NZD/USD struggles to defend the corrective pullback from a fortnight low during Thursday’s Asian session. That said, the Kiwi pair takes rounds to 0.6220 as traders await key data from China and the US, while also showing no major reaction to comments from Reserve Bank of New Zealand (RBNZ) policymaker.
RBNZ Chief Economist Paul Conway defends the New Zealand (NZ) central bank’s hawkish monetary policy as he said, “Policy tightening will likely see actual house prices move back towards sustainable levels more in line with market fundamentals.”
However, RBNZ’s Conway couldn’t impress momentum traders amid the market’s cautious mood ahead of top-tier data from China and the US.
That said, the Kiwi pair dropped to a fortnight low during a three-day downtrend the previous day as Fed Chair Jerome Powell’s hawkish comments propelled the risk-off mood and the US dollar. Fed Chairman Jerome Powell mostly repeated his latest pledge to battle inflation with readiness to announce another 0.75% rate hike if needed. The Fed Boss also praised the US economic strength and helped the US dollar to remain firmer.
It should be noted that the final readings of the Q1 US Gross Domestic Product Annualized dropped to -1.6% versus the initial forecasts of -1.5%. The Personal Consumption Expenditure (PCE) Prices, on the other hand, rose more than 7.0% expected and prior readings to 7.1% during the stated period.
Against this backdrop, Wall Street closed mixed and the US Treasury yields dropped for the second day. It’s worth noting that the S&P 500 Futures remain downbeat and the US bond coupons also stay pressured by the press time.
Having failed to react to RBNZ’s Conway, NZD/USD traders await China’s NBS Manufacturing PMI and Non-Manufacturing PMI for June amid fears of recession. Forecasts suggest the headline NBS Manufacturing PMI rise to 50.5 from 49.6 whereas the Non-Manufacturing PMI could also jump to 52.5 versus 47.8 prior. Additionally, the Fed’s preferred version of inflation, namely the Core Personal Consumption Expenditure (PCE) Price Index, for May, expected to rise to 0.4% from 0.3% MoM, will also be important to watch for clear directions.
Although a seven-week-old horizontal support area surrounding 0.6215-20 restricts the immediate downside of the NZD/USD, the pair buyers remain skeptical unless witnessing a clear break of the monthly resistance line, near 0.6280 by the press time.
West Texas Intermediate (WTI), futures on NYMEX, is oscillating in a narrow range of $108.10-108.41 in the early Tokyo session. The black gold has turned sideways after displaying a steep fall from Wednesday’s high at $112.73. Investors have surrendered their longs from the oil counter amid optimism on additional oil supply in the OPEC meeting on Thursday. The oil prices have fallen more than 4% in the Asian session as Western central banks have shown concerns over the growth forecasts due to the rapid rate hike process.
Traders must be aware of the fact that the global economy is operating on an already tight oil market. The sanctions on Russia after it invaded Ukraine have restricted a significant amount of oil in the global supply. Fixing the imbalance in the demand-supply mechanism is not a cakewalk. However, the OPEC cartel will do its best to reduce the imbalance and may focus on bringing price stability.
It is worth noting that only two countries from the OPEC cartel carry the potential to release more oil: Saudi Arabia and United Arab Emirates (UAE). The dual is already enjoying more fund inflows due to higher prices and higher supply. Despite the merits of the two catalysts, the economies are unable to produce more oil due to production capacity constraints.
On the inventories front, the Energy Information Administration (EIA) has reported a significant fall in the oil inventories by US firms. The oil stockpiles slipped by 2.762 million barrels for the week ending June 24. However, the inventories of gasoline and distillates rose by 2.6 million barrels in total for the last two weeks.
The Reserve Bank of New Zealand's chief economist Paul Conway said the tide may well have turned against housing being a one-way bet for a generation of kiwis.
Immigration is unlikely to return quickly to pre-pandemic levels, contributing to slower population growth overall.
Longer-term, fundamentals that determine sustainable house prices may be changing.
More to come
AUD/USD holds onto the previous day’s bounce off important support while taking rounds to 0.6870 during Thursday’s inactive early Asian session. In addition to defending the corrective pullback, the Aussie pair also portrays the market’s anxiety ahead of important data from a major customer China.
Alike other major currency pairs, the AUD/USD also dropped versus the US dollar on Wednesday, printing a three-day south-run, amid a broad risk-off mood due to the fears of recession. In doing so, the quote failed to cheer firmer-than-expected Aussie Retail Sales for May, to 0.9% versus 0.4% market forecasts and 0.9% previous readouts.
Market sentiment worsened as traders fear that the central bankers’ aggression will lead to a slowing of economic growth. Adding to the sour sentiment were geopolitical and trade-linked fears surrounding Russia and China. While the West remains determined to levy more sanctions on Moscow, chatters over China’s likely failure to meet the optimistic growth target also gained attention and weighed on the AUD/USD prices, due to its risk barometer status.
That said, Fed Chairman Jerome Powell mostly repeated his latest pledge to battle inflation with readiness to announce another 0.75% rate hike if needed. The Fed Boss also praised the US economic strength and helped the US dollar to remain firmer.
Talking about data, the final readings of the Q1 US Gross Domestic Product Annualized dropped to -1.6% versus the initial forecasts of -1.5%. The Personal Consumption Expenditure (PCE) Prices, on the other hand, rose more than 7.0% expected and prior readings to 7.1% during the stated period.
Amid these plays, Wall Street closed mixed and the US Treasury yields dropped for the second day. It’s worth noting that the S&P 500 Futures remain downbeat and the US bond coupons also stay pressured by the press time.
To conclude, AUD/USD traders await China’s NBS Manufacturing PMI and Non-Manufacturing PMI for June amid fears of economic slowdown in the largest trading partner. A softer reading may weigh on the quote. Forecasts suggest the headline NBS Manufacturing PMI rise to 50.5 from 49.6 whereas the Non-Manufacturing PMI could also jump to 52.5 versus 47.8 prior.
Following that, the Fed’s preferred version of inflation, namely the Core PCE Price Index, for May, expected to rise to 0.4% from 0.3% MoM, will be crucial to watch for clear directions.
Also read: US PCE Inflation May Preview: Inflation becomes moot
Given the AUD/USD pair’s sustained trading below a two-week-old descending resistance line and the 10-DMA, not to forget the bearish MACD signals, the quote is likely to break the adjacent key support line from May 12, near 0.6860. The same could direct the sellers towards the yearly low near 0.6830 and then to the 0.6800 round figure.
On the contrary, the 10-DMA and aforementioned resistance line, respectively around 0.6920 and 0.6935, guard the short-term recovery of the quote.
The USD/CHF pair is attempting to hold itself around 0.9550 after a responsive buying action on Wednesday. The asset witnessed a firmer rebound after slipping minutely below the psychological support of 0.9500. A responsive buying action indicates that the market participants found the asset a value buy and initiated fresh longs on the counter.
Considering the firmer fundamentals, bids will remain in favor of the greenback as the market participants have started bracing for a consecutive 75 basis point (bps) rate hike by the Federal Reserve (Fed) in July. The Fed is committed to bringing price stability to the US economy and the concept will demand a significant pace in hiking interest rates.
The commentary from Fed chair Jerome Powell in European Central Bank (ECB)'s annual Forum on Central Banking that delighted investors is that the US economy is strong enough and the labor market is so tight that they could bear the consequences of stepping up rates at a much faster pace. However, the issue with the rapid rate hiking process is that there is no guarantee that the interest rates will reverse to the targeted rate. Therefore, the market participants should start establishing in their subconscious mind that higher inflation for a prolonged period is for real now.
On the Swiss franc front, the underperformance from the ZEW Survey- Expectations have weakened the Swiss franc. The economic data landed at -72.7, lower than the expectations and the prior print of -70.7 and -52.6 respectively. Going forward, investors will keep an eye on the Real Retail Sales, which are seen at 3.8%, significantly higher than the prior release of -6%.
US inflation expectations, as per the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, drop for the third consecutive day by the end of Wednesday’s North American session. In doing so, the inflation gauge slumped to the lowest since January while flashing 2.36% level at the latest.
It’s worth noting that the one-month consumer inflation expectations, as per the data from the US Conference Board jumped to 8.0% versus 7.5%.
Given recent easing in the longer-term inflation expectations, the US dollar may find it difficult to extend the north-run. However, escalating fears of global economic slowdown, coupled with the hawkish Fedspeak, hints at the market’s rush towards the greenback.
That said, the US Dollar Index (DXY) refreshed its two-week top the previous day while piercing the 105.00 level.
Moving on, the Fed’s preferred version of inflation, namely the Core PCE Price Index, for May, expected to rise to 0.4% from 0.3% MoM, will be important to watch for clear directions.
Also read: US PCE Inflation May Preview: Inflation becomes moot
USD/CAD retreats from 1.2900 as buyers take a breather after the biggest daily jump in a week. In doing so, the Loonie pair eases from the 50-EMA and a short-term horizontal resistance during Thursday’s Asian session.
Given the quote’s sustained rebound from the 200-EMA, backed by the bullish MACD signals, USD/CAD prices are likely to extend the latest run-up.
However, a convergence of the 50-EMA and one-week-old horizontal area, surrounding 1.2900-05, becomes necessary for the buyers to keep reins.
Following that, a downward sloping resistance line from early June, around 1.2960, will act as an additional filter to the north before directing buyers towards the monthly top of 1.3078.
It should be noted that the 1.3000 psychological magnet and the previous weekly peak of 1.3017 could act as buffers during the rise.
On the contrary, a three-week-long rising trend line, at 1.2850 by the press time, restricts the USD/CAD pair’s immediate downside ahead of the 200-EMA level of 1.2832.
Should the pair drop below 1.2832, the latest swing low near 1.2820 and the 1.2800 threshold may test bears before giving them control.
Trend: Further upside expected
The GBP/USD pair has witnessed a sigh of relief after nosediving to near the critical support of 1.2100 as the asset has started balancing around 1.2121. However, this doesn’t warrant a halt in the downside move as more downside is on the cards. The pessimist commentary from Bank of England (BOE) Governor Andrew Bailey on the growth prospects of the UK economy has weakened sterling against the greenback.
As per the commentary from BOE’s Bailey, that “We are being hit by a very large real income shock" signifies that the accelerating inflation rate has squeezed the ‘paychecks’ of the households in the pound area. Their heavy personal spending expenditures are now weighed by higher prices rather than higher quantities as the inflation rate has climbed above 9%.
Meanwhile, the extended recovery in the US dollar index (DXY) has dented the appeal of the risk-perceived currencies. The DXY is balancing above 105.00 and is expected to test its 19-year high at 105.79. The odds of a consecutive 75 basis point (bps) interest rate hike by the Federal Reserve (Fed) have advanced on the higher-than-expected US Personal Consumption Expenditure (PCE). The economic data has improved to 7.1% from the prior print of 7%.
Going forward, investors will focus on the release of the UK Gross Domestic Product (GDP) numbers. As per the market consensus, the UK GDP is seen stable at 8.7% and 0.8% on an annual and quarterly basis respectively. On the dollar front, the release of the US ISM PMI on Friday will be of key importance. A preliminary estimate for the economic data is 55 vs. 56.1 recorded earlier.
EUR/USD bears take a breather around mid 1.0400s, pressured near 1.0440 by the press time, as sour sentiment joins anxiety ahead of the Fed’s preferred inflation version. The latest inaction, however, could be linked to the general market dormancy during the initial hours of the Asian session.
Risk appetite remains weak as traders fear that the central bankers’ aggression will lead to a slowing of economic growth. Adding to the sour sentiment were geopolitical and trade-linked fears surrounding Russia and China.
Fed Chairman Jerome Powell mostly repeated his latest pledge to battle inflation with readiness to announce another 0.75% rate hike if needed. The Fed Boss also praised the US economic strength and helped the US dollar to remain firmer.
ECB President Christine Lagarde, on the other hand, signaled chances of a heavier rate increase in September while also expecting positive growth rates. However, ECB Chief Economist Philip Lane warned about a double-sided risk of higher inflation for longer and an upcoming recession, in an interview with CNBC on Tuesday.
Talking about the data, Eurozone Consumer Confidence remained static at around -23.6 for June while preliminary readings of Germany’s Harmonized Index of Consumer Prices eased to 8.2% YoY versus 8.8% expected and 8.7% prior for June.
On the other hand, the final readings of the Q1 US Gross Domestic Product Annualized dropped to -1.6% versus the initial forecasts of -1.5%. The Personal Consumption Expenditure (PCE) Prices, on the other hand, rose more than 7.0% expected and prior readings to 7.1% during the stated period.
It should be noted that the risk-aversion wave drowned Wall Street and the US Treasury yields while fueling the US Dollar Index (DXY).
Looking forward, German Retail Sales for May, expected -2.0% versus -0.4% prior, will precede the Fed’s preferred version of inflation, namely Core PCE Price Index, for May, expected to rise to 0.4% from 0.3% MoM.
Given the fears of economic slowdown, a stronger print of inflation-linked data could weigh on the pair.
A sustained reversal from the 21-DMA, around 1.0560 by the press time, directs EUR/USD bears towards the seven-week-old support line near 1.0420.
Gold price (XAU/USD) has turned sideways after displaying wild swings in the New York session. The precious metal is oscillating in a narrow range of $1,814.96-1,819.13 after reversing its gains. The speech from Federal Reserve (Fed) chair Jerome Powell brought a sense of volatility in the gold prices and his hawkish commentary was committed to bringing price stability to the US economy.
Investors should start discounting a consecutive rate hike of 75 basis points (bps) as accelerating inflation has become invincible for the US households and they have to face its consequences. The comments from European Central Bank (ECB) President Christine Lagarde that returning to a lower inflation rate is not possible now. The commentary spooked the FX arena and risk-sensitive currencies took a hit.
Meanwhile, the US dollar index (DXY) is aiming to recapture its 19-year high at 105.79 on an improvement in US Personal Consumption Expenditure on a quarterly basis. The US PCE landed at 7.1% from the prior print of 7%. No wonder, the improvement in PCE must bank upon higher prices rather than higher demand. Going forward, the focus will remain on the Core PCE Price Index, which may decline to 4.7% from the prior print of 4.9% on an annual basis.
The gold prices are trading near the potential support of the Descending Triangle pattern. The downward sloping trendline of the above-mentioned chart pattern is plotted from June 16 high at $1,857.58 while the horizontal support is placed from June 16 low at $1,815.73. The 20-period Exponential Moving Average (EMA) at $1,819.36 is acting as a major resistance for the counter. Meanwhile, the Relative Strength Index (RSI) (14) is holding itself above 40.00 levels, however, a slippage below the same will bring more weakness in the bright metal.
At 0.6880, AUD/USD is under pressure into the final moments pre rollover and is down some 0.37%. The bears were in town despite the prior day's positive Retail Sales. Instead, markets were driven by comments from the Federal Reserve's Chairman, Jerome Powell. He explained that there is a risk the US central bank's interest rate hikes will slow the economy too much. the central banker added that the bigger risk, however, is persistent inflation.
Powell made these comments at a European Central Bank conference. The dollar index (DXY), which measures the greenback against six counterparts, rallied to a high of 105.149 from a low of 104.356 as investors sought safety in US assets as stocks declined globally due to the mounting risk of a recession.
Meanwhile, the Aussie had otherwise found some support on Wednesday as upbeat domestic data provided a temporary distraction from worries about a global recession. reuters reported that Australian Retail Sales surprised with a strong increase of 0.9% in May handily topping forecasts of a 0.4% gain. The news agency reported that Sales were up a sizable 10.4% on May last year, though some of that is due to higher prices rather than volumes.
The fresh insight into the consumer has encouraged demand for the local currency due to the expectations that the Reserve Bank of Australia (RBA) will have more confidence that consumers can handle higher interest rates as it prepares for another likely hike at its July policy meeting next week. RBA Governor Philip Lowe has previously suggested that drastic tightening would seriously damage the economy. Rates are seen up around 3.25% by the end of the year and near 4% in 2023 and investors are odds-on for another rise of 50 basis points to 1.35%, and for a similar move in August.
For the day ahead, both the Manufacturing Purchasing Managers Index (PMI) and the official Non-Manufacturing PMI are released for China.
Here is what you need to know for the day ahead, Thursday June 30:
The forex space was driven by comments from the Federal Reserve's Chairman, Jerome Powell. He explained that there is a risk the US central bank's interest rate hikes will slow the economy too much. He added that the bigger risk, however, is persistent inflation. Powell made these comments at a European Central Bank conference.
Investors continue to worry that an aggressive push by the Fed to dampen inflation will drag the economy into recession and that has put a bid back into the safe-haven US dollar, sinking all other ships. Inflation fears are being fanned further by oil prices, which extended their rise into the fourth day.
The dollar index (DXY), which measures the greenback against six counterparts, rallied to a high of 105.149 from a low of 104.356 as investors sought safety in US assets as stocks declined globally due to the mounting risk of a recession. Nevertheless, the US dollar index stayed below the two-decade high of 105.79 pinged two weeks ago.
The euro fell to 1.0435 from a high of 1.0535 with EU consumer confidence slipping further below the breakeven point in June. Markets are looking to the EU Unemployment on Thursday and inflation on Friday. These data points will be key ahead of next month's July 21European Central Bank's monetary policy committee meeting when the central bank is expected to begin its tightening cycle.
GBP/USD also fell, sliding to a low of 1.2105 ahead of UK Gross Domestic Product data that will be released Thursday. The Northern Ireland protocol noise coupled with the sentiment surrounding the Bank of England are critical features in the outlook for sterling in the near term. The Bank of England is expected to maintain its tightening cycle to tamp down inflation after a 25 basis point increase at the last meeting. However, it will not necessarily have to act "forcefully" to get inflation under control, according to Governor Andrew Bailey who spoke on Wednesday, adding there were signs of an economic slowdown taking hold in Britain.
USD/CAD rallied to a high of 1.2900 ahead of Canada's GDP which will be released Thursday. traders will look ahead to next month's July 13 interest rate decision from the Bank of Canada where the expectations are for further monetary policy tightening at after June's 50 basis point increase.
USD/JPY was an up and down day trading between 135.76 and 137.00 and ended the day in a phase of consolidation in a key area on the hourly chart around 136.60.
Gold for August delivery closed down US$3.70 to US$1,817.50 per ounce and spot stuck to a narrow range between $1,812 and $1,833 while US bond yields fell, which helped to buoy the non-yeilding precious metal. The yield on the US 10-year note fell to a low of 3.089%. Bitcoin was a touch stronger. Its price now tightly fluctuates around the $20,000 level – support that Bitcoin bulls hope to continue holding. WTI was lower by 2.4% around the Wall Street close even after a report showed an unexpectedly large drop in US inventories last week.
For the day ahead, both the Manufacturing Purchasing Managers Index (PMI) and the official Non-Manufacturing PMI are released for China.
USD/JPY is under pressure in the latter part of the North American session and there are a couple of scenarios identified according to the market structure on the hourly time frames as follows:
The price is in an ascending trend but the W-formation in a reversion pattern that would be expected to draw in the price towards the neckline and the trend line support as illustrated above.
There are two areas of hourly price imbalances (PI) above and below the current market and it is a question of which area will be mitigated first. In a bullish scenario, the price could move lower to collect liquidity from the imbalance of price to fill buy orders leading to a subsequent rally and potential upside continuation.
In a bearish scenario, the price could move higher to fill the sell orders which could lead to a surge lower for a test of support. If the offers overwhelm the bids at that juncture, then a continuation lower could evolve on a break of structure, BoS.
EU's Sefcovic has crossed the worse saying that the EU cannot accept Northern Ireland protocol being illegally scrapped. He has explained that zero checks on Great Britain and Northern Ireland trade are 'not an option'.
This followed the NI protocol bill being passed in its first hurdle, with MPs voting 295 to 221 in favour despite heavy criticism from some Conservative backbenchers, including former prime minister Theresa May, who said the move is illegal and unnecessary.
The second reading was the first opportunity MPs have had to vote on the controversial proposals, which the foreign secretary, Liz Truss, said were “legal and necessary”. Boris Johnson predicted earlier on Monday that the laws could go through “fairly rapidly” and be on the statute books by the end of the year. It is now expected to be fast-tracked through parliament with a condensed committee stage of just three days, instead of the usual two or three weeks.
News related to this situation is seen as negative for the pound.
At 0.6875, AUD/USD is lower on the day by some 0.4% as the US dollar springs back to life, rallying through the 105 figure as measured against a basket of currencies via the DXY index. The dollar index (DXY), which measures the greenback against six counterparts, ticked up 0.51% to 105.08. The two-decade high of 105.79 was struck on June 15. Quarter-end rebalancing of portfolios is also feeding into higher volatility in financial markets.
The greenback has edged higher on Wednesday as the euro gave back earlier gains despite European Central Bank President Christine Lagarde saying the era of ultra-low inflation that preceded the pandemic is unlikely to return. The ECB is widely expected to raise interest rates in July for the first time in a decade, following its global peers, to try to cool accelerating inflation, though economists are divided on the magnitude of any hike.
Federal Reserve chair Jerome Powell said there was a risk that interest rate increases will slow the economy too much, but persistent inflation was the bigger worry. Additionally, US stocks fell on Wednesday as traders' concern over the impact of hefty rate increases on the US economy bites. US data showed that growth contracted in the first quarter amid a record trade deficit. This is on the heels of a report from Tuesday that showed consumer confidence hit a 16-month low.
Meanwhile, the Aussie had otherwise found some support on Wednesday as upbeat domestic data provided a temporary distraction from worries about a global recession. reuters reported that Australian Retail Sales surprised with a solid increase of 0.9% in May handily topping forecasts of a 0.4% gain. The news agency reported that Sales were up a sizable 10.4% on May last year, though some of that is due to higher prices rather than volumes.
The data has encouraged demand for the Aussie due to the expectations that the Reserve Bank of Australia (RBA) will have more confidence that consumers can handle higher interest rates as it prepares for another likely hike at its July policy meeting next week. RBA Governor Philip Lowe has previously suggested that drastic tightening would seriously damage the economy. Rates are seen up around 3.25% by the end of the year and near 4% in 2023 and investors are odds-on for another rise of 50 basis points to 1.35%, and for a similar move in August.
Net AUD short positions fell for a third consecutive week following the hawkish comments from RBA Governor Lowe and more optimism regarding the outlook for China’s economy could bring further support in the next set of data. In this regard, we saw the Aussie rally when China slashed the quarantine time for inbound travellers by half on Tuesday. Higher commodity prices have also had a positive impact on Australia’s terms of trade.
''We expect AUD/USD to hold close to current levels on a 1-month view and rise moderately to the 0.73 area by year-end,'' analysts at Rabobank said.
St. Louis Fed President James Bullard said in an essay written on Tuesday that lessons from 1974 and 1983, when the Federal Open Market Committee face similar inflation levels to today's, demand that policymakers get "ahead of inflation."
"In particular, the takeaway is that getting ahead of inflation will keep inflation low and stable and promote a strong economy," the central banker wrote.
"From early 1994 to early 1995, the FOMC raised the policy rate by 300 basis points (going from 3% to 6%) in an environment where inflation was generally moderate," Bullard said.
"Similar to the 1983 experience, the associated ex-post real interest rate at that time was high. Again, the result was not a recession but instead an expansion, which lasted until 2001."
"The FOMC kept the policy rate relatively high above the inflation rate, and therefore real interest rates were relatively high. The subsequent macroeconomic performance—with respect both to inflation and to output and labour markets—was very good, which shows the merits of staying ahead of inflation as opposed to falling behind."
The dollar index (DXY), which measures the greenback against six counterparts, ticked up 0.51% to 105.08. The two-decade high of 105.79 was struck on June 15.
The greenback has edged higher on Wednesday as the euro gave back earlier gains despite European Central Bank President Christine Lagarde saying the era of ultra-low inflation that preceded the pandemic is unlikely to return.
The ECB is widely expected to raise interest rates in July for the first time in a decade, following its global peers, to try to cool accelerating inflation, though economists are divided on the magnitude of any hike.
Gold prices dropped sharply during the American session, erasing daily gains. XAU/USD peaked at $1833, the highest level in two days and then turned lower, falling to $1814, slightly above the daily low of $1811.
The reversal took place amid a rally of the US dollar. The DXY jumped toward 105.00, the highest level in a week. It is rising for the second day in a row as market concerns remain in place.
US yields eased on Wednesday even as central bankers offered a hawkish tone from Portugal where the European Central Bank is having its annual meeting. Fed Chair Powell warned about the risk to the economy from higher interest rates; however made it clear the biggest risk is losing price stability. ECB President Lagarde said they will consider the “anti-fragmentation” tool at the July meeting.
The bounce from $1811 weakened before reaching at $1835, a short-term downtrend line. A break above the mentioned level should open the doors to more gains, targeting initially $1845 and then levels above $1850.
While under $1835 the outlook is biased to the downside, with rising risks of more losses below the 20-Simple Moving Average in four-hour charts (currently at $1825).
XAU/USD is testing $1815 and below attention would turn to $1811 (June 29 low) and then to $1804 (June 14 low), the last defense of $1800.
The GBP/USD pair added to the previous day's heavy losses and remained under intense selling pressure for the second successive day on Wednesday. The downward trajectory picked up pace during the early North American session and dragged spot prices to the 1.2100 neighbourhood, or a nearly two-week low.
The US dollar attracted some buying in reaction to hawkish remarks by Fed Chair Jerome Powell and shot to its highest level since June 17. This, in turn, exerted downward pressure on the GBP/USD pair. Speaking at the ECB Forum in Sintra, Powell reaffirmed bets for more aggressive rate hikes and said the US economy is well-positioned to handle tighter policy.
Powell further added that the Fed remains focused on getting inflation under control and the market pricing is pretty close to the dot plot. In contrast, the Bank of England Governor Andrew Bailey sounded cautious and noted that there were clear signs that the economy is slowing. "We are being hit by a very large real income shock," Bailey added further.
Bailey also said that it's very hard to separate the effects of Brexit from covid. This suggested that the BoE would opt for a more gradual approach towards hiking interest rates, which, in turn, weighed on the British pound. Bailey, however, said that the BOE would have to act more forcefully if it saw persistent inflation and the situation left no other options on the table.
Apart from this, sliding US Treasury bond yields, along with a generally positive tone around the US equity markets, might cap gains for the safe-haven USD and limit deeper losses for the GBP/USD pair. That said, sustained weakness below the 1.2100 round-figure mark would be seen as a fresh trigger for bearish traders and set the stage for a further depreciating move.
Europen Central Bank (ECB) President Christine Lagarde, FOMC Chairman Jerome Powell and Bank of England (BOE) Governor Andrew Bailey speak on the policy outlook at the ECB's annual Forum on Central Banking.
Lagarde: "Fragmentation is a threat inherent in the eurozone structure."
Lagarde: "Will consider anti-fragmentation tool at July policy meeting."
Powell: "There's certainly a threat of de-globalization."
Powell: "The Fed’s revised policy framework is based on old environment."
The EUR/USD pair continues to edge lower and was last seen losing 0.35% on the day at 1.0482.
Further gains in the Turkish currency now motivates USD/TRY to hover around the 16.60 region, down marginally for the day.
USD/TRY gives away part of Tuesday’s advance and seems to resume the downside despite the better mood surrounding the greenback on Wednesday.
Indeed, the lira looks bid as investors continue to closely follow the effects of Friday’s new government’s measure to boost the domestic currency. It is worth recalling that the Turkish bank regulator announced on Friday a ban on lira loans to companies holding more than TL15M if that amount surpasses 10% of the company’s total assets or annual sale revenues.
In the wake of the publication of this new interventionist measure, USD/TRY tumbled to the 16.00 area on Monday from Friday’s tops near 17.40, or nearly 8%.
In the calendar, Türkiye Economic Confidence Index dropped to 93.60 in June (from 96.70).
USD/TRY keeps digesting the recent sharp decline following another intervention in the FX markets by Ankara.
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, although the effects of this new measure aimed at supporting the de-dolarization of the economy will also have its say in the price action around spot.
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 Türkiye this week: Economic Confidence (Wednesday) – Trade Balance (Thursday) – Manufacturing PMI (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.
So far, the pair is losing 0.01% at 16.6373 and a breach of 16.0365 (monthly low June 27) would aim to 15.6684 (low May 23) and finally 15.2057 (100-day SMA). On the flip side, the next up barrier emerges at 17.3759 (2022 high June 23) seconded by 18.2582 (all-time high December 20) and then 19.00 (round level).
Europen Central Bank (ECB) President Christine Lagarde, FOMC Chairman Jerome Powell and Bank of England (BOE) Governor Andrew Bailey speak on the policy outlook at the ECB's annual Forum on Central Banking.
Powell: "Dollar strength is disinflationary at the margins."
Powell: "We working hard to get smarter about the supply side."
Bailey: "We do not target foreign exchange rate."
Bailey: "We are not surprised by the path of sterling."
GBP/USD stays on the back foot after these comments and was last seen losing 0.55% on the day at 1.2115.
While testifying before the Treasury Committee on Wednesday, Swati Dhingra, who is due to become a Bank of England policymaker in August, said that sterling weakness does not tend to boost UK exports, as reported by Reuters.
"UK's trade openness appears to have declined more than peers, hard to be fully certain that is due to Brexit."
"I do not think Brexit has yet caused the boe to pursue a more aggressive interest rate policy."
"Brexit unlikely to change UK economic structure, will drag on real wages."
"Brexit trade agreement likely to lead to 1.8% fall in real wages in medium-term."
Looks like there is more to come on inflation, from higher import costs being passed on."
"I am most uncertain whether quantitative tightening will reduce inflation."
"QT is a very new policy, we do not yet know its impacts, past QE impact on inflation unclear."
"Best to take a gradual approach to QT, learn as we go along."
"Giving interest rate paths for individual MPC members would cause confusion."
GBP/USD continues to push lower and was last seen losing nearly 0.6% on the day at 1.2112.
The USD/JPY pair prolonged a multi-day-old ascending trend and gained follow-through traction for the fourth successive day on Wednesday. The buying interest picked up pace during the early North American session and pushed spot prices to a fresh 24-year high, with bulls now aiming to conquer the 137.00 round-figure mark.
The US dollar caught fresh bids and shot to a one-week high after Fed Chair Jerome Powell reaffirmed bets for a more aggressive policy tightening by the US central bank. Speaking at the ECB Forum in Sintra, Powell said that the US economy is in strong shape and is well-positioned to handle tighter policy. He further added that the Fed remains focused on getting inflation under control and the market pricing is pretty close to the dot plot.
This helped offset a downward revision of the US Q1 GDP, showing that the economy contracted by 1.6% against the 1.5% fall estimates previously, and provided a goodish lift to the buck. Furthermore, Powell's hawkish remarks validated a big divergence in the policy stance adopted by the Fed and the Bank of Japan. This, in turn, weighed on the Japanese yen and further contributed to the strong bid tone surrounding the USD/JPY pair.
That said, declining US Treasury bond yields has resulted in the narrowing of the gap between the US-Japan rate differential. Apart from this, worries about a possible global recession might offer some support to the safe-haven JPY and hold back traders from placing fresh bullish bets around the USD/JPY pair, at least for the time being.
Nevertheless, the bias still seems tilted firmly in favour of bullish traders and any meaningful pullback might still be seen as a buying opportunity. Even from a technical perspective, move beyond the previous YTD peak might have set the stage for an extension of the USD/JPY pair's upward trajectory towards the 138.00 round-figure mark.
A barrel of Brent Oil last traded at around $110. In mid-June, the price was still around $125. Economists at Commerzbank expect prices to drop towards $95 by end-2022.
“In the short-term, the massive release of oil reserves by the major consuming countries will provide relief.”
“The demand outlook remains uncertain: China's strict Zero-Covid strategy still threatens to hamper oil demand with new lockdown measures. High energy prices and tighter monetary policy are also expected to leave their mark.”
“The price of a barrel of Brent oil should continue to trade above $100 for now, but fall back again in the second half of the year to $95 by year-end.”
Europen Central Bank (ECB) President Christine Lagarde, FOMC Chairman Jerome Powell and Bank of England (BOE) Governor Andrew Bailey speak on the policy outlook at the ECB's annual Forum on Central Banking.
Powell: "We are very strongly committed to our tools to bring down inflation."
Powell: "Is there a risk we would go too far? Yes. Not the biggest risk."
Powell: "The bigger risk is failing to restore price stability."
Powell: "Once deanchoring can be observed, the cost of fighting inflation is too high."
Powell: "If deanchoring observed, the fed has fallen behind the curve."
Bailey: "Clear that the economy is slowing."
Bailey: "War and energy are the major risk factors."
Bailey: "There will be a further step up in UK inflation."
The US Dollar Index continues to push higher and was last seen rising 0.37% at 104.87.
Metals prices have been under pressure for weeks. Although the market could suffer further falls, economists at Commerzbank expect metals prices to soar in the coming year.s
“If the economy does lose momentum or even slides into recession in the major economies, this is unlikely to leave metals unscathed. In this scenario, we expect metals prices to fall further in the coming months. However, metals prices should also turn upward again at a correspondingly early stage if, for example, the view prevails that the US Federal Reserve is attempting to push the US economy out of recession again with interest rate cuts in the coming year.”
“We firmly believe that many metals prices will rise significantly in the coming years and mark new record highs. This is because metals such as copper, aluminium and nickel are essential in the desired decarbonization of the economy.”
“Supply will not be able to keep pace with demand in the long term, which justifies significantly higher metals prices.”
Central bank governors are set to speak at the European Central Bank’s (ECB's) Sintra conference. However, gold is unlikely to break its recent trading range, strategists at TD Securities report.
“Central banker headlines will hit the wire today with Fed Chair Powell set to speak on a panel at the ECB's Sintra conference, but gold markets are set to remain locked firmly in the recent trading range.”
“The yellow metal is being pulled in two directions as a hawkish Fed regime clashes with recession fears. After all, a Fed hiking cycle tends to be associated with rising recession risks, with the US5-30s curve already pointing to an elevated probability of a recession in the next twelve months. Notwithstanding, this hiking cycle differs from recent historical analogs as the Fed's ability to control inflation is limited, given that the supply-side is disrupted.”
“Gold bugs sniffing out a potential stagflationary outcome associated with lower growth but lingering inflation should consider that central banks, facing a credibility crisis, could also continue to raise rates for longer than they otherwise would. In this scenario, pricing for a Fed pivot would be less associated with recession odds than in prior episodes.”
Europen Central Bank (ECB) President Christine Lagarde, FOMC Chairman Jerome Powell and Bank of England (BOE) Governor Andrew Bailey speak on the policy outlook at the ECB's annual Forum on Central Banking.
Powell: "Markets since last fall, by and large, have been pretty well aligned with where the Fed is going."
Powell: "Market pricing indicates investors understand where the Fed is aiming to go."
Powell: "The shape of the yield curve is not a top-line worry."
The dollar continues to gather strength against its rivals and the US Dollar Index was last seen rising 0.3% on the day at 104.80.
Economists at TD Securities expect industry-level GDP to rise by 0.3% in April. The Canadian data will have little to no impact on the loonie, with the USD/CAD pair expected to find solid support at 1.28.
“We expect industry-level GDP to rise by 0.3% in April, in line with the market consensus and slightly above the flash estimate for a 0.2% rise.”
“April's data, let alone an on-consensus GDP print, will have no meaningful impact on the CAD.”
“Data will inevitably get worse as the impact of higher rates filters in. Reprieves in risk assets are also likely to be short-lived. Thus, USD/CAD dips should ultimately be faded. Support near 1.28.”
EUR/USD adds to the recent weakness and revisits the 1.0480 region on Wednesday, where some initial support turned up.
The inability to leave behind the 4-month line near 1.0650 should keep the downside pressure unchanged around the pair. Against that, extra losses are predicted to remain in the pipeline, although another visit to the June low at 1.0358 seems out of favour for the time being.
In the longer run, the pair’s bearish view is expected to prevail as long as it trades below the 200-day SMA at 1.1119.
Europen Central Bank (ECB) President Christine Lagarde, FOMC Chairman Jerome Powell and Bank of England (BOE) Governor Andrew Bailey speak on the policy outlook at the ECB's annual Forum on Central Banking.
Bailey: "Task is to return to low inflation."
Bailey: "We are being hit by a very large real income shock."
Bailey: "If we see greater persistence of inflation, we will have to act more forcefully."
Bailey: "Situation leaves options on the table."
Lagarde: "Recovery in services is underway, supporting the economy."
Lagarde: "Hopeful fiscal policy will target supporting most vulnerable, not broad segments of the population."
The GBP/USD stays under bearish pressure and was last seen losing 0.3% on the day at 1.2145.
GBP/USD slumps to mid-1.21s. Economists at Scotiabank note that cable could fall as low as the mid-1.20s.
“The technical picture for sterling points to losses to the 1.21 figure amid its ongoing failure to hold the 1.23 handle on the five occasions it has broken above the figure in the past week – and the quick selloffs that have followed some of these moves.”
“Aside from the daily low of 1.2154, there are no obvious support markers until the 1.2100/10 zone and losses can quickly follow to the mid-1.20s.”
“Resistance is the 1.22 area with the daily high at ~1.2215 and the mid-1.22s subsequently.”
Gold attracted some dip-buying near the $1,812 region, or a two-week low touched earlier this Wednesday and rallied to a fresh daily high during the early North American session. The XAUUSD was last seen trading just below the $1,835 level, up over 0.65% for the day.
Uncertainty over the pace of rate hike by the Federal Reserve dragged the US Treasury bond yields lower and failed to assist the US dollar to capitalize on its modest intraday gains. This, along with growing recession fears, acted as a tailwind for the safe-haven gold.
Investors remain concerned that a more aggressive move by major central banks would pose challenges to the global economic recovery. The worries were further fueled by a downward revision of the US Q1 GDP, showing that the economy contracted by 1.6% against the 1.5% estimated.
That said, the overnight hawkish comments by New York Fed President John Williams and San Francisco’s Mary Daly lifted bets for a faster policy tightening. Furthermore, Fed Chair Jerome Powell said that the US economy is in strong shape and is well-positioned to handle tighter policy.
Speaking at the ECB Forum in Sintra, Powell added that our aim is to have growth moderate and there are pathways, though have gotten narrower, to get back to 2% inflation with a strong labor market. This was seen as the only factor cap gains for the non-yielding gold.
Even from a technical perspective, the recent repeated failures near the very important 200-day SMA favours bearish traders. Hence, any subsequent move could be seen as a selling opportunity and runs the risk of fizzling out rather quickly, warranting caution for bulls.
Economists at Rabobank expect the Riksbank to hike its policy rate by 50 basis points (bps) at Thursday’s meeting. Nevertheless, this move it is improbable to lift the krona in the short-term.
“We expect that the Riksbank will opt for a 50 bps move tomorrow, not least to prevent the value of the SEK plunging (a situation which could worsen the inflationary outlook). However, it is possible that the Riksbank’s window of opportunity for rate hikes could be shorter than it appeared in the spring.”
“An ‘as expected’ 50 bps move may not be sufficient to inject much strength into the SEK near-term.”
“On balance we expect EUR/SEK to edge back towards the 10.40/10.30 area on a three to six-month view.”
See – Riksbank Preview: Forecasts from five major banks, joining the 50 bps club
Europen Central Bank (ECB) President Christine Lagarde, FOMC Chairman Jerome Powell and Bank of England (BOE) Governor Andrew Bailey speak on the policy outlook at the ECB's annual Forum on Central Banking.
Powell: "Households are overall in a strong state, the same is true for businesses."
Powell: "The labour market is tremendously strong."
Powell: "The economy can withstand monetary policy moves."
Powell: "Our aim is to have growth moderate."
Powell: "There are pathways to go back to 2% inflation with a strong labour market; no guarantee."
Powell: "Events of the last few months made the Fed's job more challenging."
Powell: "The pathway has gotten narrower."
The EUR/USD pair struggles to gain traction and was last seen posting small daily losses at 1.0508.
EUR/USD is on the back foot. The pair is set to extend its downfall, however, the 1.05 level holds for now, economists at Scotiabank report.
“Multiple failures to hold a bid above 1.06 (and above its 50- day MA) and the correction over the past 24 hours would suggest the EUR will continue on its multi-month downtrend. But it is still too early to call for a significant leg lower while the 1.05 level (and high 1.04s) continues to hold.”
“Support is the daily low of 1.0486 followed by 1.0469 and the mid-1.04s.”
“Resistance is 1.0535/40 and ~1.0560 ahead of the big figure.”
Europen Central Bank (ECB) President Christine Lagarde, FOMC Chairman Jerome Powell and Bank of England (BOE) Governor Andrew Bailey speak on the policy outlook at the ECB's annual Forum on Central Banking.
Lagarde: "We are unlikely to go back to an environment of low inflation."
Lagarde: "Inflaiton expectations are much higher than before."
Powell: "Our job is to find price stability even during new forces of inflation."
Powell: "Reversal of globalisation could mean lower growth in places."
Powell: "The US economy is strong shape."
The EUR/USD pair struggles to gain traction and was last seen posting small daily losses at 1.0508.
DXY looks to add to Tuesday’s gains, although the bull run seems to have faltered around the 104.70 zone on Wednesday.
Ideally, the index should surpass the weekly high near 105.00 (June 22) in the near term to allow for the recovery to gather momentum and attempt a visit to the nearly 20-year peak in the 105.80 zone (June 15).
As long as the 4-month line near 102.25 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 98.01.
The AUD/USD pair stalled its intraday decline near the 0.6960 area and recovered a few pips from a two-week low touched earlier this Wednesday. The pair was last seen trading just below the 0.6900 mark, still down nearly 0.20% for the day.
A fresh leg down in the US Treasury bond yields failed to assist the US dollar to capitalize on its modest uptick, which, in turn, was seen as a key factor that offered support to the AUD/USD pair. That said, growing worries about a possible recession continued weighing on investors' sentiment and acted as a headwind for the risk-sensitive aussie.
Traders also seemed reluctant and might prefer to move on the sidelines ahead of the key event risk - Fed Chair Jerome Powell's speech at the ECB forum in Sintra. Market participants remain divided about the prospects for more aggressive Fed rate hikes. Hence, Powell's comments will be scrutinized for clues about the policy tightening path.
This will play a key role in influencing the USD price dynamics and provide a fresh directional impetus to the AUD/USD pair. From a technical perspective, spot prices bounced from the vicinity of the monthly swing low, making it prudent to wait for some follow-through selling below the 0.6850 region before positioning for any further depreciating move.
Nevertheless, the fundamental backdrop still seems tilted in favour of bearish traders, suggesting that any attempted recovery move runs the risk of fizzling out rather quickly. The AUD/USD pair remains vulnerable to sliding further beyond the YTD low, around the 0.6830-0.6825 region touched in May, and aim to test the 0.6900 round-figure mark.
The real Gross Domestic Product (GDP) of the United States contracted at an annual rate of 1.6% in the first quarter, the US Bureau of Economic Analysis (BEA) announced on Wednesday. This print came in slightly worse than the previous estimate and the market expectation for a decrease of 1.5%.
"The update primarily reflects a downward revision to personal consumption expenditures (PCE) that was partly offset by an upward revision to private inventory investment," the BEA explained in its press release.
This report doesn't seem to be having a significant impact on the dollar's performance against its rivals. As of writing, the US Dollar Index was posting small daily gains at 104.55.
The USD/CHF pair came under heavy selling pressure on Wednesday and confirmed a fresh bearish breakdown through a nearly one-week-old consolidative trading range. The downward trajectory dragged spot prices to the lowest level since April 21, with bears now awaiting sustained weakness below the key 0.9500 psychological mark.
The Swiss National Bank shocker on June 16, when it unexpectedly raised interest rates by 50 bps to curb soaring inflation, continued underpinning the Swiss franc. Apart from this, growing worries about a possible recession drove some haven flows towards the CHF and exerted additional downward pressure on the USD/CHF pair.
On the other hand, a fresh leg down in the US Treasury bond yields kept the US dollar bulls on the defensive and failed to offer any support to the USD/CHF pair. With the latest leg down, spot prices have retreated over 500 pips from the vicinity of the YTD peak, around the 1.0050 region touched earlier this month.
It, however, remains to be seen if bears are able to maintain their dominant position or opt to lighten their positions ahead of Fed Chair Jerome Powell's speech at the ECB forum in Sintra. Powell's comments will be scrutinized for clues about the policy tightening path amid division over the need for more aggressive rate hikes.
This, in turn, will play a key role in influencing the USD price dynamics and help investors to determine the next leg of a directional move. Meanwhile, a convincing break through the 0.9500 mark would be seen as a fresh trigger for bearish traders and set the stage for an extension of the USD/CHF pair's a nearly two-week-old downtrend.
Inflation in Germany, as measured by the Harmonised Index of Consumer Prices (HICP), declined to 8.2% on a yearly basis in June's flash estimate from 8.7% in May. This print came in lower than the market expectation of 8.8%. On a monthly basis, HICP declined by 0.1%.
Similarly, the annual Consumer Price Index (CPI) declined to 7.6% from 7.9% in the same period, compared to analysts' estimate of 8%.
The EUR/USD pair showed no immediate reaction to these figures and was last seen trading flat on the day at 1.0522.
The USD/CAD pair struggled to capitalize on its modest intraday gains and met with a fresh supply near the 1.2890 region on Wednesday. The intraday downfall - marking the fourth successive day of a slide - dragged spot prices to a fresh daily low, around the 1.2850-1.2845 region during the mid-European session.
Crude oil prices reversed an intraday dip and shot to a fresh one-and-half-week high amid concerns about tight global supplies, which offset worries about a weaker global economy. The Group of Seven (G7) economic powers agreed on Tuesday to explore price caps on imports of Russian oil and gas. Furthermore, Saudi Arabia and the United Arab Emirates reportedly would not be able to raise output significantly to make up for the lost Russian supply. This, in turn, acted as a tailwind for the black liquid, which underpinned the commodity-linked loonie and capped the upside for the USD/CAD pair.
On the other hand, a fresh leg down in the US Treasury bond yields held back the US dollar bulls from placing aggressive bets. This was seen as another factor that exerted some downward pressure on the USD/CAD pair. That said, the prevalent cautious mood around the equity markets - amid growing recession fears - continued lending support to the safe-haven buck and should limit any deeper losses for the major. Traders might also be reluctant to place aggressive bets ahead of Fed Chair Jerome Powell's speech at the ECB forum in Sintra, Portugal, later during the early North American session.
Given that market participants remains divided about the prospects for more aggressive Fed rate hikes, Powell's comments will be scrutinized for clues about the policy tightening path. This will play a key role in driving demand for the USD in the near term. Apart from this, traders will take cues from oil price dynamics to determine the next leg of a directional move for the USD/CAD pair.
EUR/JPY fades Tuesday’s retracement and advances further north of the 143.00 mark midweek.
The bullish bias in the cross remains well in place for the time being. That said, the surpass of the YTD top at 144.27 (June 28) is predicted to pave the way to, initially, the round level at 145.00 ahead of the 2015 high at 145.32 (January 2). Further up is the 2014 top at 149.78 (December 8).
In the meantime, while above the 3-month support line around 138.50, the short-term outlook for the cross should remain bullish. This area appears reinforced by the proximity of the 55-day SMA.
The GBP/USD pair prolonged this week's retracement slide from the 1.2330-1.2335 region and edged lower for the third successive day on Wednesday. The downward trajectory dragged spot prices to a nearly two-week low, closer to mid-1.2100s during the first part of the European session, though lacked follow-through selling.
The market sentiment remains fragile amid concerns that a more aggressive move by major central banks to curb soaring inflation would pose challenges to global economic growth. This assisted the US dollar to capitalize on the previous day's strong move up and gain some follow-through traction, which, in turn, exerted some downward pressure on the GBP/USD pair.
The British pound was further weighed down by Brexit woes and expectations that the Bank of England would opt for a more gradual approach towards raising interest rates. It is worth recalling that the UK House of Commons on Monday voted in favour of a controversial bill that would unilaterally overturn part of Britain's divorce deal from the EU agreed in 2020.
The latest development raised the risk of fresh tensions with the EU amid the cost of living crisis in the UK and growing recession fears. This might continue to undermine sterling and supports prospects for a further near-term depreciating move for the GBP/USD pair. That said, retreating US bond yields might cap the USD and help limit any deeper losses, at least for now.
Traders might also refrain from placing aggressive bets and prefer to wait on the sidelines ahead of the key event risk. Fed Chair Jerome Powell and BoE Governor Andrew Bailey are due to speak at the ECB forum in Sintra. Investors will look for cues about the central bank's policy tightening path before determining the next leg of a directional move for the GBP/USD pair.
"If inflation expectations become unanchored, monetary policy would have to act more forcefully to return inflation to goal," Cleveland Federal Reserve President Loretta Mester said while speaking at the European Central Bank's annual forum on Wednesday.
"More costly error is assuming inflation expectations are anchored when they are not."
"There is some risk in the US that longer-term inflation expectations of businesses and households will continue to rise."
"Policymakers cannot be complacent about a rise in longer-term inflation expectations."
"Central banks need to be resolute, intentional in acting to bring inflation down."
"Current situation calls into question the wisdom that monetary policy should look through supply shocks."
"Current inflation situation is a very challenging one."
"In some cases, such shocks threaten the stability of inflation expectations, require policy action."
"Price changes in gasoline and food can have an outsized effect on households' inflation expectation."
"Our policy communications are important for keeping inflation well anchored."
The US Dollar Index showed no immediate reaction to these comments and was last seen posting small daily gains at 104.53.
The AUD/USD pair witnessed some selling for the third successive day on Wednesday and dropped to a two-week low, around the 0.6865 region during the early part of the European session.
The worsening global economic outlook continued weighing on investors' sentiment, which was evident from the prevalent cautious mood around the equity markets. This overshadowed upbeat Australian Retail Sales data and continued acting as a headwind for the risk-sensitive aussie.
On the other hand, the US dollar drew some support from the overnight hawkish remarks by New York Fed President John Williams and San Francisco’s Mary Daly, which lifted bets for aggressive Fed rate hikes. This was seen as another factor that exerted pressure on the AUD/USD pair lower.
Market participants, however, remain divided about the prospects for a faster policy tightening by the Fed amid growing recession fears. This, along with a fresh leg down in the US Treasury bond yields, capped the USD and might help limit deeper losses for the AUD/USD pair.
Traders also seemed reluctant to place aggressive bets and preferred to wait for Fed Chair Jerome Powell's speech at the ECB forum in Sintra. Powell's comments would be scrutinized for clues about the Fed's policy outlook, which would provide a fresh impetus to the AUD/USD pair.
Nevertheless, the fundamental backdrop seems tilted in favour of bearish traders and supports prospects for a further near-term depreciating move for the AUD/USD pair. Hence, some follow-through slide to mid-0.6800s, en-route the YTD low touched in May, remains a distinct possibility.
Following their Q2 monetary policy meeting, the People’s Bank of China (PBOC) noted the following:
They are to step up the implementation of prudent monetary policy.
Will work on stabilizing employment and consumer prices.
Will be proactive and boost confidence.
Vows to better meet reasonable housing demand.
Will keep consumer prices basically stable.
China is expected to issue over CNY1 trillion of Special Treasury Bonds (STBs) in the third quarter to fill a fiscal gap and to help meet economic and employment targets, MNI reports, quoting policy advisors and market analysts.
The industry experts also called on the central bank to increase liquidity in order to accommodate the massive debt sale.
According to a recent report from Renmin University, the government would see a gap of about CNY2.6 trillion as fiscal income may decrease for the whole year.
To cover the extra spending, analysts predict the government may launch CNY1 trillion to CNY2 trillion of STBs in the third quarter if the State Council proposes the same.
The STBs are likely to be a necessary move if the country insists on a GDP growth target of around 5.5%, MNI notes.
AUD/USD fails to find any inspiration from the above headlines, as it loses 0.39% on the day at 0.6878, at the press time. Meanwhile, USD/CNY drops 0.14% to 6.6972.
Senior Economist at UOB Group Alvin Liew comments on the latest Inflation Production figures in Singapore.
“Singapore’s industrial production (IP) enjoyed another strong month in May as it rose by 10.9% m/m SA, 13.8% y/y (from the revised Apr readings of 2.1% m/m, 6.4% y/y) well exceeding Bloomberg survey estimates.”
“The main sources of IP growth were from electronics (of which semiconductor drove the upside with a 45.7% y/y spike), transport engineering, general manufacturing and precision engineering, more than offsetting the continued weakness in biomedical (of which pharmaceuticals production plunged -14.8% y/y) and chemicals (of which the main drag came from petrochemicals).”
“Accounting for the May’s increase, Singapore’s IP expanded a decent 8.7% in the first 5 months of 2022. We continue to be positive on the outlook for electronics, transport engineering, general manufacturing, and precision engineering, to drive overall IP growth but we are also cognizant about the external risks including (1) Russia-Ukraine conflict, (2) global supply disruptions, (3) monetary policy tightening stance in the advanced economies slowing growth and (4) resurgence of COVID19 infections and/or new variants. In addition, another dampener to headline growth is the relatively higher base levels for the rest of 2022, as IP expanded by double digit growth rates between May and Dec 2021 (except for Sep 2021). We now expect IP growth to increase by 4.5% in 2022 (up from previous forecast of 4%).”
Gold prolonged this week's rejection slide from the very important 200-day SMA and edged lower for the third successive day on Wednesday. The downtick dragged spot prices to a nearly two-week low, around the $1,816-$1,815 region during the early European session.
The overnight hawkish remarks by New York Fed President John Williams and San Francisco’s Mary Daly lifted bets for a faster policy tightening by the US central bank. This assisted the US dollar to build on the previous day's strong move up, which, in turn, undermined demand for the dollar-denominated gold.
Market participants, however, remain divided over the need for a more aggressive Fed rate hike amid growing recession fears. This, along with a fresh leg down in the US Treasury bond yields and the prevalent cautious market mood, could offer some support to the non-yielding yellow metal and help limit deeper losses.
Traders might also refrain from placing aggressive bets and prefer to move on the sidelines ahead of the key event risk. Fed Chair Jerome Powell, the Bank of England Governor Andrew Bailey and the European Central Bank President Christine Lagarde are due to speak at the ECB forum in Sintra, Portugal on Wednesday.
Investors will look for fresh clues about the central bank's tightening path, which will play a key role in driving gold price in the near term. Apart from this, the broader market risk sentiment, the US bond yields, and the USD price dynamics would help determine the next leg of a directional move for the XAUUSD.
European Central Bank (ECB) policymaker and Governor of the Central Bank of Cyprus Constantinos Herodotou expressed his take on inflation, in an interview with CNBC on Wednesday.
Herodotou said that he sees euro area inflation peaking this year.
Nothing further is reported on the same.
The single currency remains under pressure and prompts EUR/USD to navigate the 1.0500 neighbourhood on Wednesday.
EUR/USD so far loses ground for the second session in a row on Wednesday on the back of the resumption of the risk aversion and the better sentiment surrounding the greenback.
In the meantime, the German money markets show the 10y Bund yields trimming part of the recent 2-day advance and retest the 1.60% region amidst the equally flat performance in the US peers.
In the domestic calendar, advanced inflation figures in Spain showed the CPI is seen rising 10.0% in the year to June. Further June data saw the final EMU Consumer Confidence at -23.6 and the Economic Sentiment at 104. Later in the session, markets’ attention will be on the release of the German preliminary inflation data ahead of the discussion panel between Powell, Bailey and Lagarde at the ECB Forum in Sintra.
EUR/USD faces the re-emergence of the risk-off mood and the subsequent drop to the sub-1.0500 area midweek.
In the meantime, the single currency continues to closely follow news from the ECB Forum in Portugal as well as any developments surrounding the bank’s plans to design a de-fragmentation tool in light of the upcoming start of the hiking cycle.
However, EUR/USD is still far away from exiting the woods and it is expected to remain at the mercy of dollar dynamics, geopolitical concerns and the Fed-ECB divergence, while higher German yields, persistent elevated inflation in the euro area and a decent pace of the economic recovery in the region are also supportive of an improvement in the mood around the euro.
Key events in the euro area this week: ECB Forum on Central Banking, EMU Final Consumer Confidence, EMU Economic Sentiment, Germany Flash Inflation Rate, ECB Lagarde (Wednesday) – Germany Retail Sales, Unemployment Change, Unemployment Rate. EMU Unemployment Rate, ECB Lagarde (Thursday) – EMU, Germany Final Manufacturing PMI, EMU Flash Inflation Rate (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.
So far, spot is retreating 0.05% at 1.0511 and faces immediate contention at 1.0358 (monthly low June 15) followed by 1.0348 (2022 low May 13) and finally 1.0300 (psychological level). On the upside, a break above 1.0615 (weekly high June 27) would target 1.0773 (monthly high June 9) en route to 1.0786 (monthly high May 30).
Eurozone's Final Consumer Confidence Index arrived at -23.6 in June vs. -23.6 recorded previously, according to the latest data release from the European Commission. The data confirmed to the consensus forecast of 23.6.
Meanwhile, the bloc’s Economic Sentiment Indicator for June dropped to 104.0 vs. 103.0 expected and 105.0 previous.
Sentiment in the industry improved to 7.4 points from 6.5 in May and for services, the economy's biggest sector, to 14.8 from 14.1 in May.
Consumer inflation expectations, which reached an all-time high in March, continued to decline, slipping to 42.6 in June from 45.5 in May.
EUR/USD is posting small losses, little changed on the Eurozone sentiment data. The pair is currently trading at 1.0510.
EUR/USD has gone into a consolidation phase following Tuesday's decline. The pair is unlikely to gain traction as investors wait for European Central Bank (ECB) President and FOMC Chairman Jerome Powell to speak on the policy outlook, FXStreet’s Eren Sengezer reports.
“ECB President Lagarde will speak on policy alongside Bank of England Governor Andrew Bailey and Fed's Powell. In case investors are reminded of the widening policy divergence between the Fed and other major central banks, the dollar could continue to outperform its rivals. In case Powell adopts a cautious tone by acknowledging heightened recession risks, the greenback could have a tough time finding demand.”
“In case the pair confirms 1.0520 (Fibonacci 38.2% retracement of the latest downtrend) as resistance, it could target 1.0470 (Fibonacci 23.6% retracement) and 1.0400 (psychological level) next on the downside.”
“With a four-hour close above 1.0520, EUR/USD could face immediate resistance at 1.0540 (50-period SMA, 100-period SMA) and 1.0560 (Fibonacci 50% retracement).”
Gold continued to push lower and touched its lowest level in nearly two weeks at $1,816 because the US dollar appreciated noticeably. This trend is set to continue on Wednesday, strategists at Commerzbank report.
“The continued strength of the dollar today is presumably the reason why gold is falling further.”
“Weaker US economic data appear to be behind the firm US currency – consumer confidence declined unexpectedly sharply in June. This is because rate hike expectations were reduced slightly in response as some market participants apparently assume that the US Federal Reserve will not raise interest rates as steeply after all in view of the increasingly gloomy economic outlook. This would somewhat reduce the risk of recession.”
“Another factor that is likely to have contributed to the firm US dollar is that ECB President Lagarde rejected the idea of raising interest rates by 50 basis points in July, saying that a rate hike on this scale could not happen until September.”
Making some comments on the exchange rate value on Wednesday, Russian Economy Minister Maxim Reshetnikov said that “if the rouble remains as it is now for months, companies will need to cut their output.”
We will have deflation in June.
Demand in economy remains low.
People tend to save, not spend money now.
Rouble rate is key issue for our economic policy.
We have excessive supply of foreign currency on the market.
We see signs of deflation spiral.
In an immediate reaction to these comments, USD/RUB plunged to the lowest level since April 2015 at 50.10. The pair is down 2.31% so far.
“Right now I would advocate for a 75 bps rate hike," Cleveland Federal Reserve (Fed) Bank President Loretta Mester said on Wednesday while noting that the “debate in July is between 50 bps and 75 bps rate hike."
We want to see US rates above 4% next year.
Rate hikes are very necessary to get inflation down.
The US dollar index dropped from near-daily highs of 104.70 on these comments. At the time of writing, the spot is trading at 104.54, almost unchanged on the day.
The EUR/GBP cross witnessed some selling on Wednesday and moved further away from a nearly two-week high, around the mid-0.8600s touched the previous day. Spot prices dropped to a two-day low during the early European session, though found support near the 0.8600 mark and recovered a few pips thereafter.
European Central Bank chief Christine Lagarde on Tuesday offered no fresh insight on the rate hike path or the makeup of the new anti-fragmentation tool. This, in turn, was seen as a key factor behind the shared currency's relative underperformance and exerted downward pressure on the EUR/GBP cross.
On the other hand, Brexit woes, along with expectations that the Bank of England would opt for a more gradual approach towards raising interest rates, acted as a headwind for sterling. The combination of diverging forces held back bears from placing aggressive bets around the EUR/GBP cross.
Market participants also seemed reluctant ahead of ECB President Christine Lagarde and the BoE Governor Andrew Bailey's speech at the ECB forum in Sintra, Portugal. This makes it prudent to wait for some follow-through selling before positioning for any further downfall for the EUR/GBP cross.
From a technical perspective, the recent bounce from the vicinity of the 0.8500 psychological mark has been along an upward-sloping trend channel and points to a short-term bullish trend. The lower end of the channel coincides with the daily low and should now act as a key pivotal point.
A convincing break below might prompt aggressive technical selling and drag the EUR/GBP cross to intermediate support near the 0.8560 region. The downward trajectory could further get extended towards resting the last week's swing low, just ahead of the 0.8500 round-figure mark.
On the flip side, the 0.8650 area, or the overnight swing high, now seems to act as an immediate resistance ahead of the 0.8675 region, or the top boundary of the aforementioned channel. Sustained strength beyond would be seen as a fresh trigger for bulls and pave the way for additional gains.
Further consolidation within the 6.6600-6.7400 range is likely in USD/CNH in the next weeks according to FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang.
24-hour view: “We expected USD to ‘trade sideways’ yesterday and did not anticipate the spike in volatility as USD plunged briefly to 6.6688, surged to 6.7137 before easing off. The rapid rise has gathered momentum and USD is likely to head higher from here. That said, the major resistance at 6.7400 is not expected to come into the picture (there is another resistance at 6.7200). Support is at 6.6940 followed by 6.6860.”
Next 1-3 weeks: “We have expected USD to trade sideways between 6.6600 and 6.7400 since last Monday (20 Jun, spot at 6.7080). While shorter-term downward momentum has improved somewhat, there is no change in our view for now.”
The greenback, in terms of the US Dollar Index (DXY), returns to the 104.50 region following an unsuccessful move to the 104.70 region earlier on Wednesday.
The index looks to add to Tuesday’s strong rebound beyond the 104.00 hurdle amidst the generalized cautious stance among investors, which underpinned the re-emergence of the risk aversion mood earlier in the session.
In the meantime, US yields remain muted across the curve and seem to have embarked on a consolidative phase for the time being.
Later in the session, market participants and the FX universe are expected to closely follow the discussion panel between Fed’s J.Powell, BoE’s J.Bailey and ECB’s C.Lagarde.
In addition, usual MBA Mortgage Applications are due seconded by the final print of the US Q1 GDP Growth Rate.
Renewed risk-off sentiment motivated the index to reclaim the area above the 104.00 mark on Tuesday, although the bullish attempt appears to have run out of steam in the 104.70 zone so far.
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 suggesting a stronger dollar in the next months.
Key events in the US this week: MBA Mortgage Applications, Final Q1 GDP Growth Rate (Wednesday) – PCE, Core PCE, Personal Income, Personal Spending, Initial Claims (Thursday) – ISM Manufacturing, Final Manufacturing PMI (Friday).
Eminent issues on the back boiler: Hard/soft/softish? landing of the US economy. Escalating geopolitical effervescence vs. Russia and China. Fed’s more aggressive rate path this year and 2023. US-China trade conflict. Future of Biden’s Build Back Better plan.
Now, the index is up 0.04% at 104.53 and faces the next contention at 103.41 (weekly low June 16) seconded by 103.01 (55-day SMA) and finally 101.29 (monthly low May 30). On the other hand, a break above 104.94 (weekly high June 22) would expose 105.78 (2022 high June 15) and then 107.31 (monthly high December 2002).
The USD/JPY pair oscillated in a narrow trading range on Wednesday and consolidated its recent gains recorded over the past three sessions. Spot prices moved back above the 136.00 mark during the early European session, with bulls eyeing a multi-day peak touched the previous day.
The US dollar built on the overnight strong move up and gained some follow-through traction during the early part of trading on Wednesday. This, along with the divergent monetary policy stance adopted by the Bank of Japan and the Federal Reserve, acted as a tailwind for the USD/JPY pair. That said, a combination of factors held back bulls from placing aggressive bets and kept a lid on any meaningful upside for spot prices.
The market sentiment remains fragile amid concerns that a more aggressive move by major central banks to curb soaring inflation would pose challenges to the global economic recovery. This, in turn, offered support to the safe-haven Japanese yen. The flight to safety triggered a fresh leg down in the US Treasury bond yields, which narrowed the US-Japan rate differential and further collaborated to capping gains for the USD/JPY pair.
Traders also seemed reluctant and preferred to move on the sidelines ahead of Fed Chair Jerome Powell's speech at the ECB forum in Sintra, due later during the North American session. Investors will look for fresh clues about the Fed's policy tightening path, which will play a key role in influencing the near-term USD price dynamics. This, in turn, will help investors to determine the next leg of a directional move for the USD/JPY pair.
Here is what you need to know on Wednesday, June 29:
The greenback capitalized on safe-haven flows on Tuesday and the US Dollar Index gained more than 0.5%. Markets remain cautious mid-week and the dollar continues to hold its ground against its major rivals. Business sentiment data from the euro area, German inflation figures and the final revision to the first quarter Gross Domestic Product from the US will be looked upon for fresh impetus. More importantly, FOMC Chairman Jerome Powell, ECB President Christine Lagarde and BOE Governor Bailey will speak at the ECB's annual Forum on Central Banking.
The data from the US showed on Tuesday that the consumer sentiment continued to weaken in June with the Conference Board's Consumer Confidence Index dropping to 98.7 from 103.2 in May. Additionally, the survey showed that the one-year consumer inflation rate expectations climbed to 8% from May's revised print of 7.5%. In response, the S&P 500 lost nearly 2%.
EUR/USD came under renewed bearish pressure and fell below 1.0500 in the early European session after having closed deep in negative territory on Tuesday. European Central Bank (ECB) policymaker Gediminas Simkus said on Wednesday that it was very likely for the bank to hike the policy rate by 50 basis points in September but this comment failed to help the shared currency find demand. Meanwhile, Reuters reported the bank was evaluating whether to announce the size and the duration of the bond-buying scheme that will be used against fragmentation at its next policy meeting.
GBP/USD trades below 1.2200 in the European morning. Brexit-related political jitters weigh on the British pound after members of parliament approved the bill allowing ministers to eliminate parts of the Northern Ireland Protocol.
AUD/USD rose modestly during the Asian trading hours after the data from Australia showed that Retail Sales rose by 0.9% on a monthly basis in May, surpassing the market expectation of 0.4% by a wide margin. With the dollar preserving its strength, however, the pair fell into negative territory below 0.6900.
USD/JPY consolidates its gains above 136.00 after having closed the previous three trading days higher. "Unlike other economies, the Japanese economy has not been much affected by the global inflationary trend so monetary policy will continue to be accommodative," Bank of Japan (BOJ) Governor Haruhiko Kuroda said earlier in the day.
Gold continued to push lower and touched its lowest level in nearly two weeks at $1,816. With the benchmark 10-year US Treasury bond yield losing nearly 1% early Wednesday, however, XAU/USD's losses remain limited for the time being.
Bitcoin stays on the back foot and closes in on $20,000. Ethereum is falling for the fourth straight day and was last seen losing more than 1% on the day at $1,130.
The stronger US dollar has helped drag EUR/USD back towards the 1.05 level. In the view of economists at MUFG Bank, the European Central Bank (ECB) will need to contain fragmentation risks in order to support the euro.
“The euro failed to derive support yesterday from hawkish comments by ECB President Lagarde in her flagship speech at the Central Bank Forum in Sintra. While she continued to outline the ECB’s plan to begin raising rates by 25 bps in July and by potentially a larger 50 bps in September followed then by gradual hikes beyond, she did emphasise yesterday that ‘there are clearly conditions in which gradualism would not be appropriate’.”
“It is of crucial importance for the ECB to contain fragmentation risk to enable the ECB to raise their policy rate as much as required to dampen upside inflation risks. The main risk the ECB faces by announcing the size of the new tool is that it could disappoint market expectations compared to the alternative of leaving it more open-ended.”
“To offer more support for the euro, the ECB needs to successfully contain fragmentation risks that will allow it to keep raising their policy rate as required to fight inflation.”
The US dollar has continued to strengthen after the recent rebound in global equity markets lost upward momentum. As the Federal Reserve sticks to hawkish message, economists at MUFG Bank expect the greenback to stay on a strong foot.
“The US dollar has derived support from hawkish comments from New York Fed President Williams who reiterated that the Fed needs to lift their key policy rate to between 3.00% and 3.50% later this year, and then to between 3.50% and 4.00% next year would be ‘perfectly reasonably’. The comments provide some pushback against the recent pullback in Fed tightening expectations.”
“The US rate market has pared back expectations for the terminal policy rate from close to 4.0% to around 3.5%. Those expectations for a dovish shift from the Fed could be disappointed in the near-term unless evidence emerges of an even sharper slowdown for the US economy based on the comments from New York Fed President Williams. It supports our view that it is premature to expect a more sustained reversal of US dollar strength at the current juncture.”
The National Bank of Hungary (NBH) issued a sharp hawkish surprise to markets, hiking its base rate by 185 bps. However, the forint has only limited room to appreciate, economists at ING report.
“NBH did the impossible and surprised financial markets by raising the base rate by 185 bps to 7.75%. The NBH also made a pre-commitment to hike the 1-week deposit rate by 50 bps to 7.75% this Thursday. What is even more important is that from now on, the 1-week deposit rate and the base rate are at the same level. This makes the monetary policy toolkit, or at least the communication about that, simpler and easier to understand.
“In the short term, we expect the rate differential to widen further in the coming days, adding some more support to the forint. But we believe that under current conditions there is room for appreciation only towards the 395 level.”
“In the long run, it is still about waiting for a turnaround in negotiations with the EU regarding Rule of Law and EU funds disputes, which will unlock the hidden potential of the forint in the second half of the year (perhaps in September).”
US Dollar Index (DXY) seesaws around 104.50. Economists at ING believe that a dollar sell-off is unlikely to occur.
US rates and the dollar could nudge higher on surprising PCE deflator reading
“For today, look out for those remarks from central bankers and also the US May reading for the headline and core PCE deflator readings. High month-on-month readings are expected for headline and core (0.7% and 0.4%) and any upside surprise could see US rates and the dollar nudge higher.”
“DXY is consolidating above 104.00 and barring any large equity rally today on quarter or half year-end re-balancing, there seems little reason to expect much of a dollar sell-off.”
Iron ore has been unable to escape the broader sell-off in commodities. However, low Chinese stocks and hopes of a China recovery over the second half of 2022 should provide support in the near term. The medium to long-term outlook is more bearish, strategists at ING report.
“While we expect iron ore prices to be supported in 2H22 due to expectations of a recovery in China, the longer-term outlook for iron ore is more bearish. On the demand side, it appears that China will continue to cap crude steel output whilst also looking to replace older steel capacity with electric arc furnace capacity in order to help the country meet its decarbonisation goals. We have already seen China’s iron ore imports peak in 2020.”
“As for the supply picture, we should continue to see the ramping up of supply from new projects in Australia, along with Vale in Brazil continuing to target an annual production capacity of 400mtpa.”
“More sluggish demand from China, combined with this supply growth, suggests that prices should trend lower in the medium to longer term. As a result, we see 62% Fe fines averaging$105/t in 2023 and $90/t in 2024. This is down from $138/t over 2H22.”
EUR/GBP trades comfortably slightly above the 0.86 level. Economists at ING expect the pair to continue moving around this zone.
“Sterling has weathered news of another potential Scottish referendum (19 October 2023) quite well. That may well be because the chances of Westminster granting it are unlikely – though it looks like markets may be buffeted by UK supreme court opinions on this matter over coming months and quarters.”
“Look out for remarks from Governor Bailey today. With inflation staying near the highs, we doubt Governor Bailey will want to push back too much against tightening expectations today.”
“EUR/GBP can continue to trade near 0.8600, while cable looks more vulnerable.”
EUR/USD continues to consolidate near 1.05. Economists at ING note that the pair is set to continue tracing out a 1.0450-1.0550 range.
“Look out for the German state June CPI state releases today culminating in the national figure and expected to match last month's cycle high at 7.9% year-on-year. Any upside surprises here could give eurozone short-end rates and the euro a lift as well.”
“Also in focus today will be the June reading for eurozone economic, industrial and services confidence. These have all been holding up quite well. Yet cracks have appeared in business confidence this month and any downside surprise here may question whether the ECB can be as aggressive as the market is pricing.”
“EUR/USD to probably continue tracing out a 1.0450-1.0550 range, barring any large fixing flows.”
The Riksbank is set to announce its Interest Rate Decision on Thursday, June 30 and as we get closer to the release time, here are the expectations forecast by the economists and researchers of five major banks for the upcoming central bank's meeting.
The Riksbank is set to hike rates by 50 basis points (bps) to 0.75%.
“We expect the Riksbank to hike the policy rate by 50 bps and we also project an additional 50 bps hike at the September meeting.”
“We now look for three consecutive 50 bps hikes this year, before the pace slows to 25 bps hikes in 2023 until the policy rate hits 2.5%. Moreover, while a more aggressive QT schedule might also be adopted, we do not expect any more updates at the June meeting and think the Riksbank will continue to signal that the policy rate will remain its main policy instrument. We do not expect the policy rate to overshoot neutral. Like the ECB, we expect a more gradual glide into neutral as the central bank grapples with what is largely a supply-side shock to the economy.”
“The Riksbank looks set to join the ever-increasing band of central banks hiking by half-point increments, for two key reasons. Firstly, the Riksbank holds fewer meetings each year than other central banks and it has only two further scheduled opportunities to change policy after this week. Thursday’s meeting is an opportunity to get out in front of the ECB, which is poised to hike twice before the Riksbank meets again. Secondly, the Riksbank laid out a few scenarios in April, and core CPIF is so far tracking its ‘higher inflation’ path which policymakers indicated at the time would require an accelerated pace of tightening. Wage pressures are also building ahead of important negotiations later in the year. A 50 bps hike at this meeting, and probably another in September, therefore, look likely. Recent SEK depreciation will be an area of nervousness, though the Riksbank will need to weigh this against early signs of a weakening in the housing market, where a little under half of new loans are on floating rates.”
“We now do not only expect 50 bps being delivered at the upcoming June meeting but that it will be followed by two additional 50 bps hikes in September and November (previously we had 50/25/25). The risk for even larger increments than 50 bps (75 bps) should not be ignored, but we do not see it as the main scenario at this point, as it requires a significantly higher inflation outlook. We keep a 25 bps hike for Feb-23 in our forecast, but the hiking cycle could well stop in November already. As for QE, the Riksbank in April decided to cut the reinvestment volumes in half for H2. We see a chance for another downward adjustment, but it is not our base case.”
“We now believe the Riksbank will hike by 50 bps at all the remaining three meetings of the year, leaving the repo rate at 1.75% at the end of the year. Larger increases cannot be ruled out, and the Riksbank could even decide to hike rates between meetings, as there are almost three months between the June and September meetings. We also think the central bank will start to allow its bond holdings to fall and see that starting in Q3, the reinvestments of maturing bonds will stop. Looking further out, we do not see any further hikes from the Riksbank next year, as the weakening housing market and households under pressure favour unchanged monetary policy. We do not expect the string of rate hikes to boost the SEK. The market already prices in much more than our baseline, while the housing market woes and generally wobbly risk appetite are drags on the currency.”
See – EUR/SEK: Krona's short-term outlook remains clouded – ING
Over the past month AUD/NZD has printed highs around 1.1170, its strongest levels since 2018. However, in late June, the pair faltered, trading mostly just below 1.10. Economists at Westpac believe AUD/NZD could slide to 1.08 in the near term, however, the pair is expected to recover above 1.12 later in the third quarter.
“Near term, poor global risk sentiment including regarding China could see AUD/NZD back to the 1.08 handle for a while. But we expect the pair to rally beyond 1.12 later in Q3.”
“Fair value looks to be around 1.12-1.13.”
See: AUD/NZD to break the 1.12 top seen in 2018 and reach new highs – SocGen
NZD/USD drops to fresh low in two weeks, to 0.6232, during early Wednesday morning in Europe. In doing so, the Kiwi pair not only reverses the early Asian session rebound but also declines for third consecutive day.
The quote’s bearish bias takes clues from the previous day’s downside break of a fortnight-long symmetrical triangle, as well as the downbeat MACD signals, not to forget sustained trading below the key SMAs.
That said, the quote’s latest weakness eyes the monthly low around 0.6200.
However, nearly oversold RSI may challenge the NZD/UDS pair’s weakness past 0.6200, which if happens could highlight the 61.8% Fibonacci Expansion (FE) of June 03-16 moves, near 0.6160.
Alternatively, recovery remains elusive below the aforementioned triangle’s support line, now resistance around 0.6280.
Following that, the triangle’s upper line and the 100-SMA, respectively near 0.6310 and 0.6325, could challenge the NZD/USD buyers.
It’s worth noting, though, that the pair’s upside momentum hinges on its ability to cross the 0.6400 hurdle comprising the 200-SMA and the 50% Fibonacci retracement level of the early June downtrend.
Trend: Further weakness expected
NZD/USD broke below a two-week-old contracting range. The kiwi now targets 0.62, economists at Westpac report.
“Potential for further weakness during the month ahead, 0.62 likely to be tested. If that broke, we’d then target the 0.60 area, which was an area of much congestion in early 2020.”
“The main drivers of NZD/USD at present are global risk sentiment (proxied by equity prices, for example) and the US dollar (in turn driven by both risk sentiment and yield spreads).”
“During the month ahead, the direction of risk sentiment will be key. But much further ahead, by year-end, assuming sentiment stabilises, there is potential for the NZD to rebound towards 0.68.”
See – NZD/USD: Move lower looks ominous from a technical perspective – ANZ
The last Bank of England (BoE) rate meeting has so far been unable to provide support for sterling. Economists at Commerzbank do not expect the EUR/GBP pair to move back lower again.
“Monetary policy remains a difficult balancing act for the BoE, also from a communication point of view.”
“It remains to be seen to what extent BoE Governor Andrew Bailey will be able to convince sterling investors in his speech at the ECB forum in Sintra today. It is unlikely to be an easy task though. As a result, it is likely to be difficult for sterling to appreciate against EUR again.”
NZD/USD has broken lower. Economists at ANZ Bank see an ominous outlook for the kiwi.
“NZD trading ranges have become tighter and tighter over the past week or so, and the daily move lower looks ominous from a technical perspective, with a break out of the ‘bearish pennant’ now confirmed.”
“Irrespective of technicals, the big story is (as it has been for a while), the USD’s refusal to budge from lofty levels despite fears that Fed tightening will slow the US economy.”
“We get local confidence data later this week, but both business and consumer sentiment have already tanked, and there doesn’t seem to be a lot for the NZD to cheer about.”
EUR/USD was unable to defend the area around the 1.06 handle on Tuesday. However, economists at Commerzbank expect the pair to turn back higher if risks (gas crisis, new wars in the periphery, etc.) disappear.
“The market is currently pricing in that the real interest rate advantage of the dollar will largely disappear over the 5Yx5Y horizon. If the market is correct with its view, then no permanent EUR undervaluation is justified. The fact that EUR/USD nonetheless trades at relatively weak levels is therefore likely to be due to the risk that things might turn out differently.”
“These risks (gas crisis, new wars in the periphery etc.) are largely pointing in a EUR-negative direction. If they disappear the euro is likely to appreciate.”
European Central Bank (ECB) policymaker Gediminas Simkus backs the case for a 50 bps rate hike in September.
50 bps rate hike very likely for September.
ECB should move decisively towards policy normalization.
50 bps in July should be an option if inflation data worsens.
Fragmentation tool should serve as a deterrent.
EUR/USD is unfazed by the above comments, as it sheds 0.25% on the day to trade at 1.0490, as of writing.
The constructive bias could motivate USD/JPY to challenge the so far YTD peak around 136.70, noted FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang.
24-hour view: “While we expected USD to strengthen yesterday, we were of the view that it ‘is unlikely to break the strong resistance at 136.00’. The anticipated advance exceeded our expectations as USD soared to 136.38. From here, further USD advance is not ruled out but in view of the overbought conditions, a sustained rise above the major resistance at 136.50 is unlikely. Support is at 135.75 followed by 135.45.”
Next 1-3 weeks: “Yesterday (28 Jun, spot at 135.50), we highlighted that downward pressure has more or less dissipated and we expected USD to trade within a range of 134.00/136.50. We did not expect the rapid manner by which USD approaches the top of the expected range at 136.50 (high of 136.38). Shorter-term upward momentum has improved but while a break of 136.50 would not be surprising, the year-to-date high at 136.70 may not be easy to breach. Overall, USD is likely to trade on a firm note from here as long as it does not move below the ‘strong support’ at 135.20 within these few days.”
Considering preliminary readings from CME Group for natural gas futures markets, open interest extended the downtrend for yet another session on Tuesday, now by nearly 2K contracts. In the same line, volume remained choppy and went down by more than 70K contracts.
Prices of natural gas added to the ongoing rebound on Tuesday. Furthermore, the daily upside was in tandem with diminishing open interest and volume, exposing a probable corrective move in the short-term horizon. That said, the commodity appears well supported by the $6.00 mark per MMBtu for the time being.
European Central Bank (ECB) Chief Economist Philip Lane warned about a double-sided risk of higher inflation for longer and an upcoming recession, in an interview with CNBC on Tuesday.
“With the uncertainty, we have to manage the two risks.”
“On the one side, that could be forces that keep inflation higher than expected for longer. On the other side, we do have the risk of a slowdown in the economy, which would reduce inflationary pressure.”
“So it’s very much having a clear vision for the next couple of meetings, having an orientation to move away from the very low rates we’ve had for quite a few years, but also fully respecting the importance of being data-dependent. And to retain the optionality to respond to what we see, in the coming months.”
EUR/USD extends losses below 1.0500, trading currently at 1.0490, losing 0.26% on the day.
Gold Price (XAU/USD) pares weekly losses around $1,822 as an escalation in the recession risks propels the metal’s safe-haven demand heading into Wednesday’s European session. However, a firmer US dollar and anxiety ahead of the key data/event appear to test the quote’s upside momentum of late.
Reuters’ news that the European Central Bank (ECB) teases plans to announce details of a bond-buying scheme magnifies the market’s cautious mood. However, ECB Chief Economist Philip Lane sees a double-sided risk of spiraling inflation and an economic slowdown, per CNBC.
It’s worth noting that the latest weakness in the macro data joins inflation fears and geopolitical tussles surrounding Russia and China to also amplify the risk of economic slowdown.
Additionally, the risk reversal (RR) for gold stays down for third consecutive week to -0.125 versus -0.350 the last. The daily RR, the difference between the call and the puts, also drops the most in a week to -0.135 at the latest.
The US dollar, however, appears cautious in cheering the risk-off mood as the Fed policymakers have been trying not to repeat the latest rate hike trajectory in the next moves. Even so, the jump in the US one-year retail inflation expectations allows the US Dollar Index (DXY) to refresh its weekly top near 104.60 of late.
Amid these plays, stock futures print mild gains but the US 10-year Treasury yields dropped the most in a week during the second negative day.
That said, the gold traders should keep their eyes on the monetary policy discussions among the central bankers from the US, the UK and the European Union (EU) at the ECB Forum seems for fresh impulse. Ahead of that, the US Core Personal Consumption Expenditure (PCE) for Q1 2022, expected to remain unchanged at 5.1%, could entertain traders.
Gold portrays multiple failures to cross the 23.6% Fibonacci retracement (Fibo.) of June 12-14 downside, which in turn joins the recently steady RSI (14) to suggest the metal’s further downside.
That said, the latest bottom surrounding $1,818 may offer immediate support before directing the quote towards the two-week-old bearish channel’s bottom line, near $1,809. Following that, the $1,800 threshold and the monthly low of $1,805 could test the bears before directing them to the yearly trough close to $1,786.
Alternatively, a clear upside break of the aforementioned Fibo. hurdle near $1,823 could extend the corrective pullback towards the 50-HMA and the 200-HMA levels, respectively around $1,825 and $1,832.
However, the XAU/USD bears remain hopeful until the prices remain below the stated channel’s resistance line, at $1,835 by the press time.
Trend: Further weakness expected
China’s President Xi Jinping said on Wednesday that they must “pay close attention to epidemic prevention and control.”
Xi quickly added that his government “should try our best to promote stable and healthy economic development.”
Nothing further is reported by the Chinese state media.
USD/CNY is back in the red after hitting daily highs of 6.7087 earlier in the Asian session. The pair is now trading at 6.7008, down 0.09% on the day.
The downside pressure in AUD/USD appears to have subsided and the pair could now navigate between 0.6860 and 0.7000 in the next weeks, commented FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang.
24-hour view: “Yesterday, we expected AUD to ‘trade sideways within a range of 0.6900/0.6960’. AUD subsequently popped to a high of 0.6965 before dropping quickly to a low of 0.6905. Downward momentum has improved somewhat and the risk for AUD today is tilted to the downside. As downward momentum is not that strong for now, any decline in AUD is unlikely to break the major support at 0.6860 (minor support is at 0.6885). Resistance is at 0.6925 followed by 0.6945.”
Next 1-3 weeks: “We continue to hold the same view as yesterday (28 Jun, spot at 0.6920). As highlighted, the recent mild downward pressure has eased and AUD is likely to trade between 0.6860 and 0.7000 for now.”
West Texas Intermediate (WTI), futures on NYMEX, has displayed a firmer rebound after hitting a low of $109.48 in the late Asian session. The black gold has remained in the grip of bulls for the past week after sensing a responsive buying action from the previous week’s low at $101.17.
The oil prices have displayed signs of recovery after kissing the confluence area of the trendline and the critical support at $109.53. To be informed, the upward sloping trendline is placed from Friday’s low at $102.79.
A golden cross, represented by the 50- and 200-period Exponential Moving Averages (EMAs) at $108.76, has strengthened the oil bulls. Also, the golden cross firms a bullish reversal in an asset.
The Relative Strength Index (RSI) (14) has corrected mildly after remaining in the bullish range of 60.00-80.00. Investors will see a fresh leg of an upside move if the RSI (14) will recapture the above-mentioned bullish range.
A decisive move above Wednesday’s high at $111.18 will drive the asset towards June 14 low at 114.30, followed by June 17 high at $116.30.
On the flip side, bulls could lose control if the asset drops below Tuesday’s low at $108.55. An occurrence of the same will drag the asset towards the round-levels support at $105.00. A breach of the round-level support will unleash bears for more downside towards Friday’s low at $102.79.
FX option expiries for June 29 NY cut at 10:00 Eastern Time, via DTCC, can be found below.
- EUR/USD: EUR amounts
- USD/JPY: USD amounts
- AUD/USD: AUD amounts
- USD/CAD: USD amounts
- EUR/CHF: EUR amounts
CME Group’s flash data for crude oil futures markets noted traders added around 4.3K contracts to their open interest positions on Tuesday, reaching the second build in a row. Volume followed suit and went up by around 76.2K contracts, reversing at the same time three consecutive daily retracements.
Prices of the barrel of the WTI extended the recovery on Tuesday amidst increasing open interest and volume, leaving the door open to the continuation of the uptrend, at least in the very near term. The next up barrier for crude oil prices comes at $118.94 (June 17 high).
Gold closed Tuesday below the rising trendline support at $1,820.25, confirming a two-week old pennant breakdown. $1,800 – two steps away, FXStreet’s Dhwani Mehta reports.
“Gold cracks the critical support line at $1,820.25. The downside break opens floors towards the $1,800 threshold. However, Friday’s low of $1,817 and June 15 low of $1,808 could come to the rescue of bulls before.”
“Buyers need to recapture the pennant support turned resistance, now at $1,822, above which a decent bounce towards the $1,838 area cannot be ruled out. Further up, the mildly bullish 200 DMA at $1,845 will challenge additional recovery moves. The bearish 50 DMA at $1,853 will be the last line of defense for XAU sellers.”
The GBP/USD pair is attracting some offers after failing to sustain above the round-level resistance of 1.2200 in the early European session. Earlier, the asset rebounded after slipping below the critical support of 1.2180. A responsive buying pushed the asset higher but now the focus has been shifted to the price action of the US dollar index (DXY).
The DXY is aiming to display an upside break of its consolidation phase formed in a range of 104.36-104.52 in the Asian session. At the press time, the DXY is attempting to sustain above 104.50 initially and then will violate Tuesday’s high at 104.61.
Investors are initiating longs in the DXY as expectations of a hawkish commentary on the interest rates by Federal Reserve (Fed) chair Jerome Powell in his speech on Wednesday have advanced. Soaring price rise amid costly fossil fuels and food prices makes the hawkish stance a deserving candidate for featuring in Fed Powell’s speech.
Adding to Fed Powell’s speech, a stable consensus for the US Personal Consumption Expenditure (PCE) is underpinning the greenback against the sterling. The cable is expected to remain in the grip of bears as a stable PCE dictates that the prior rate hikes have failed to make an impact on the inflation rate.
On the pound front, the speech from Bank of England (BOE) Governor Andrew Bailey will remain in focus. BOE’s Bailey may also discuss on bringing price stability to the UK economy. Considering the Western leaders, the UK is seldom operating above 9% inflation rate. Therefore, a hawkish commentary looks likely. Meanwhile, the UK administration has announced that the economy is ready to cut off gas supplies to mainland Europe in case its economy get hit by severe shortages under an emergency plan, the Financial Times (FT) reported on Tuesday. This may create the situation of lower oil stockpiles in the eurozone and will worsen the Brexit situation.
FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang suggested GBP/USD faces a potential decline to the 1.2120 area in the next few weeks.
24-hour view: “Our expectations for GBP to ‘trade within a range of 1.2235/1.2330’ was incorrect as it dropped sharply to 1.2181 before closing on a soft note at 1.2184 (-0.66%). While the rapid decline appears to have room to break the major support at 1.2165, oversold conditions suggest that the next support at 1.2120 is unlikely to come into the picture. Resistance is at 1.2225 followed by 1.2255.”
Next 1-3 weeks: “We have held the same view since early last week where the outlook for GBP is mixed and we expect GBP to range-trade. After trading sideways and closing around 1.2265/1.2275 for several days, GBP plummeted to a low of 1.2181 during NY session. While the consolidation phase appears to have ended, downward momentum is only beginning to build and any weakness from here could be limited to 1.2120 for now. On the upside, a break of the ‘strong resistance’ level, currently at 1.2285 would indicate that the downward bias has eased.”
Copper Price, per the COMEX Futures, returns to the bear’s desk as the red metal drops back towards the multi-month low marked the last week heading into Wednesday’s European session. That said, the commodity drops to $3.73, down 0.65% while the three-month copper futures contract on the London Metal Exchange (LME) was down 0.5% at $8,385 a tonne by the press time.
The downbeat US dollar and positive headlines from China managed to trigger the industrial metal’s corrective pullback in recent days. However, looming concerns over the economic growth and the US dollar’s rebound drowned the quote afterward.
The metal managed to cheer China’s reduction of covid-linked quarantine time for travelers, as well as hopes of the Sino-American trade talks, in recent days. Additionally, downbeat US data also helped the metal to rebound from the multi-month low.
However, Tuesday’s jump in the one-year US consumer inflation expectations joined hawkish Fed bets to renew the recession fears and weigh on the metal prices. The US Conference Board (CB) Consumer Confidence Index dropped for the second consecutive month in June, to 98.7 versus 100.0 expected and 103.2 in May. In doing so, the widely followed consumer sentiment gauge dropped to the lowest level since February 2021. Further details revealed that the one-year consumer inflation rate expectations climbed to 8% from May's revised print of 7.5. It should be noted that the US trade deficit dropped to the lowest in a year, to $104.3 billion, per the latest release for May.
Elsewhere, the geopolitical concerns surrounding China and Russia also weigh on the metal prices. Amid these plays, Standard Chartered wrote in a note, per Reuters, “The base metals complex has been under pressure from a challenging demand outlook owing to China's COVID lockdowns and broader macro concerns over monetary policy tightening and growth fears.”
The US bank also adds, “However, micro fundamentals for the complex remain broadly supportive, given output disruptions, supply dislocations and relatively thin exchange inventories.”
Moving on, the US Core Personal Consumption Expenditure (PCE) for Q1 2022, expected to remain unchanged at 5.1%, will join the final readings of the US Q1 GDP, likely to confirm a 1.5% Annualized contraction, to highlight additional catalysts for clear directions. Above all, monetary policy discussions among the central bankers from the US, the UK and European Union (EU) at the ECB Forum will be crucial to watch.
Copper prices remain vulnerable to declining further unless bouncing back beyond the late 2021 low near $4.00. That said, 50% Fibonacci retracement of 2020-22 upside, around $3.55, lures the bears of late.
Raging inflation, led by surging oil prices, could reduce Eurozone’s gross domestic product (GDP) by 1.5%, according to a new study presented by economist Hilde C. Bjornland on Tuesday at the annual European Central Bank (ECB) Forum held in Sintra.
“The increase in energy prices is directly related to geopolitical tensions, and disruptions to supply chains caused by the war in Ukraine.”
“On average, every 10 percent increase in oil prices can reduce eurozone GDP by 0.5 percent after two years, the study shows. This means that projecting 30 percent oil inflation could reduce GDP in the eurozone by 1.5 percent.”
"During periods of high oil price volatility, stabilizing inflation is difficult."
Open interest in gold futures markets shrank by nearly 1K contracts on Tuesday, partially reversing the previous daily build, according to advanced prints from CME Group. In the same line, volume dropped by around 34.5K contracts, extending the erratic performance.
Tuesday’s downtick in gold prices was in tandem with shrinking open interest, supportive of the idea that further downside does not appear favoured in the very near term. Against that, bullion could embark on a consolidative phase around the $1,820 per ounce troy.
In the opinion of FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang, EUR/USD is still seen within the 1.0460-1.0630 range in the next weeks.
24-hour view: “We highlighted yesterday that ‘upward momentum has not improved by much and EUR is unlikely to advance further’ and we expected EUR to ‘trade between 1.0540 and 1.0615’. EUR subsequently rose to 1.0606 before staging a surprisingly sharp drop to 1.0502. Downward momentum has improved and the risk for today is on the downside. However, any weakness is likely to face solid support at 1.0485 (there is another strong support at 1.0460). The downside risk is intact as long as EUR does not move above 1.0575 (minor resistance is at 1.0550).”
Next 1-3 weeks: “We have expected EUR to consolidate for more than a week now. After EUR popped to a high of 1.0614, we highlighted yesterday (28 Jun, spot at 1.0580) that the risk of a break of the major resistance at 1.0630 has “increased somewhat”. EUR subsequently rose to 1.0606 before falling sharply. The build-up in shorter-term upward momentum has fizzled out. In other words, EUR is still consolidating within a range of 1.0460/1.0630.”
Silver Price (XAG/USD) remains on the back foot, justifying the previous day’s technical break, heading into Wednesday’s European session. That said, the bright metal seesaws around $20.80 by the press time.
The XAG/USD bears cheered the downside break of fortnight-old support, now resistance near $20.90, on Tuesday to refresh the weekly low. However, early May’s low surrounding $20.60 challenged the quote’s further downside.
The corrective pullback, however, remains below the previous support line near $20.90 to keep sellers hopeful of witnessing the aforementioned horizontal support near $20.60.
Though, nearly oversold RSI conditions seem to challenge the metal prices at the weekly low, a break of which could direct the sellers towards the yearly bottom of $20.45 marked in May.
In a case where XAG/USD remains bearish past $20.45, the 61.8% Fibonacci Expansion (FE) of April 20 to June 06 moves, near $19.45, will be in focus.
Alternatively, recovery remains elusive below the support-turned-resistance level of $20.90.
Following that, downward sloping trend lines from June 21 and June 06, respectively near $21.25 and $21.40, could challenge the silver buyers.
It’s worth noting, however, that the 200-SMA level of $21.68 holds the key to XAG/USD bull’s entry.
Trend: Limited downside expected
Reuters is out with the latest headlines, citing that the European Central Bank (ECB) is evaluating whether to announce the size and duration of the bond-buying scheme at its next monetary policy meeting on July 21
This follows reports doing the rounds on Tuesday that the central bank will likely drain cash from the banking system to offset any bond purchases made to cap borrowing costs for indebted euro zone states.
The ECB is expected to announce the new anti-fragmentation tool on July 21 when it will deliver its first rate hike in more than a decade.
The shared currency is little affected by the above chatter, as EUR/USD keeps its range near daily lows of 1.0502, down 0.08% on a daily basis.
The USD/CHF pair is aiming to surpass the critical resistance of 0.9570 as the US dollar index (DXY) has attempted an upside break of the consolidation formed in a narrow range of 104.36-104.50 in the Asian session. Earlier, the asset witnessed a responsive buying action after slipping near the critical support of 0.9550.
Bids have followed the DXY after remaining lackluster as bets over a hawkish commentary from Federal Reserve (Fed) chair Jerome Powell in his speech on Wednesday have advanced. Fed Powell is expected to sound hawkish as prior interest rate hikes by the Fed have failed to bring even a minor impact on the inflation rate in the US economy.
The Fed has already elevated its interest rates to 1.50-1.75% in its past three monetary policy meetings. Despite the back-to-back announcements of rate hikes and balance sheet reduction program, the inflation rate has climbed above 8.6%, recording its every highest four-decade figure.
In addition to Fed Powell’s speech, investors’ focus will remain on the US Personal Consumption Expenditure (PCE) and Gross Domestic Product (GDP) numbers. As per the market consensus, the US PCE will remain stable at 7% on an annual basis. Also, the US GDP figure is expected to remain unchanged at -1.5% for the first quarter of CY 2022.
On the Swiss franc front, ZEW Survey- Expectations will be keenly watched. As per the market consensus, the economic data could decline to -70.7 vs. -52.6 recorded earlier. A higher-than-expected figure will strengthen the Swiss franc bulls against the greenback.
USD/CAD holds onto the recent bearish bias, despite showing inaction of late, as it refreshes intraday low near 1.2860 heading into Wednesday’s European session.
The Loonie pair’s latest weakness could be linked to the firmer prices of Canada’s main export item, namely the WTI crude oil. However, the market’s anxiety ahead of important monetary policy discussions among the central bankers from the US, the UK and the European Union (EU) at the ECB Forum seems to challenge the USD/CAD bears of late.
That said, WTI crude oil recently bounced off its intraday low to $110.00. In doing so, the black gold consolidates the first daily loss in four as global ire towards Russian oil joins supply crunch fears in the Middle East.
Elsewhere, S&P 500 Futures print mild gains as the US 10-year Treasury yields extend the previous day’s losses amid recession fears. That said, the benchmark US bond coupons drop to 3.13%, down 7.7 basis points (bps) by the press time.
On Tuesday, a jump in the one-year US consumer inflation expectations joined hawkish Fed bets to renew the US dollar’s safe-haven demand. The US Conference Board (CB) Consumer Confidence Index dropped for the second consecutive month in June, to 98.7 versus 100.0 expected and 103.2 in May. In doing so, the widely followed consumer sentiment gauge dropped to the lowest level since February 2021. Further details revealed that the one-year consumer inflation rate expectations climbed to 8% from May's revised print of 7.5. It should be noted that the US trade deficit dropped to the lowest in a year, to $104.3 billion, per the latest release for May.
Moving on, the US Core Personal Consumption Expenditure (PCE) for Q1 2022, expected to remain unchanged at 5.1%, will join the final readings of the US Q1 GDP, likely to confirm a 1.5% Annualized contraction, to highlight additional catalysts for clear directions. However, major attention will be given to how Fed Chair Powell defends the biggest rate hike since 1994 and manages to signal more such measures to tame inflation. The Fed Boss has recently failed to please USD bulls and hence any surprises should be traded with a pinch of salt.
Unless bouncing back beyond June 21 swing low near 1.2900, USD/CAD remains vulnerable to retesting the 50-DMA support of 1.2820.
The UK is ready to cut off gas supplies to mainland Europe in case the Kingdom is hit by severe shortages under an emergency plan, the Financial Times (FT) reported on Tuesday.
Britain would cut two-way interconnectors to Belgium and Netherlands in event of severe shortages
A cut off of so-called interconnector pipelines would be among the early measures under the UK’s emergency gas plan, which could be triggered by National Grid if supplies fall short in the coming months.
European gas companies have appealed to the UK to work with the EU and warned shutting off interconnectors could backfire if prolonged shortages occur.
National Grid said the plan was tested annually, adding that the latest exercise would “reflect the circumstances” as Russia curtails gas exports to Europe.
With the UK-Europe relations already sour, thanks to the Brexit deal, the latest tensions surrounding the gas supplies will only make matters worse.
At the time of writing, EUR/USD is testing daily lows just above 1.0500 while GBP/USD is paring back gains to trade around 1.2200, still up 0.16% on the day.
Markets in the Asian domain have witnessed a steep fall as the downbeat US Consumer Confidence has crossed the boundaries and has dented the sentiment of investors globally. The downwardly revised US Consumer Confidence brought a significant sell-off in the Wall Street on Tuesday and a similar pattern has been followed in the Asian indices. The US Conference Board reported the Consumer Confidence at 98.7, lower than the estimates of 100, and the former release of 103.2.
At the press time, Japan’s Nikkei225 tumbled 1.18%, China A50 surrendered 1.00%, Hang Seng plunged 1.51%, and Nifty50 eased 0.66%.
A downbeat US Consumer Confidence displays less confidence of the US individuals in the growth prospects of the US economy. No doubt, the soaring fossil fuels, and food prices have cut the growth forecasts and the households are facing the headwinds of lower-valued ‘paychecks’. This also results in lower consumer spending on durables and consumer products and eventually a slump in aggregate demand.
Meanwhile, the US dollar index (DXY) is hovering below 104.50 and is awaiting the speech from Federal Reserve (Fed) chair Jerome Powell. Fed Powell is expected to sound hawkish while providing hints of likely monetary policy action in July. Apart from that, the US economic data holds significant importance. The release of the US Personal Consumption Expenditure (PCE) will hog the limelight. The market consensus states an unchanged US PCE at 7% on an annual basis, which is also vulnerable for the US Consumer Confidence. A significant slump in the US PCE price-wise is the need of the hour.
On the oil front, oil prices have witnessed a minor correction after a firmer recovery. The black gold is holding itself above $111.00 in the early European session. The supply constraints will continue to stay prolonged as the OPEC cartel is unable to fill the restricted supply from Moscow.
USD/JPY picks up bids towards the weekly high around 136.40 ahead of Wednesday’s European session amid the market’s anxiety ahead of key data/events, which in turn underpins the US dollar buying.
Also read: USD/JPY slips beneath 136.00 on upbeat Japan Retail Trade, softer yields, focus on Fed’s Powell
In addition to the cautious mood ahead of the key monetary policy discussions among the central bankers from the US, the UK and European Union (EU) at the ECB Forum, options market signals for the USD/JPY also propel the pair’s prices of late.
That said, the highest daily risk reversal (RR) for the USD/JPY in eight days, as per the ratio between call and put premiums, keeps the pair buyers hopeful.
That said, the daily RR snapped a five-day downtrend while rising to 0.110 by the end of Tuesday, the highest since June 17, whereas the weekly print also prints gains for the first time in three, up 0.030 by the press time.
AUD/USD remains pressured around 0.6900, despite the latest rebound from intraday low heading into Wednesday’s European session.
The Australian dollar (AUD) pair’s weakness could be linked to the downside RSI (14), not oversold, as well as bearish MACD signals.
Also favoring the quote’s bearish bias is the sustained trading below the 100 and 200-SMAs, not to forget a weekly descending resistance line.
That said, an upward sloping support line from June 14 restricts the AUD/USD pair’s immediate downside near 0.6880.
Following that, the monthly low of 0.6850 precedes the 61.8% Fibonacci Expansion (FE) of June 02-16 moves, near 0.6800, will be in focus.
Alternatively, recovery remains elusive below the aforementioned immediate descending resistance line, at 0.6960 by the press time.
Should AUD/USD buyers manage to cross the 0.6960 hurdle, the 100 and 200 SMAs, respectively near 0.6990 and 0.7050, will be crucial to watch before confirming the upside momentum.
Overall AUD/USD pair’s recent bounce appears nothing more than the corrective pullback amid a sluggish session.
Trend: Further weakness expected
The USD/INR pair has slipped below the psychological support of 79.00 at the open, however, the upside remains imminent on broader strength in the US dollar index (DXY). The asset recorded an all-time high of 79.09 on Tuesday and a follow-up corrective move due to profit-booking has dragged the asset lower.
The DXY is trading sideways in a narrow range of 104.36-104.52 as investors are awaiting the speech from the Federal Reserve (Fed) chair Jerome Powell and US economic data. As the Fed is fully committed to bringing price stability to the US economy, Fed chair Jerome Powell may dictate a hawkish ideology on interest rate policy for July.
One thing that may disturb Fed policymakers now is the downbeat Consumer Confidence. The US Conference Board has reported the economic data at a 16-month low, which is 98.7 lower than the estimates of 100 and the former release of 103.2. Soaring oil and food prices have dented the sentiment of the US households. A lower Consumer Confidence results in lower consumption from the households, which may also reduce the confidence of the Fed in dictating extremely strict quantitative measures.
On the oil front, oil prices have witnessed some long liquidation after a firmer recovery. The black gold is holding itself above $111.00 and a minor correction will sooner turn into an impulsive move. The supply constraints will continue to stay prolonged as the OPEC cartel is unable to fill the restricted supply from Moscow.
USD/TRY extends the previous day’s recovery moves to 16.67 during early Wednesday morning in Europe. The Turkish lira (TRY) pair’s latest rebound could be linked to the fresh fears of higher inflation in Turkiye, as well as a cautious mood ahead of important monetary policy discussions among the central bankers from the US, the UK and the European Union (EU) at the ECB Forum.
That said, the latest Reuters poll said that Turkiye's inflation is expected to rise above 78% in June and it was seen declining to just below 70% by end-2022. The survey also mentioned the reason by stating, “As pricing behavior deteriorates across the board due to a weak currency and a loose monetary policy.”
It’s worth noting that the nation’s Consumer Price Index (CPI) rallied to 73.5% in May while refreshing a multi-year high. However, President Recep Tayyip Erdogan refrains from rate hikes and rather pushes qualitative measures termed as ‘liralization’ to defend the national currency. The next reading for Turkish CPI will be for May and will be out on Monday.
On the other hand, a jump in the one-year US consumer inflation expectations joined hawkish Fed bets to renew the US dollar’s safe-haven demand. The US Conference Board (CB) Consumer Confidence Index dropped for the second consecutive month in June, to 98.7 versus 100.0 expected and 103.2 in May. In doing so, the widely followed consumer sentiment gauge dropped to the lowest level since February 2021. Further details revealed that the one-year consumer inflation rate expectations climbed to 8% from May's revised print of 7.5. It should be noted that the US trade deficit dropped to the lowest in a year, to $104.3 billion, per the latest release for May.
It should be noted that Turkey’s step back from a hard stand over Sweden and Finland’s joining of North Atlantic Treaty Organization (NATO) challenge the USD/TRY buyers. On the same line could be the recently softer US Treasury yields amid recession fears.
Looking forward, the US Core Personal Consumption Expenditure (PCE) for Q1 2022, expected to remain unchanged at 5.1%, will be important. On the same line will be the final readings of the US Q1 GDP, which is likely to confirm a 1.5% Annualized contraction. Above all, the central bankers’ discussions at the ECB Forum will be the key for the market players to watch for clear directions.
The USD/TRY pair’s corrective pullback remains elusive until crossing the previous support line from early May, around 17.00 by the press time. Alternatively, 50-DMA restricts the immediate downside of the pair at around 16.07.
EUR/USD struggles to defend the early Asian session’s corrective pullback during Wednesday morning in Europe. That said, the major currency pair eases from the intraday high to 1.0525 by the press time.
The quote failed to praise the cautious optimism of European Central Bank (ECB) President Christine Lagarde the previous day as fears of recession and higher inflation joined economic challenges for the bloc to please the pair sellers. Also underpinning the bearish bias is the cautious mood ahead of the key German inflation data and important monetary policy discussions among the central bankers from the US, the UK and European Union (EU) at the ECB Forum.
Although ECB’s Lagarde confirmed a 0.25% rate hike for June she also mentioned that there is an optionality to raise by more in September. “We are still expecting positive growth rates,” added the policymaker on Wednesday.
On the other hand, a jump in the one-year US consumer inflation expectations joined hawkish Fed bets to renew the US dollar’s safe-haven demand. The US Conference Board (CB) Consumer Confidence Index dropped for the second consecutive month in June, to 98.7 versus 100.0 expected and 103.2 in May. In doing so, the widely followed consumer sentiment gauge dropped to the lowest level since February 2021. Further details revealed that the one-year consumer inflation rate expectations climbed to 8% from May's revised print of 7.5. It should be noted that the US trade deficit dropped to the lowest in a year, to $104.3 billion, per the latest release for May.
It’s worth noting that Wall Street closed in the red and yield reversed from the weekly top amid growth fears on Tuesday while the US stock futures remain directionless and the bond coupons stay pressured at the latest.
Moving on, the preliminary readings of Germany’s Harmonized Index of Consumer Prices (HICP) for June, expected to rise to 8.8% versus 8.7% prior, may offer intermediate directions ahead of the key ECB forum updates. It’s worth noting that the US Core Personal Consumption Expenditure (PCE) for Q1 2022, expected to remain unchanged at 5.1%, will join the final readings of the US Q1 GDP, likely to confirm a 1.5% Annualized contraction, to highlight additional catalysts for clear directions.
That said, ECB’s Lagarde has often failed to impress EUR/USD buyers but the recent track record of Fed Chair Jerome Powell isn’t good as well, which in turn keeps the pair traders on their toes ahead of the event. Should Powell manages to defend hawkish policy measures, the US dollar can hold the latest gains.
A clear downside break of the fortnight-old ascending triangle directs EUR/USD bears towards the previous weekly low surrounding 1.0470. On the contrary, a convergence of the 21-day EMA and support line of the stated triangle, near 1.0560, challenges any recovery.
Gold price (XAU/USD) has rebounded modestly after re-testing Tuesday’s low at $1,818.33 in the Asian session. The precious metal has attempted to contain $1,822.50 and is focusing to sustain above the critical support of $1,820.00. Investors should brace for extreme volatility in the gold prices in today’s session as the speech from Federal Reserve (Fed) Jerome Powell will provide hints about the likely monetary policy action in July.
No matter what inflation rate for June will be released by the US Bureau of Labor Statistics, the Fed will definitely announce a rate hike in July monetary policy meeting. What signifies more is the extent of the rate hike that will be dictated by the Fed. If we scrutiny the prior data, one thing is clear the former rate hikes by the Fed have failed to make any dent in the inflation rate. The price rise is stalwart at a four-decade high with a figure of 8.6% and Fed is ‘fully committed' to bringing price stability.
Meanwhile, the US dollar index (DXY) is hovering below 104.50 ahead of US Personal Consumption Expenditure (PCE). As per the market consensus, the PCE is seen stabled at 7%.
The gold prices are trading in a Descending Triangle pattern that signals a volatility contraction. The downward sloping trendline is plotted from June 16 high at $1,857.58 while the horizontal support is placed from June 16 low at $1,815.73. The gold bulls have attached the 20-period Exponential Moving Average (EMA) at $1,821.22. Meanwhile, the Relative Strength Index (RSI) (14) has managed to reclaim the 40.00-60.00 range, which indicates that a fresh leg of downside move has been postponed for now.
Steel prices have witnessed a minor rebound despite the onset monsoon season in Asia. The season-sensitive commodity has picked some bids after remaining lower from a few trading sessions despite escalating odds of a fall in the demand for steel due to the arrival of monsoon in the Asian territory. The arrival of monsoon results in lower construction activities as monsoon rains halts the construction process, which leads to a significant fall in the demand of steel.
The major rationale behind the recovery in the steel prices is the advancing supply constraints. Various steel mills owners have voluntarily halt their production capacities to extremely lower levels. The steel mills owners are operating in an already high-inventory market thanks to the earlier Covid-19 issues and lower usage of steel due to higher interest rates, which reduced the demand for steel in the global market.
Now, focus will remain on the Caixin Manufacturing Purchase Managers Index (PMI) which will reveal the economic activities in China. It is worth noting that China is the leading consumer of steel. As per the market consensus, the Chinese economic data is expected to land at 47, lower than the prior print of 48.1. The economic data is expected to remain lower despite a relief from Covid-19 issues in the Chinese economy. However, the environmental issues that had forced the steel mills owners to reduce the total output will continue to sustain longer.
As inflation broadens out in South Korea, a senior Bank of Korea (BOK) official calls for a big-step interest rate hike at its July 13 monetary policy meeting, per Yonhap News Agency.
"Whether the BOK will take a big-step increase or not greatly depends on June consumer inflation data,"
"Should prices rise 6 percent or higher, calls could get louder for a big-step move."
To tame inflation, the BOK has hiked its policy interest rate five times -- all by a quarter percentage point at a time -- since August last year to 1.75 percent.
Markets are now speculating an unprecedented 0.5 percentage-point hike in borrowing costs next month.
Last week, BOK Gov. Rhee Chang-yong told reporters that all options, including a 0.5 percentage-point rate increase, are on the table should high inflation persist.
USD/KRW is heading back towards the daily highs of $1,292.95, as the South Korean won (KRW) fails to capitalize on the hawkish BOK commentary. The spot rebounded from an early drop to $1,289.71 lows.
“The Chinese economy may grow around 4.8% in 2022, and could reach 5%-5.5% if supported by strong policies such as the issuance of special treasury bonds in H2,” Yicai.com reported, citing a report by Zhixin Investment Research Institute.
“If issuing CNY1.5 trillion special treasury bonds, the infrastructure investment growth in 2022 could increase by 24.8%, otherwise the figure may rise by 13.7%.”
“The central bank is expected to cut the reserve requirement ratio in H2 to ease banks' pressure on capital costs.”
USD/CNY was last seen trading at 6.7019, down 0.08% on the day.
Strategists at Morgan Stanley remain bullish on the Swiss franc, recommending going short on EUR/CHF while suggesting the upside for CHF/JPY, in the wake of the further rate rises from the Swiss National Bank (SNB).
"We keep our bullish CHF bias. The SNB has made clear its preference is for a stronger - not weaker - currency in order to weigh against imported inflation. The central bank's reaction function to CHF is also no longer one-sided, with SNB selling foreign currency (CHF buying) now also a possibility if CHF weakens.”
“We think the SNB would prefer to use rate hikes over the balance sheet for now, but eventual buying of CHF cannot be ruled out if the currency does not strengthen.”
"The recent fall in PMIs and reduced gas supplies suggest the European growth outlook could also worsen from here, keeping downward pressure on EUR/CHF. CHF/JPY should also keep grinding higher, fuelled by monetary policy divergence.”
Raw materials | Closed | Change, % |
---|---|---|
Brent | 117.22 | 1.93 |
Silver | 20.822 | -1.67 |
Gold | 1820.57 | -0.11 |
Palladium | 1872.77 | 0.33 |
GBP/USD pares the biggest weekly loss in over a week around 1.2200 during the mid-Asian session on Wednesday. In doing so, the cable pair cheers the upbeat UK data and the US dollar pullback amid mixed concerns. However, the market’s anxiety ahead of the week’s key data/events appears to challenge the corrective pullback from the weekly low.
The firmer prints of the UK BRC Shop Price Index for May, to 3.1% YoY versus 2.8% prior, recalled the GBP/USD buyers amid hopes of hawkish comments from the Bank of England Governor Andrew Bailey during the European Central Bank (ECB) Forum appearance. The shop prices jumped the most since 2008 per the British Retail Consortium (BRC).
The US Dollar Index (DXY) drops 0.10% to 104.39 at the latest as yields extend the previous day’s pullback from a one-week high while the US stock futures and Asia-Pacific equities trade mixed.
The greenback gauge benefited from a jump in the short-term retail inflation expectations, as well as increasingly hawkish Fedspeak, the previous day. That said, the US Conference Board (CB) Consumer Confidence Index dropped to the lowest level since February 2021, to 98.7 versus 103.20 prior. The details hint at the jump in the one-year consumer inflation rate expectations to 8% from May's revised print of 7.5%.
Given the market’s corrective pullback, as well as firmer UK data, GBP/USD may witness further recovery ahead of the ECB Forum. However, Bailey's failure to please hawks has been famous of late and can recall the sellers afterward, provided Fed Chair Powell manages to regain bull’s confidence.
A six-week-old horizontal area surrounding 1.2155-60 restricts short-term GBP/USD downside amid steady RSI and sluggish MACD. However, the recovery moves need validation from the 10-DMA level of 1.2260 before eyeing the previous support from June 14, at 1.2305 by the press time.
“The risk of a recession in the United States and globally is ‘uncomfortably high’”, Mark Carney, former governor of the Bank of Canada (BOC) and the Bank of England (BOE) said on Wednesday.
“Canada is likely to fare better in a slowdown than most other countries.”
“That recession, if it comes, will be relatively mild. This isn’t 2008, for [the US], but it’s also not 2001 either.”
“A recession won’t be as painful as the last global one because there aren’t the same imbalances in the US economy.”
“The banks are not in as precarious a situation, and there is not the same oversupply of houses and cars. Meanwhile, consumer finances are not in as rough shape as 2008.”
AUD/JPY justifies firmer Aussie Retail Sales to reverse daily losses around 94.00 during Wednesday’s Asian session. In doing so, the cross-currency pair bounces off an upward sloping support line from Monday.
That said, Australia Retail Sales reprints 0.9% MoM growth, versus the market consensus of 0.4%, for May.
It should be noted that the 100-SMA level of 94.20 guards immediate recovery of the AUD/JPY pair.
Following that a downward sloping resistance line from June 08, close to 94.50, will be crucial for the bulls to cross.
In a case where the AUD/JPY prices stay firmer past 94.50, the odds of witnessing a run-up towards the previous weekly top near 95.35 and then towards the monthly peak of 96.90 can’t be ruled out.
Alternatively, a downside break of the weekly support line, at 93.90 by the press time, isn’t an open invitation to the sellers as an upward sloping trend line from June 16, close to 93.10, will challenge the further downside.
Even if the AUD/JPY pair drops below 93.10, the 93.00 threshold and the 200-SMA level near 92.75 will act as additional downside filters to challenge the bears.
Trend: Further recovery expected
AUD/USD bounces off intraday low to snap a two-day downtrend on upbeat prints of Australia Retail Sales during Wednesday’s Asian session. That said, the Aussie pair takes the bids to 0.6915 by the press time. It’s worth noting that the challenges to sentiment and anxiety ahead of the week’s key data/events probe the buyers.
Australia Retail Sales reprints 0.9% MoM growth, versus the market consensus of 0.4%, for May. The data rebuffs challenges for the Reserve Bank of Australia’s (RBA) rate hikes with the heavy run-up, which in turn propels the AUD/USD prices of late.
However, fears surrounding global recession and the increasing inflation woes weigh on the AUD/USD, mainly due to the pair’s risk barometer status. While portraying the mood, the S&P 500 Futures struggle for clear directions after heavy losses on Wall Street. Further, the US 10-year Treasury yields drop for the second consecutive day, to 3.17% by the press time.
The Western sanctions on Russia and tough conditions for China at the North Atlantic Treaty Organization (NATO) meeting appear to exert additional downside pressure on the market sentiment, as well as on the AUD/USD prices.
On Tuesday, upbeat prints of one-year US consumer inflation expectations joined hawkish Fedspeak to renew the fears of faster Fed rate hikes, which in turn drowned the quote. However, headlines suggesting easing travel restrictions in China and likely Sino-American trade talks appear to have tamed the bearish bias previously.
Moving on, the US Core Personal Consumption Expenditure (PCE) for Q1 2022, expected to remain unchanged at 5.1%, will be important. On the same line will be the final readings of the US Q1 GDP, which is likely to confirm a 1.5% Annualized contraction. Above all, the central bankers’ discussions at the ECB Forum will be the key for the market players to watch for clear directions.
A two-week-old support line precedes the ascending trend line from May 12, respectively around 0.6875 and 0.6860, to challenge the AUD/USD pair’s short-term downside. That said, the 10-DMA restricts immediate AUD/USD upside to around 0.6945.
The primary gauge of Australia’s consumer spending, the Retail Sales, released by the Australian Bureau of Statistics (ABS) has come in as follows:
AUD/USD has rallied don the data some 10 pips so far with eyes on 0.6920 from the session lows of 0.6897.
In the 5-min chart above, the Aussie is seen rallying on the data and eyes on the prior highs near 0.6920. The W-formation, however, is a reversion pattern, so the price could end up revisiting the neckline near 0.6950 immanatly.
Retail Sales account for approximately 80% of total retail turnover in the country and, therefore, has a significant bearing on inflation and GDP. This leading indicator has a direct correlation with inflation and the growth prospects, impacting the Reserve Bank of Australia’s (RBA) interest rates decision and AUD valuation. The stats bureau uses the forward factor method, ensuring that the seasonal factors are not distorted by COVID-19 impacts.
USD/JPY consolidates weekly gains during Wednesday’s sluggish Asian session, refreshing intraday low around 135.90 by the press time. In doing so, the yen pair snaps a three-day uptrend around a one-week high. The quote’s latest weakness could be linked to the strong retail trade data from Japan, as well as downbeat Treasury yields.
Japan Retail Trade for May rose to 3.6% YoY versus 3.3% expected and 3.1% upwardly revised prior. The Large Retailer Sales rallied by 8.5% compared to 1.3% expected and 4.0% prior.
On the other hand, the market’s indecision over the economic stand, as well as the fears of inflation, joins the hawkish Fedspeak to weigh on the US Treasury yields, which in turn drown the USD/JPY prices of late. That said, the US 10-year Treasury yields drop for the second consecutive day to 3.157% whereas the S&P 500 Futures print mild losses by the press time.
A jump in the one-year US consumer inflation expectations joined hawkish Fedspeak to renew the fears of faster Fed rate hikes. To talk about the data, the US Conference Board (CB) Consumer Confidence Index dropped for the second consecutive month in June, to 98.7 versus 100.0 expected and 103.2 in May. In doing so, the widely followed consumer sentiment gauge dropped to the lowest level since February 2021. Further details revealed that the one-year consumer inflation rate expectations climbed to 8% from May's revised print of 7.5. It should be noted that the US trade deficit dropped to the lowest in a year, to $104.3 billion, per the latest release for May.
Elsewhere, the Group of Seven (G7) nations announced restrictions on Russian oil prices while the North Atlantic Treaty Organization (NATO) meeting signals not a welcome environment for China. Furthermore, US Deputy Commerce Secretary Don Graves said, “A clear US response on China tariffs is coming soon,” per Bloomberg TV, which in turn raises fears of the fresh Sino-American tussles.
Other than what’s already mentioned above, recent comments from Bank of Japan (BOJ) Governor Haruhiko Kuroda also weigh on the USD/JPY prices. “Unlike other economies, the Japanese economy has not been much affected by the global inflationary trend so monetary policy will continue to be accommodative,” said BOJ’s Kuroda.
Looking forward, the US Core Personal Consumption Expenditure (PCE) for Q1 2022, expected to remain unchanged at 5.1%, will be important. On the same line will be the final readings of the US Q1 GDP, which is likely to confirm a 1.5% Annualized contraction. Above all, the central bankers’ discussions at the ECB Forum will be the key for the market players to watch for clear directions.
A clear upside break of the weekly resistance line and successful trading beyond the 10-DMA, respectively around 134.75 and 135.30, propels USD/JPY towards a monthly peak of 136.75.
In recent trade today, the People’s Bank of China (PBOC) set the yuan (CNY) at 6.7035 vs. the last close of 6.7080.
China maintains strict control of the yuan’s rate on the mainland.
The onshore yuan (CNY) differs from the offshore one (CNH) in trading restrictions, this last one is not as tightly controlled.
Each morning, the People’s Bank of China (PBOC) sets a so-called daily midpoint fix, based on the yuan’s previous day's closing level and quotations taken from the inter-bank dealer.
The EUR/USD pair is juggling in a minor range of 1.0518-1.0531 in the early Tokyo session. Earlier, the asset witnessed a steep fall after failing to sustain above the round-level resistance of 1.0600 on Tuesday.
On a broader note, the asset is auctioning in an Ascending Triangle chart pattern whose upward sloping trendline is placed from 1.0444 while the horizontal resistance is plotted from the previous week’s high at 1.0606. Also, the asset is forming an Inverted Flag pattern that signals a consolidation phase after a downside move. The confluence of the Ascending Triangle formation and Inverted Flag on the hourly scale is bolstering the odds of a downside break of the asset.
The declining 20-period Exponential Moving Average (EMA) at 1.0540 is indicting more weakness in the counter.
Also, the Relative Strength Index (RSI) (14) has shifted into the bearish range of 20.00-40.00, which adds to the downside filters.
The greenback bulls could strengthen further if the asset drops below the psychological support of 1.0500. An occurrence of the same will drag the asset towards June 22 low at 1.0469. A slippage below June 22 low will expose the asset to more downside levels for the June 17 low at 1.0444.
On the flip side, a decisive move above Monday’s high at 1.0615 will drive the asset towards May 25 high at 1.0642, followed by May 27 low at 1.0697.
US Dollar Index (DXY) seesaws around 104.50, after rising the most in eight days to refresh the weekly top the previous day. That said, the greenback gauge awaits key data/events as bulls take a breather during Wednesday’s sluggish Asian session.
The return of hawkish Fed bets appears to have renewed the US dollar buying the previous day. The US data, as well as geopolitical and trade chatters, seemed to have underpinned the bullish hopes from the greenback. It’s worth noting that the escalating fears of a recession are an extra burden on the market sentiment and underpin the USD’s safe-haven demand.
A jump in the one-year US consumer inflation expectations joined hawkish Fedspeak to renew the fears of faster Fed rate hikes. That said, the US Conference Board (CB) Consumer Confidence Index dropped for the second consecutive month in June, to 98.7 versus 100.0 expected and 103.2 in May. In doing so, the widely followed consumer sentiment gauge dropped to the lowest level since February 2021. Further details revealed that the one-year consumer inflation rate expectations climbed to 8% from May's revised print of 7.5. It should be noted that the US trade deficit dropped to the lowest in a year, to $104.3 billion, per the latest release for May.
Elsewhere, the Group of Seven (G7) nations announced restrictions on Russian oil prices while the North Atlantic Treaty Organization (NATO) meeting signals not a welcome environment for China. Furthermore, US Deputy Commerce Secretary Don Graves said, “A clear US response on China tariffs is coming soon,” per Bloomberg TV, which in turn raises fears of the fresh Sino-American tussles.
That said, the US 10-year Treasury yields snapped a two-day uptrend whereas Wall Street closed in the red. The S&P 500 Futures, however, print mild losses by the press time.
Moving on, the US Core Personal Consumption Expenditure (PCE) for Q1 2022, expected to remain unchanged at 5.1%, will be important. On the same line will be the final readings of the US Q1 GDP, which is likely to confirm a 1.5% Annualized contraction. Above all, the central bankers’ discussions at the ECB Forum will be the key for the market players to watch for clear directions.
A clear upside break of the two-week-old resistance line, now support around 104.00, directs EUR/USD prices towards the previous weekly top near 105.00 before highlighting the multi-month peak marked earlier in June, around 105.80.
The EUR/JPY pair has attracted some significant bids despite the release of the higher-than-expected Japan’s Retail Trade. Japan’s Ministry of Economy, Trade, and Industry have reported the economic data at 3.6% on an annual basis which remained principally higher than the expectations of 3.3% and the prior print of 2.9%.
While the monthly Retail Trade slipped to 0.6% from the prior print of 1% but remained higher than the consensus of -0.1%. The agency has reported robust Large Retailer Sales data. The figure has climbed to 8.5%, significantly higher than the forecasts of 1.3% and the prior print of 4%.
On a broader note, the economic data has remained firmer and indicates a higher consumption pattern in May month. This signals that the overall demand in the economy is gaining traction, which may support a shift to a neutral policy by the Bank of Japan (BOJ) from the ongoing ultra-loose monetary policy.
On the eurozone front, the comments from European Central Bank (ECB) Christine Lagarde in her introductory speech on Day 2 of the ECB Forum on Central Banking in Sintra, Portugal, failed to lift the shared currency bulls. The ECB sees a rate hike by 25 basis points (bps) in July and it is open to dictating a higher rate hike in September. Apart from that, the Germany Harmonized Index of Consumer Prices (HICP) will remain in focus. As per the market consensus, the German HICP may improve to 8.8% from the former figure of 8.7%.
At 0.6244, the NZD/USD is attempting to stabilise after being on the backfoot due to a firmer US dollar and a broad sense of risk-off in markets. US data was unsettling and inflation fears have advanced again and choppy trading persists. US stocks started to give way midday on wall Street at the same time that a consumer confidence gauge sank amid rising inflation expectations, undermining the improvement in investor sentiment after China relaxed certain COVID-19 restrictions.
The Conference Board's measure of consumer confidence fell to 98.7 in June from 103.2 in May while the Board's inflation expectations index rose to 8% from 7.5%, the highest since the series began in 1987. ''The weakness in expectations brought the index back to levels last seen in 2013. The average 12-month inflation expectation rose to 8.0% vs 7.5%,'' analysts at ANZ Bank explained. ''The FOMC won’t like that, and if higher surveyed inflation expectations are recorded elsewhere, that could push the FOMC into another 75bp hike in July.''
Meanwhile, US stocks fell and stayed into negative territory despite opening the session higher as a consumer confidence gauge for June sank amid rising inflation concerns. The Dow Jones Industrial Average slid 1.6% to 30,946.99, the S&P 500 was down 2% to 3,821.55 and the Nasdaq Composite fell 3% to 11,181.54.
Equally, the US dollar shot higher from below 104, making gold more expensive for international buyers. US dollar bulls moved in on euro weakness as European Central Bank (ECB) President Christine Lagarde offered no fresh insight into the central bank's policy outlook. Lagarde said the central bank would move gradually but with the option to act decisively on any deterioration in medium-term inflation, especially if there were signs of a de-anchoring of inflation expectations. The US dollar index (DXY), which had made a two-decade high of 105.79 this month, was last trading at 104.420. The DXY had been as low as 103.77 and as high as 104.606 on Tuesday.
''NZD trading ranges have become tighter and tighter over the past week or so, and the overnight move lower looks ominous from a technical perspective, with a break out of the “bearish pennant” now confirmed,'' analysts at ANZ bank explained.
''Irrespective of technicals, the big story is (as it has been for a while), the USD’s refusal to budge from lofty levels despite fears that Fed tightening will slow the US economy. We get local confidence data later this week, but both business and consumer sentiment have already tanked, and there doesn’t seem to be a lot for the NZD to cheer about.''
Index | Change, points | Closed | Change, % |
---|---|---|---|
NIKKEI 225 | 178.2 | 27049.47 | 0.66 |
Hang Seng | 189.45 | 22418.97 | 0.85 |
KOSPI | 20.17 | 2422.09 | 0.84 |
ASX 200 | 57.6 | 6763.6 | 0.86 |
FTSE 100 | 65.11 | 7323.41 | 0.9 |
DAX | 45.75 | 13231.82 | 0.35 |
CAC 40 | 38.71 | 6086.02 | 0.64 |
Dow Jones | -491.27 | 30946.99 | -1.56 |
S&P 500 | -78.56 | 3821.55 | -2.01 |
NASDAQ Composite | -343.01 | 11181.54 | -2.98 |
Gold Price (XAU/USD) remains on the back foot around $1,820, despite the recent bounce off intraday low. In doing so, the yellow metal prints a three-day downtrend as traders await the week’s key data/events amid a sluggish Asian session on Wednesday.
The bullion prices refreshed weekly low on breaking a short-term symmetrical triangle the previous day as market sentiment soured amid recession/inflation fears. However, cautious optimism surrounding China seems to challenge the gold sellers of late.
“China will halve to seven days its COVID-19 quarantine period for visitors from overseas, with a further three days spent at home, health authorities said on Tuesday,” per Reuters. The news also joined the latest comments from the US Deputy Commerce Secretary Don Graves who said, “A clear US response on China tariffs is coming soon,” per Bloomberg TV.
Elsewhere, a jump in the one-year US consumer inflation expectations joined hawkish Fedspeak to renew the US dollar’s safe-haven demand. The US Conference Board (CB) Consumer Confidence Index dropped for the second consecutive month in June, to 98.7 versus 100.0 expected and 103.2 in May. In doing so, the widely followed consumer sentiment gauge dropped to the lowest level since February 2021. Further details revealed that the one-year consumer inflation rate expectations climbed to 8% from May's revised print of 7.5. It should be noted that the US trade deficit dropped to the lowest in a year, to $104.3 billion, per the latest release for May.
Amid these plays, the US 10-year Treasury yields snapped a two-day uptrend whereas Wall Street closed in the red. The S&P 500 Futures, however, print mild gains and it seems to probe the AUD/USD bears of late.
Moving on, the US Core Personal Consumption Expenditure (PCE) for Q1 2022, expected to remain unchanged at 5.1%, will precede the central bankers’ discussions at the ECB Forum to offer important insights.
Gold bears remain hopeful as a clear downside break of the two-week-old symmetrical triangle joints descending RSI (14) line (not oversold) and bearish MACD signals.
Adding to the metal’s bearish bias is a successful break of the 61.8% Fibonacci retracement (Fibo.) of May 16 to June 12 upside.
That said, the XAU/USD bears are on their way to the 78.6% Fibo. surrounding $1,805. However, the$1,800 threshold may test the further downside before directing the bullion prices towards the yearly low marked in May around $1,786.
Alternatively, the stated triangle’s support line, now resistance around $1,820, precedes the 61.8% Fibonacci retracement level near $1,823 to restrict short-term upside of gold prices.
Following that, the weekly high near $1,830 and the 50% Fibo. level surrounding $1,835 can entertain XAU/USD bulls. However, a convergence of the 100-SMA and the aforementioned triangle’s upper line, near $1,837-38, appears the key hurdle to break for the buyers to retake control.
Trend: Further downside expected
Pare | Closed | Change, % |
---|---|---|
AUDUSD | 0.6905 | -0.3 |
EURJPY | 143.232 | -0.06 |
EURUSD | 1.05217 | -0.59 |
GBPJPY | 165.854 | -0.14 |
GBPUSD | 1.2183 | -0.67 |
NZDUSD | 0.6236 | -1.06 |
USDCAD | 1.287 | -0.03 |
USDCHF | 0.95694 | 0.06 |
USDJPY | 136.128 | 0.54 |
The AUD/JPY pair refreshed its intraday low at 93.92 but has recaptured the critical level of 94.00 despite Japan’s Ministry of Economy, Trade, and Industry having reported robust Retail Trade. The annual Retail Trade has landed at 3.6%, much higher than the expectations and the former release of 3.3% and 2.9%, respectively. While the monthly economic data has been recorded at 0.6%, higher than the estimates of -0.1% but lower than the prior print of 1%. The Large Retailer Sales have climbed to 8.5%, significantly higher than the forecasts of 1.3% and the prior print of 4%.
A robust Retail Trade data indicates that that consumer spending has increased substantially and eventually the overall demand by the households. No doubt, the Bank of Japan (BOJ) will continue with its ultra-loose monetary policy in its upcoming monetary policy meetings despite the robust economic data and higher inflation rate as it has crossed the desired levels significantly.
Last week, the Japanese economy reported Japan’s National Consumer Price Index (CPI) at 2.5% while the core National CPI which excludes food and energy prices landed at 0.8%. It is worth noting that the inflation rate in the Japanese economy is majorly guided by the soaring food and energy prices. The BOJ will stick to its prudent monetary stance till the time it finds out that robust wage growth and firmer aggregate demand have become the real catalysts behind spurring the inflation rate.
On the aussie front, investors are focusing on the release of the Retail Sales by the Australian Bureau of Labor Statistics. A preliminary estimate for the economic data is 0.4%, lower than the prior release of 0.9%. This indicates that consumer spending has remained lower in the previous month, which could be the outcome of lower wage growth in accordance with higher price rises. It could be a reflection of a decline in the inflation rate or a decline in the overall aggregate demand.
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