyers during early Tuesday. Even so, the US dollar’s recent pullback appears to guard the pair’s upside momentum amid a lackluster Asian session.

Inflation woes join the rebound in the crude oil prices to propel the pair despite the US dollar’s broad weakness.

That said, an Asian research house Nomura eyes more than double Indian inflation for 2022 and keeps the INR sellers hopeful. “India’s food and beverage price inflation is expected to remain elevated through 2022, averaging over 8.0% on-year against 3.7% in 2021, Nomura says per Reuters.

Elsewhere, WTI crude oil prices hold onto the previous day’s rebound from the monthly low, up 0.90% intraday around $109.80 at the latest. Considering India’s heavy reliance on energy imports and a record budget deficit, firmer crude drowns the INR.

On a broader front, the US Dollar Index (DXY) extends the week-start losses to 104.30, down 0.20% intraday by the press time, which in turn allows the commodities and Antipodeans to cheer the risk-on mood. The greenback’s weakness could be linked to the recently downbeat US data and softer US inflation expectations, as per the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data. It’s worth noting that the US inflation expectations refreshed monthly low on Friday.

Also adding strength to the commodities like crude are headlines suggesting an improvement in China’s covid conditions and the US readiness to ease the Trump-era tariffs on the dragon nation seems to probe the Steel Price downside. However, the fears of economic slowdown and the Fed’s aggression seem to outlaw the recent consolidation in the markets and keep the USD/INR buyers hopeful.

Amid these plays, the S&P 500 Futures rise around 1.6%, up for the second consecutive day, as it flashes the 3,735 level at the latest. On the same line, the US 10-year Treasury yields extend Friday’s gains to begin the week’s trading around 3.3%, up four basis points (bps) by the press time.

That said, headlines concerning risk catalysts will join the Chicago Fed National Activity Index and the US Existing Home Sales for May to entertain intraday traders but major attention will be on Fed Chair Jerome Powell’s Testimony on the bi-annual Monetary Policy Report.

Technical analysis

A clear downside break of a seven-week-old ascending trend line joins Monday’s “Gravestone Doji” candlestick to keep USD/INR bears hopeful. However, multiple tops marked around 77.85 appear to restrict short-term declines of the pair. Alternatively, the support-turned-resistance line and the latest high, respectively around 78.10 and 78.40, could lure the buyers during the fresh upside.

• Gold Price keeps moving back and forth in a familiar range near $1,850.
• Risk tone remains in a better spot as investors take a pause after the sell-off.
• Powell’s testimony holds the key for the next directional move in XAUUSD.

Risk flows and the US dollar weakness remain in play so far this week, as investors assess the recent steep sell-off in global stocks. Additionally, they reposition their bets on the dollar ahead of the critical testimony from Fed Chair Jerome Powell scheduled this week. Gold Price is capitalizing on the reduced haven demand for the greenback, although the renewed uptick in the US Treasury yields is likely to keep any potential rebound restricted. Bulls will also remain cautious ahead of Powell’s testimony before US Congress on the semi-annual Monetary Policy Report. The Fed’s tightening expectations and fears over a looming recession could also significantly impact XAU/USD.

Also read: Is the US on the brink of a recession?

Gold Price: Key levels to watch

The Technical Confluence Detector shows that Gold Price is challenging the $1,840 level on its road to recovery. That level is the convergence of the Fibonacci 38.2% one-day, SMA50 four-hour and the previous high four-hour.

The next upside target is seen at the confluence of the Fibonacci 61.8% one-day and SMA10 one-day at $1,843.

Further up, strong resistance aligns at $1,845, where the SMA200 one-day coincide with the SMA100 four-hour.

Alternatively, the previous day’s low of $1,835 will be the immediate downside target, below which the pivot point one-day S2 at $1,828 will come into play.

The Fibonacci 23.6% one-week at $1,823 will be the level to beat for XAU sellers.

Here is how it looks on the tool

About Technical Confluences Detector

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

Japanese Finance Minister Shunichi Suzuki continues to voice his concerns over the sharp depreciation of the yen.

Additional quotes

Timing and financing sources for swift comprehensive measures to cope with price hikes have not yet been decided.

Rapid FX moves are undesirable.

Will respond appropriately to FX when necessary.

Excess FX volatility and disorderly moves can hurt economic stability.

Market reaction

At the time of writing, USD/JPY is battling 135.00, almost unchanged on the day.

• EUR/USD is struggling to extend Monday’s rebound in the Asian session.
• The US dollar corrective mode remains intact amid an improved mood.
• Lagarde waters down hopes for a double-dose rate hike in July.

EUR/USD is preserving most of Monday’s gains, consolidating below 1.0550 so far this Tuesday. Risk sentiment remains in a firmer spot, weighing negatively on the safe-haven US dollar.

Markets are unwinding their USD long positions, as global stocks stabilize after the previous week’s turmoil and following the hawkish Fed’s monetary policy announcement. Investors gear up for another round of dollar buying, with Fed Chair Jerome Powell’s testimony scheduled before the Congress on its semi-annual Monetary Policy Report on Wednesday and Thursday.

The prepared remarks of Powell’s testimony will be published later this Tuesday. A renewed bid wave may emerge in the dollar should the central bank Chief reinforce his pledge to fight inflation, hinting at a 0.75 bps rate hike in July.

Meanwhile, EUR bulls turn cautious after ECB President Christine Lagarde watered-down expectations of a double-dose rate hike at its next policy meeting in July, citing that they intend to raise key rates by 25 bps next month. Further, looming fragmentation and recession risks in the euro area also keep the euro’s upside attempts in check.

On the data front, the Eurozone Current Account data and US Housing data will be on the cards.

EUR/USD technical levels to consider

• Steel Price remains on the back foot despite the latest rebound.
• Fears surrounding China’s economic growth, central bank aggression weigh on prices.
• Iron Ore weakness, fears of more output also strengthen bearish bias.
• Steel Price drops to five-month low as recession fears supersede softer USD

Steel Price remains depressed around the lowest levels since January, despite the latest bounce, as traders’ fears of receding demand from China supersede the immediate benefits from the downbeat US dollar. Also exerting downside pressure on the metal could be the softer iron ore and a metal basket.

That said, the Shanghai exchange's most-active stainless steel contract rises more than 3%, after refreshing the multi-day low recently, while Steel Rebar Futures on the London Metal Exchange (LME) remain inactive at around $692.50 per tonne.

Iron ore futures, the key component of steel, also portray the bear’s dominance by posting a 3.7% daily loss around the lowest levels since March 02. The metal slumped around 11% the previous day as fears of China’s economic recession grew stronger.

The US Dollar Index (DXY) extends the week-start losses to 104.30, down 0.20% intraday by the press time, which in turn allows the commodities and Antipodeans to cheer the risk-on mood. The greenback’s weakness could be linked to the recently downbeat US data and softer US inflation expectations, as per the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data. It’s worth noting that the US inflation expectations refreshed monthly low on Friday.

Elsewhere, headlines suggesting an improvement in China’s covid conditions and the US readiness to ease the Trump-era tariffs on the dragon nation seem to probe the Steel Price downside. However, the fears of economic slowdown in the world’s biggest metal consumer gather momentum and exert downside pressure on the commodities. "China's strict 'zero-COVID' policy of constantly monitoring, testing and isolating its citizens to prevent the spread of the coronavirus has battered the country's economy and manufacturing sector," said Reuters.

Additionally, China’s increased production adds to the bearish bias over the Steel Price. “The maker of half the world’s steel churned out 231 million tons between January and March, up almost 10 percent from a year earlier and the highest for any first quarter on record. Production in March climbed 10 percent to 80.3 million tons, according to data from the statistics bureau,” said Bloomberg in its latest steel research.

On the other hand, Peru and Australia also brace for higher production and weigh on the metal prices.

Looking forward, headlines from China and Chicago Fed National Activity Index and the US Existing Home Sales for May will entertain intraday traders but major attention will be on the full markets’ reaction to the latest shift in the risk appetite. Additionally, Fed Chair Jerome Powell’s Testimony on the bi-annual Monetary Policy Report will be important too.

• GBP/USD remains directed towards 1.2300 but bulls catch a breather.
• US dollar licks its wounds amid a risk-friendly market environment.
• BOE Mann’s hawkish comments underpin the GBP, focus shifts to Powell.

GBP/USD is looking to build on the previous day’s recovery, as bulls keep their sight on the 1.2300 barrier amid an upbeat market mood.

Risk flows extend into Asia this Tuesday, as bears take a breather after last week’s rout in global stocks. The improved appetite for riskier assets dulls the safe-haven appeal of the US dollar, boding well for the high-beta British pound.

The sterling also continues to draw support from the hawkish comments from the BOE policymaker Catherine Mann. She said that a weak pound makes the case for a big rate hike. The BOE hiked the key policy rate by 25 bps to 1.25% at its meeting in the previous week. The next scheduled BOE rate decision is on August 4, when markets are pricing in a 64% chance of 50 bps rate hike, per the BOEWatch Tool.

Meanwhile, investors resort to taking profits off the table on their dollar longs, positioning themselves ahead of the two-day testimony from Fed Chair Jerome Powell, starting on Wednesday. The prepared text of Powell’s testimony will be published late Tuesday, which could offer fresh cues on the dollar valuations for the coming days.

Ahead of that, speeches from the BOE policymakers Huw Pill and Silvana Tenreyro will be also closely followed for fresh impetus on the pound.  

The pair could also get influenced by the looming Brexit concerns over the Northern Ireland (NI) protocol issue. Plans by the UK government to scrap parts of the post-Brexit trade deal it agreed with the EU would be "economic vandalism" on Northern Ireland, Ireland’s Taoiseach (Irish PM) Micheál Martin said on Monday.

GBP/USD: Technical levels to consider

• Market sentiment appears positive as traders brace for the key events.
• Fears of recession, central bank aggression seem to take a back seat amid death of major data/events.
• Juneteenth offered a negative week-start to the USD, stock futures, yields extend Friday’s gains.
• Second-tier US statistics may entertain traders ahead of Powell’s Testimony.

Risk profile remains cautiously optimistic during Tuesday’s Asian session as traders brace for the week’s key events with mixed feelings.

While portraying the mood, the S&P 500 Futures rise over 1.0%, up for the second consecutive day, as it flashes the 3,720 level. On the same line, the US 10-year Treasury yields extend Friday’s gains to begin the week’s trading around 3.3%, up six basis points (bps) by the press time.

A light calendar and the central bankers’ justification of the latest hawkish moves allowed the market players to portray a relief rally on Monday. Also favoring the risk-on mood were headlines suggesting an improvement in China’s covid conditions and the US readiness to ease the Trump-era tariffs on the dragon nation.

Furthermore, multiple policymakers from the European Central Bank (ECB) and the Bank of England (BOE) shrugged off the market’s expectations of aggressive rate hikes. On the same line were the recent comments from Reserve Bank of Australia (RBA) Governor Philip Lowe.

Additionally, downbeat prints of the US inflation expectations, as per the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, also allowed the markets to take a sigh of relief. That said, the US inflation expectations refreshed monthly low on Friday.

Amid these plays, the US Dollar Index (DXY) extends the week-start losses to 104.30, down 0.20% intraday by the press time, which in turn allows the commodities and Antipodeans to cheer the risk-on mood.

However, cautious sentiment ahead of Fed Chair Jerome Powell joins fears that China may fail to recover even during the second half of the year (H2) to challenge the market optimism.

That said, Chicago Fed National Activity Index and the US Existing Home Sales for May will entertain intraday traders but major attention will be on the full markets’ reaction to the latest shift in the risk appetite.

• AUD/JPY grinds high for the third consecutive day, retreats from daily top of late.
• RBA Minutes portray the policymakers’ hawkish bias, Governor Lowe also signalled further rate hikes.
• Triangle breakdown, sluggish RSI challenge buyers, 100-HMA restrict short-term declines.
• Bulls need validation from 61.8% Fibonacci retracement of June 08-16 downside.

AUD/JPY seesaws around the 200-HMA hurdle, defending the 94.00 round figure during Tuesday’s Asian session.

The cross-currency pair’s latest moves could be linked to the hawkish comments from Reserve Bank of Australia (RBA) Governor Philip Lowe, as well as Minutes of the latest monetary policy.

Read: RBA Minutes: Committed to doing what is necessary to ensure inflation returns to target over time

However, the pair’s downside break of the three-day-old triangle formation and the sustained trading below the 200-HMA challenge AUD/JPY buyers. On the same line is the recent downside RSI (14).

That said, the 100-HMA level of 93.60 limits the short-term downside of the AUD/JPY pair, a break of which could direct the bears towards the 93.00 threshold before highlighting the monthly low near the 92.00 mark.

During the anticipated fall, the 92.60 and 92.40 levels may offer intermediate halts to the bears.

Meanwhile, recovery moves need validation from the 200-HMA and the support line of the stated triangle, respectively around 94.10 and 94.35.

Also challenging the AUD/JPY buyers is the aforementioned triangle’s resistance line and the 61.8% Fibonacci retracement level, around 94.65 and 95.00 in that order.

Overall, AUD/JPY remains on the bull’s radar due to its refrain from extending the triangle breakdown, as well as staying around the 200-HMA. However, bulls need conviction.

AUD/JPY: Hourly chart

Trend: Further recovery expected

“China's financial regulators are likely to guide down banks' capital costs to drive down their Loan Prime Rate quotations in H2, thereby reducing the loan interest rates for enterprises and residents,” the 21st Century Business Herald reported, citing analysts.

Additional comments

“LPR, based on the rate of PBOC's Medium-term Lending Facility and quotations submitted by 18 banks, remains at 3.70% for the one-year maturity and 4.45% for five years this month. The PBOC is less likely to cut the MLF rate due to the expected significant monetary tightening by the Fed.”

“There is room for a 5-10 bps in one-year LPR, and a 10-15 bps cut in the five-year one, by means of deposit interest rate reform and reserve requirement ratio cuts to lower banks' costs.”

Market implications

USD/CNY was last seen trading at 6.6753, down 0.22% so far. The US dollar correction is weighing down on the cross.

• AUD/USD takes offers to pare recent gains after RBA Minutes.
• RBA Minutes cited board members’ agreement over the gradual rate hikes.
• RBA’s Lowe teased rate hike before watering down hopes of faster interest rate increases.
• Risk-on mood, softer USD favor buyers ahead of second-tier US data, Fed’s Powell.

AUD/USD fails to cheer hawkish remarks from the RBA Minutes as it drops to 0.6860 during early Tuesday. Even so, the Aussie pair remains firmer for the second consecutive day as the Reserve Bank of Australia (RBA) sounds hawkish.

“Board members noted that either 25 bp or 50 bp rate rise would leave the cash rate below 1%, which would still be highly stimulatory, and that further increases would be required,” said the latest RBA Meeting Minutes per Reuters.

Read: RBA Minutes: Committed to doing what is necessary to ensure inflation returns to target over time

Earlier in the day, RBA Governor Philip Lowe mentioned that the Australians should be prepared for more interest rate increases. However, his following comments showing less favor for the market’s 4.0% cash rate forecasts challenged the AUD/USD bulls afterward.

Even so, firmer US stock futures and a downbeat US dollar keep the AUD/USD buyers hopeful. That said, US Dollar Index (DXY) extends the week-start losses to 104.30, down 0.20% intraday by the press time. That said, the greenback gauge began the week on a negative note as the Juneteenth holiday allowed bulls to take a breather.

Risk appetite remains firmer after a positive week-start performance amid a rethink over the latest pessimism surrounding economic slowdown. Adding to the risk-on mood could be the headlines suggesting an improvement in China’s covid conditions and the US readiness to ease the Trump-era tariffs on the dragon nation.

Against this backdrop, the S&P 500 Futures rise over 1.0%, up for the second consecutive day, whereas the US 10-year Treasury yields print a three-day uptrend around 3.284% by the press time.

Moving on, Chicago Fed National Activity Index and the US Existing Home Sales for May will entertain AUD/USD traders ahead of Fed Chairman Jerome Powell’s Testimony on the bi-annual Monetary Policy Report, on Wednesday and Thursday.

Technical analysis

AUD/USD buyers approach the 10-DMA hurdle near 0.7000, backed by firmer oscillators. That said, the weekly support line, around 0.6930 by the press time, restricts the quote’s immediate downside.

Reserve Bank of Australia’s (RBA) June monetary policy meeting’s minutes showed that board members remained committed to doing what is necessary to ensure that inflation in Australia returns to the target over time.

Additional takeaways

Market reaction

AUD/USD turns south towards 0.6950 on the RBA Minutes release. The Minutes offers no new surprise and seems to have disappointed the hawks.

The pair was last trading up 0.19% on the day at 0.6962.

South Korea's new central bank governor Rhee Chang-yong said on Tuesday, “they need to monitor June inflation data, FX market and other data before assessing whether a big step hike is needed.”

Additional quotes

• Gold price picks up bids to refresh intraday high, reverses week-start declines.
• US dollar remains pressured as traders brace for Powell’s Testimony amid firmer stock futures.
• Yields, recession fears fail to underpin the greenback amid lack of major data/events.
• Second-tier US statistics, risk catalysts may entertain traders.

Gold Price (XAU/USD) remains firmer around $1,843 as bulls cheer the US dollar’s sustained weakness during the lackluster Asian session on Tuesday. Also underpinning the yellow metal’s upside are the upbeat prints of the US stock futures and the market’s preparations for Wednesday’s Fed Chair Jerome Powell’s Testimony.

US Dollar Index (DXY) extends the week-start losses to 104.30, down 0.20% intraday by the press time. That said, the greenback gauge began the week on a negative note as the Juneteenth holiday allowed bulls to take a breather.

Also underpinning the US dollar weakness, as well as fueling the gold prices, are the positive performances by the stocks/bunds in Europe and the UK amid an off in the US and a rethink over the latest pessimism surrounding economic slowdown. However, chatters over the central bankers’ aggression in taming inflation challenge the market’s optimism, as well as the gold buyers.

Furthermore, headlines suggesting an improvement in China’s covid conditions and the US readiness to ease the Trump-era tariffs on the dragon nation could be cited as the positive catalyst for the XAU/USD prices.

Amid these plays, the S&P 500 Futures rise over 1.0%, up for the second consecutive day, whereas the US 10-year Treasury yields print a three-day uptrend around 3.284% by the press time.

That said, gold traders may now look for the Chicago Fed National Activity Index and the US Existing Home Sales for the said month to entertain intraday traders. However, major attention will be given to Federal Reserve (Fed) Chairman Jerome Powell’s Testimony on the bi-annual Monetary Policy Report, on Wednesday and Thursday.

Technical analysis

Gold Price extends the latest recovery towards the $1,845 resistance confluence comprising the 100 and 200 SMAs, as well as the 38.2% Fibonacci retracement level of the May-June upside. Also highlighting the importance of the stated hurdle is the 200-DMA on the daily chart.

It’s worth noting that the recent firmer RSI may help the XAU/USD buyers to overcome the key resistance of near $1,845.

Following that, Thursday’s high of $1,857 and the monthly peak near $1,880 will gain the market’s attention.

Alternatively, the weekly support line and the 50% Fibonacci retracement (Fibo.) limit the short-term downside of the Gold Price to around $1,833.00.

In a case where gold sellers keep reins past $1,833, the 61.8% Fibo level and the monthly low, respectively around $1,822 and $1,805, could gain the market’s attention.

Gold: Four-hour chart

Trend: Further upside expected 

The People’s Bank of China (PBOC) set the USD/CNY reference rate at 6.6851 on Tuesday when compared to the previous fix and the previous close at 6.7120 and 6.6919 respectively.

• The DXY is declining towards 103.80 on positive market sentiment.
• Fed Powell's testimony will dictate the rationale behind the announcement of a 75 bps rate hike.
• Lower expectations from US PMI numbers have signaled recession worries.

The US dollar index (DXY) has witnessed a steep fall in the initial ticks and is expected to extend its losses after slipping below Monday’s low at 104.23. The DXY displayed subdued performance on Monday amid an improvement in the risk appetite of the market participants. A rebound in the risk-on impulse has diminished the safe haven’s appeal.

Fed Powell testimony

Investors in the FX domain are awaiting the speech from Federal Reserve (Fed) chair Jerome Powell, which is due on Wednesday. Fed Powell is going to dictate the rationale behind announcing the 75 basis points (bps) rate hike. Apart from that, the market participants will get a true picture of the economy and the status of inflation and employment. The important thing of the discussion is going to be the dictation over the rate hike in July, which is seen at 75 bps as stated by Fed Governor Christopher Waller.

Estimates for US PMI trims

Considering the significant increase in interest rates and prohibition of helicopter money into the US economy by the Fed, the market participants have slashed the growth rates, retail sales, and other economic activities. As per the market consensus, 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.

• EUR/USD grinds higher around 1.0525 as bulls jostle with weekly resistance line.
• Bullish MACD signals hint at further but previous support line, 200-SMA challenge buyers.
• Bears have multiple levels to conquer before retaking control.

EUR/USD battles with an eight-day-old resistance line as buyers extend the week-start rebound to 1.0520 during Tuesday’s Asian session.

Bullish MACD signals seem to keep the EUR/USD pair buyers hopeful. However, the previous support line from Friday, around 1.0540, acts as an extra filter to the north.

Also challenging the major currency pair buyers is the 200-SMA level surrounding 1.0585-90, as well as the previously weekly top near the 1.0600 threshold.

In a case where EUR/USD buyers manage to keep reins past 1.0600, June 10 high close to 1.0640 will be the last defense of the pair sellers before recalling the above 1.0700 area on the chart.

Alternatively, pullback moves remain elusive until the quote stays beyond an upward sloping trend line from June 15, around 1.0450. It’s worth noting that Friday’s low near 1.0440 offers extra support to watch.

Should EUR/USD bears conquer the 1.0440 support, the odds of witnessing a south-run towards the yearly low near 1.0360 can’t be ruled out.

EUR/USD: Four-hour chart

Trend: Further upside expected

Adding to his previous signals for rate hikes, Reserve Bank of Australia (RBA) Governor Philip Lowe said, “High inflation is cutting into peoples' real incomes,” during early Tuesday, per Reuters.

The policymaker also mentioned that they discussed 25 or 50bp (basis points) at the June meeting and will discuss 25 or 50 at the July meeting as well, per Reuters.

Additional comments

AUD/USD refreshes intraday high

AUD/USD renews daily top around 0.6980 following the recent comments that portray the hawkish bias of the Aussie central bank.

Also read: AUD/USD bulls approach 0.7000 as RBA’s Lowe teases more rate hikes

• The oil prices are trading in a 60-pips range in early Tokyo.
• Policy tightening by the Western leaders has triggered recession fears in the world economy.
• China has increased its oil imports from Russia significantly.

West Texas Intermediate (WTI), futures on NYMEX, is juggling in a narrow range of $108.25-108.85 in the Asian session. The black gold is not performing well after the world central banks started elevating their interest rates vigorously due to intense price pressures. To tame the galloping inflation, it looks like a rate hike by 50 basis points (bps) is the new normal. Various central banks have sounded hawkish and the mighty Federal Reserve (Fed) went beyond the paragraph and announced a rate hike by 75 bps.

The higher extent of rate hikes by the central banks is opening doors for a recession in the world economy. Higher interest rates will squeeze liquidity from the market and the corporate sector will leave with lower capital and that too is an expensive one. This will force the corporate to invest in projects with more filters due to the unavailability of helicopter money. Eventually, the aggregate demand will witness a major slump and therefore the oil demand will fall significantly.

On the supply side, supply constraints will continue to remain steady as gauging an alternate for oil imports from Russia is not a cakewalk. Many economies have decided to prohibit oil from Russia despite naming the alternate oil suppliers to address the required demand.

Meanwhile, oil imports in China from Russia have soared dramatically. The economy has recorded a 55% addition in the oil imports in May.

• AUD/USD gradually increases on hawkish comments from RBA Governor Philip Lowe.
• RBA’s Lowe signals more rate increases while saying that pace and extent of hikes will be guided by the incoming data.
• US dollar weakness ahead of Fed’s Powell keeps buyers hopeful.
• RBA Minutes, second-tier US data will be important to watch for fresh impulse.

AUD/USD renews intraday high to 0.6975 on RBA Governor Philip Lowe’s measured hawkish remarks. In doing so, the Aussie pair awaits RBA Meeting Minutes to confirm the bullish bias during early Tuesday’s Asian session.

Reserve Bank of Australia (RBA) Governor Philip Lowe said, per Reuters, “Australians should be prepared for more interest rate increases,” during his speech on Tuesday. The policymaker also defended the central bank’s 0.50% rate hike by saying that rates were still ‘very low’ and it was important that higher inflation did not feed into public expectations and wage claims.

Also read: RBA’s Lowe: Australians should be prepared for more interest rate increases

It’s worth noting that RBA’s Lowe also stated, “I want to emphasize though that we are not on a pre-set path.” The same probes the AUD/USD buyers ahead of the Minutes of the latest RBA Monetary Policy Meeting.

Also challenging the Aussie pair is the return of the full markets and anxiety ahead of Fed Chair Jerome Powell’s Testimony.

However, softer US Dollar Index (DXY) and the Treasury yields join upbeat stock futures to keep the AUD/USD buyers hopeful. That said, US Dollar Index (DXY) began the week on a negative note as the Juneteenth holiday allowed bears to take a breather. It should be noted that the greenback’s gauge versus the six major currencies dropped 0.16% to 104.45 by the end of Monday, taking round to the same level at the latest.

Furthermore, the US 10-year Treasury yields begin the week at around 3.27%, mostly unchanged, while the S&P 500 Futures rise 1.10% to print the second consecutive daily gain.

Looking forward, the RBA Meeting Minutes will precede the Chicago Fed National Activity Index and the US Existing Home Sales for the said month to entertain intraday traders. However, major attention will be given to Federal Reserve (Fed) Chairman Jerome Powell’s Testimony on the bi-annual Monetary Policy Report, on Wednesday and Thursday.

Technical analysis

AUD/USD buyers seem running out of fuel below the 10-DMA hurdle near 0.7000. However, the weekly support line, around 0.6930 by the press time, restricts the quote’s immediate downside.

“Australia's top central banker on Tuesday flagged a lot more policy tightening ahead as rates were still 'very low' and it was important that higher inflation did not feed into public expectations and wage claims,” said Reuters as it quotes Reserve Bank of Australia (RBA) Governor Philip Lowe.

The news adds, “Reserve Bank of Australia (RBA) Governor Philip Lowe said price pressures continued to build both globally and domestically and inflation was now seen reaching 7% by the end of the year, up from a previous forecast of 6%.”

Key quotes

AUD/USD grinds higher

Following the hawkish comments from RBA’s Lowe, AUD/USD remains firmer, taking rounds to the intraday high near 0.6975 at the latest.

Also read: AUD/USD extends recovery towards 0.7000 as RBA praises yield targeting, Lowe eyed