- EUR/USD holds lower ground near 10-week low, after two-day downtrend.
- Further losses envisioned on key support break, bearish MACD.
- 200-day SMA adds to the upside filters, yearly bottom on sellers’ radar.
EUR/USD remains pressured around 1.1910, after breaking a multi-day-old support line the previous day, during early Friday morning in Asia. The pair’s downside break of an ascending support line from March 2020 joins bearish MACD to keep sellers hopeful.
However, sellers await a clear break of the 1.1900 threshold to aim for early March tops near 1.1835.
Following that, multiple tops marked amid late March and initial April month’s trading around the 1.1800 round figure could test the EUR/USD bears before directing them to the yearly low near 1.1700 psychological magnet.
Meanwhile, corrective pullback beyond the support-turned-resistance line near 1.1925-30 needs to cross the 200-day SMA surrounding the 1.2000 level to convince short-term buyers.
It’s worth noting that the early June’s low near 1.2100 and April peak surrounding 1.2150 could test the EUR/USD bulls past 1.2000 before giving them controls.
EUR/USD daily chart
- US equities closed mixed amid upbeat tech shares battle weaker US inflation expectations.
- DXY bulls keep reins, US Treasury yields, gold prices fall.
- FANG propelled Nasdaq, S&P 500 trim major losses but DJI drops 0.60%.
- US Jobless Claims rose, Philadelphia Fed activity data eased.
Despite recovering by the day’s end, US shares closed mixed on Thursday as markets digest the Fed’s rate hike signals. Even so, downbeat inflation expectations and Treasury yields help technology shares, which in turn back Nasdaq to tease the record high.
That said, Dow Jones Industrial Average (DJI) loses the most, down 210.22 points or 0.62%, to 33,823.45 while S&P 500 came in second, despite the day-end recovery, with a loss of 1.84 points or 0.04% to 4221.84. Alternatively, Nasdaq emerged as the day’s clear winner with 121.67 points, or 0.87%, upside to 14,161.35.
US inflation expectations, per the 10-year breakeven inflation rate of the St. Louis Federal Reserve (FRED), dropped to the lowest in three months, dragging down the US 10-year Treasury yield by 5.8 basis points (bps) to 1.51% at Thursday’s closing.
Talking about the data, US Initial Jobless Claims rose well beyond 359K forecast and 375K (revised) prior to 412K for the week ended on Jun 11. Further, Philadelphia Fed Manufacturing Survey for June eased from 31.0 expected to 30.7.
It’s worth noting that shares of global technology leaders like Facebook, Amazon, Netflix and Google, commonly known as FANG, rose anywhere between 1.0% and 2.0%. Further, global chipmaker Nvidia jumped over 5.0% after Jefferies upwardly revised the price target.
Moving on, a lack of major data/events can offer a dull closing to the week but any surprises, mainly relating to the Fed rates and/or infrastructure spending, won’t be taken lightly. It’s important to know that the US government’s announcement of a national holiday on June 19 backs Federal offices to stay off on Friday but bonds and shares will continue trading normally.
Read: Forex Today: Dollar’s rally on pause amid extreme overbought conditions
- AUD/USD edges lower after a three-day downtrend that teased yearly low.
- US dollar extends post-Fed gains as markets prepare for rate hike, Aussie data/RBA’s Lowe forgotten after initial reaction.
- US inflation expectations drop to three month low, Treasury yields, gold follow the tune.
- Lack of major data/events highlights key risk catalysts, market dynamics over Fed’s signals as crucial directives.
AUD/USD holds lower ground near 0.7550-55 amid a sluggish start to Friday’s Asian session. In doing so, the Aussie bears take a breather around the yearly low, attacked the previous day, following a three-day south-run. Although the market’s adjustments to the Fed’s rate-hike signals become the major catalysts backing the US dollar, also weighing on the quote, a lack of fresh clues probes further downside around multi-day low.
King Dollar keeps the reins…
The US Federal Reserve’s (Fed) gig on Wednesday roiled the US inflation expectations, fueling the rush to risk-safety, as traders brace for two rate hikes in 2023. The same put a safe-haven bid under the US dollar and propelled the US dollar index (DXY) to a two-month top, around 91.88 by the end of Thursday’s North American session.
The risk-off mood gained extra support from the downbeat prints of the US data, namely the Weekly Jobless Claims and Philadelphia Fed Manufacturing Survey.
On the other hand, Australia’s strong jobs report for May failed to keep AUD/USD buyers happy, after the initial stint. That said, RBA Governor Philip Lowe also sounds a bit nervous and exerts downside pressure on the quote.
Amid these plays, Wall Street closed mixed and the US 10-year Treasury yield drops 5.8 basis points (bps) to 1.51% at Thursday’s closing.
It’s worth noting that the escalating tension between the West and China adds to the AUD/USD weakness and so do worries concerning the Delta variants of the covid, not to forget the grim outlook over RBA’s next moves.
Looking forward, a lack of major catalysts may keep directing AUD/USD traders to follow the same route but nearness to the yearly bottom tests the bears and requires a strong blow to break the 0.7531 level. Hence, risk-related headlines will be in focus for fresh impetus.
AUD/USD sellers battle 200-day SMA level of 0.7553 amid oversold RSI conditions, suggesting a pullback towards immediate hurdle surrounding the 0.7600 threshold, quickly followed by March’s low near 0.7620. However, any further weakness past 200-day SMA needs a decisive break below the year’s bottom of 0.7531 to aim for August 2020 levels near 0.7415.
- USD/JPY has dropped as the yen makes a comeback in a drop in yields.
- The yield on the US 30-year bond fell to its lowest level since late February.
USD/JPY was ending on Wall Street down 0.4% to 110.26 having attempted to correct from the 110.16 lows after falling from a high of 110.82.
The yen strengthened in late London as the yield curves flattened led by a strong rally in US medium and longer-dated securities as US inflation expectations fell back sharply in the aftermath of the Federal Open Market Committee meeting.
The US 10-year yield fell sharply from 1.5940% to a low of 1.4690%, ending the day down -4.00%.
The yield on the US 30-year bond fell to its lowest level since late February.
''The market is clearly of the conviction that the rise in inflation is transitory and that the Fed dot plot implies a flatter curve,'' analysts at ANZ bank explained.
''Equities were mixed amid a firmer policy rate outlook and flattening curves.''
Casting minds back to the latest data reported by CFTC earlier this week that covered the release of May’s jobs data in the US, where a below-consensus headline number prompted markets to factor in more time before the Fed could start to turn less dovish, we are seeing the same reaction in today's moves.
This had lead to the improvement in JPY positioning (from -29% to -23% of open interest).
''Indeed, the rise in US yields in the first months of 2021 was the main trigger of a sharp increase in JPY net-short positions, as markets likely frontloaded a more extended bond underperformance,'' analysts at Rabobank explained.
''JPY remains the most oversold currency in G10, with a net positioning of -23% of open interest, having recorded a -48% of open interest drop since the start of the year. This suggests there is still room for the currency to benefit from further short-squeezing.''
For today, Japan’s May Consumer Price Index data are released at and Bank of Japan’s policy announcement for June is also due.
What you need to know on Friday, June 18:
The American currency extended its gains against most of its major rivals, except the JPY, which strengthened on the back of falling government bond yields. Nevertheless, market players continued to price in the latest hawkish stance from the US Federal Reserve, which hinted at two rate hikes in 2023 while upgrading growth and inflation forecast.
The EUR/USD pair traded as low as 1.1891, while GBP/USD fell to 1.3895, bouncing just modestly from such lows. The sour tone of equities exacerbated high-yielding currencies’ weakness.
Commodity-linked currencies advanced at the beginning of the day amid strong New Zealand GDP and upbeat Australian employment figures, but the greenback overshadowed it all and resumed its advance, pushing rivals to multi-month lows. The USD/CAD pair trades around 1.2350, its highest since late April. AUD/USD flirted with the year low at 0.7531, with a break below the level opening the door for a steeper slide.
Gold plummeted to $1,767.19 a troy ounce, while crude oil prices were also down, but managed to bounce ahead of the close. WTI settled at $71.00 a barrel.
US Treasury yields retreated from post-Fed peaks. The yield on the 10-year Treasury note currently stands around 1.51% after hitting 1.59%.
Wall Street started the day in the red, although indexes managed to trim some losses ahead of the close. The DJIA and the S&P500 closed in the red, but the Nasdaq added over 100 points.
Three technical Indicators suggest Cardano price may drop to $1 in a few weeks
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- Gold Prices has plummetted in the wake of a hawkish twist at the Fed.
- Bulls are now stepping in at the lowest levels since April and steepest daily drop since Jan 2021.
Gold prices collapsed through daily support by over 5.2% since Fed Chair Powell described this week's Federal Open Market Committee meeting as the 'talking about talking about' meeting.
Gold bugs now fear that members are now seeking a plan to reduce the pace of QE and they have started to bail ship.
Crucially, the members are also bringing forward their projections from flat to +50bp in rate hikes by end-2023.
The combination has continued to percolate through markets with knee jerk reactions in the US dollar.
The DXY has powered ahead is trading at the highest since April 13, taking on the 92 level with a high after easily breaking above the 200-day moving average near 91.538.
Bulls now have sights on a test of the March 31 high near 93.437.
However, one of the key takeaways from the meeting for gold markets was the reaction in the 10-year breakeven inflation rates that are down 6 bp on the hawkish hold.
''That is, the market has even more confidence that the Fed won't let inflation get out of hand. With the 10-year yield up 7 bp, the real yield has risen 14 bp to -0.76%, the highest since April 19. This is dollar-positive and we think there's room to go even higher,'' analysts at Brown Brothers Harriman explained.
The PCE factor and uncertainty among the members was an important takeaway also.
Analysts at TD Securities explained that this suggests ''the Fed isn't behind the curve by any means, which leaves us in a scenario where the upside story for gold is tied to an unwind of Fed pricing that is too hawkish.''
''If inflation turns out to be truly transitory, the Fed should be happy to walk the hiking signals back. Unfortunately for gold bugs, underlying inflation trends will remain distorted for months — which removes the immediate impetus for buying the yellow metal,'' the analysts explained.
''Considering that gold was set-up for a pullback like a speed bump on the racetrack, with speculative and physical flows slowing, the pullback has room to run. However, CTAs are only set to add to their shorts below $1740/oz.''
Gold technical analysis
Meanwhile, from a technical perspective, the bulls are stepping in at a critical area of support.
This is a key area of liquidity that dates back to 2011.
Bulls have started to pick the low hanging fruit in New York following the final shakeout of weak hands.
The bid comes in ahead of the last day of the week as squaring of books would be expected to see profit-taking ramp up.
From a daily perspective, the price would be expected to correct at least to the prior structure with a confluence of the 38.2% Fibonacci retracement area.
- AUD/USD dropped to its lowest level since early April on Thursday.
- US Dollar Index stays within a touching distance of 92.00.
- Market participants largely ignored uninspiring data releases from US.
The AUD/USD pair extended its slide after posting heavy losses on Wednesday and dropped to its lowest level since April 1 at 0.7539 on Thursday before going into a consolidation phase. As of writing, the pair was trading at 0.7557, losing 0.7% on a daily basis.
DXY climbs to multi-month highs
The unabated USD strength remained the main market theme following the hawkish shift seen in the FOMC's updated Summary of Projection, the so-called dot plot. The publication revealed that the number of policymakers who see a lift-off in the fed funds rate from zero in 2023 rose to 13 from seven in March.
Following Wednesday's 1% jump, the US Dollar Index (DXY) preserved its bullish momentum and advanced to its strongest level in more than two months at 92.00 during the American trading hours on Thursday. As of writing, the DXY was up 0.5% on the day at 91.84.
Meanwhile, the data from the US revealed that the Initial Jobless Claims rose to 412,000 from 375,000 and the Philadelphia Fed's Manufacturing Index edged lower to 30.7 in June from 31.5 in May. Nevertheless, these figures had little to no impact on the greenback's performance against its rivals.
On the other hand, the Australian Bureau of Statistics announced earlier in the day that the Employment Change in Australia jumped to +115,200 in May, surpassing the market expectation of +30,00 by a wide margin. However, AUD/USD's positive reaction to this data remained short-lived with investors staying focused on the USD's valuation.
Technical levels to watch for
- GBP/USD bears seeking a break of the 1.3890 for 1.36 area targets.
- US dollar is not letting up on hawkish Fed hold.
- All eyes will turn to the BOE next week following the UK CPI print this week.
GBP/USD is currently trading at 1.3924 and down around 0.4% in the afternoon New York session attempting to correct the steep bearish decline.
Cable has traded between a high of 1.4008 and a low of 1.3895 on the day so far, reeling in the wake of US dollar strength.
GBP took back a little ground vs the G10s earlier in the week on the release of the stronger than expected UK Consumer Price Index data with sufficient strength in the release to spark a little more interest in the Bank of England’s next policy meeting on June 24.
However, that was before the Federal Reserve came along and took the markets by surprise with a hawkish hold.
The hawkish tone from yesterday's meeting and dot plot that now shows a faster-than-expected pace of tightening weighed on risk sentiment and sent US yields and the greenback higher.
Fed Chair Powell described this week's meeting as the 'talking about talking about' meeting.
Markets took this as a sign that members are now seeking a plan to reduce the pace of QE while they're bringing forward their projections from flat to +50bp in rate hikes by end-2023.
The combination has continued to percolate through markets with knee jerk reactions in the dollar extending into today's trade despite the bullish data overnight from New Zealand and Australia.
The DXY has powered ahead is trading at the highest since April 13, taking on the 92 level with a high after easily breaking above the 200-day moving average near 91.538.
Bulls now have sights on a test of the March 31 high near 93.437.
However, is the Fed really that close to hiking and has the market overshot?
The market has been building US dollar shorts for a considerable time and the volatility on forex has been at its lowest in over a year for just as long.
There is a lot of pent up demand in the markets and traders are seeking to survive on more than just the carry.
In the opinion of analysts at Brown Brothers Harriman, the Fed is not close to hiking, ''but it is moving closer.''
''Of note, there was no language in the official statement about tapering. In terms of updated forecasts, Fed sees core PCE at 3.0% this year vs. 2.2% back in March, 2.1% in 2022 vs. 2.0% in March, and 2.1% in 2023 vs. 2.1% in March.
Lastly, the Fed raised the IOER by 5 bp to 0.15% but this was a purely technical move to help move effective Fed Funds off the zero bound in the face of ultra-abundant liquidity.''
''Powell noted that the Fed will continue to assess progress towards its dual mandate in coming meetings but that it’s “still a ways off.” If his outlook is to be believed, that time is not as far off as the market thought,'' the analysts also explained.
Importantly, the analysts also noted that the 10-year breakeven inflation rates are down 6 bp on the hawkish hold.
''That is, the market has even more confidence that the Fed won't let inflation get out of hand. With the 10-year yield up 7 bp, the real yield has risen 14 bp to -0.76%, the highest since April 19.
This is dollar-positive and we think there's room to go even higher.''
All eyes on the BoE
Meanwhile, as for the pound, market participants appear to be comfortable in the view that much of the inflation experienced this year in the UK will have a transient nature.
However, there is significant uncertainty around the length of time current supply bottlenecks will take to dissipate, analysts at Rabobank said.
''This uncertainty has given way to the debate as to whether inflation expectations will be impacted and whether price pressures in the forthcoming economic cycle could be higher than in recent history.''
''In the UK, the inflationary argument is made all the more interesting by reports that Labour supply could be diminished as a consequence of the confluence of Brexit and the pandemic.''
The analysts argued that could have the potential to impact wage inflation in the UK.
Following the CPI print, this makes for the next labour market report and BoE meeting an important set of events, especially given the shift the Fed for which policymakers will be paying close attention.
At the end of last month, the MPC’s Vlieghe did suggest that a rate hike was possible in the first half of next year if the job markets bounce backs.
GBP bulls will be looking for any less dovish takeaways from the Bank next week.
On the other hand, ''we see current headwinds for the pound in the shape of the delayed re-opening of England’s economy and potentially as a result of tensions with the EU over the Northern Ireland protocol which have raised the threat of a trade war,'' the analysts at Rabobank warned.
GBP/USD technical analysis
Techcnailly, analysts BBH said that sterling needs to break below $1.3890 to set up a test of the April 12 low near $1.3670.
- WTI suffers heavy losses for the second straight day on Thursday.
- Broad-based USD strength seems to be dragging crude oil prices lower.
- Lack of progress in Iran nuclear talks further weighs on WTI.
After reaching its highest level since October 2018 at $72.96 on Wednesday, the barrel of West Texas Intermediate (WTI) made a sharp U-turn and snapped a four-day winning streak, losing more than 1%.
Although WTI stayed relatively quiet around $72 during the European trading hours, it came under renewed bearish pressure and dropped to its lowest level in nearly a week at $69.75 before rebounding modestly. As of writing, WTI is trading at 1.72% on the day at $70.45
DXY rally remains intact
The broad-based USD strength following the hawkish shift witnessed in the FOMC's Summary of Projections seems to be the main market theme in the second half of the week. Currently, the US Dollar Index (DXY) is trading at its highest level in more than two months at 91.90, rising 0.55% on a daily basis.
Meanwhile, investors remain cautious about Iran and the US coming to an agreement on nuclear talks that could lead to the lifting of sanctions on oil exports ahead of the upcoming election in Iran on Friday.
Technical levels to watch for
In an interview with Germany's Handelsblatt daily, Jens Weidmann, European Central Bank (ECB) Governing Council member and Bundesbank President, called for the ECB to end the Pandemic Emergency Purchase Programme (PEPP) to end soon, per Reuters.
"Condition for a normalisation of monetary policy is a robust economic recovery, end of main measures to end the pandemic."
"I believe this will happen in 2022."
"Inflation in Germany is only temporary."
"No indication of excess wage hikes in Germany."
These comments failed to help the shared currency find demand. As of writing, the EUR/USD pair was down 0.73% on the day at 1.1906.
- Euro remains under pressure versus US Dollar, DXY eyes 92.00.
- Greenback extends gains even amid lower US yields.
After a brief consolidation pause, the EUR/USD resumed the downside and broke under 1.900, falling to 1.1890, the fresh two-month low. The pair has now fallen almost three hundred pips from the level it had a week ago.
USD, the shinning start no matter what
The US dollar printed fresh highs against most G10 currencies. In that group the yen is the outperformer on Thursday, still the greenback is the best of the week.
The fresh high of the US dollar took place even as US yields decline sharply. The 10-year is falling more than 6.35%, now under 1.48%, and even below the level it had prior to the release of the FOMC statement that triggered the rally of the greenback.
Equity prices are mostly lower in the US. The Dow Jones drops 0.93%, the S&P 500 falls by 0.38% while the Nasdaq gains 0.38%. Caution still prevails among investors driving demand for the US dollar.
The EUR/USD is on its way to the lowest daily close since April 7, the first one under the 200-day moving average in two months. Despite oversold readings in technical indicators, the momentum is still sharply negative, with the negative tone intact. On the downside, the next support might be seen around 1.1870/75.
The Central Bank of the Republic of Turkey kept the key interest rate unchanged at 19%, as expected on Thursday. According to the Research Department at BBVA, the worsening inflation outlook and potentially increasing global yields after Wednesday’s FOMC meeting will require the Turkey central bank to be more cautious.
“The Central Bank of Turkey kept the policy rate at 19% in line with the expectations.”
“Given the worsened inflation expectations, the CBRT repeated the need to decisively keep the current “tight” monetary policy stance. Thus we expect an easing cycle only very gradually in late 3Q and end the year with 16% policy rate.”
“All in all, if the potential impact of the reopening in the economy is considered as we confirm with our Big Data demand indicators, the uncertainty increased further on inflation, given the delayed demand and supply - side factors. Therefore, worsening inflation outlook and potentially increasing global yields following the hawkish messages of the FED will require the CBRT to be more cautious, which the CBRT tries to manage right now by trying to eliminate any early rate cut expectations.”
- Mexican peso recovers some lost ground versus the US dollar after falling to the lowest since March.
- USD/MXN flat on Thursday after a pullback from 20.62.
The USD/MXN peaked on Thursday at 20.62, the highest intraday level since late March. It then pulled back amid lower US yields and despite risk aversion. The pair dropped back under 20.50, and it is hovering around 20.35, marginally lower for the day about to post the first negative close since last Thursday.
The outlook now points to the upside, but the rally in USD/MXN calls for some precaution. While under 20.50, the odds of more gains seem limited. A close above the mentioned level would expose the next resistance seen at 20.60, followed by 20.80/85.
The daily RSI is approaching the 70 area, suggesting some consolidation ahead before another potential leg higher. The USD/MXN could trade between the 100-day moving average at 20.25 and 20.55. A slide below 19.95 would negate any upside bias, favoring more losses ahead.
USD/MXN daily chart
The June FOMC meeting triggered a sharp rally of the US dollar across the board. Analysts at Rabobank still see the NZD/USD pair at 0.73 in a three-month perspective.
“Up until yesterday the market consensus was pointing to a moderately softer value of the DXY dollar index over the course of the coming 2 quarters. The price activity in the USD crosses today suggests that a revaluation of positioning is currently taking place. Our existing forecasts for a stronger USD this summer were based on the view that the debate about inflation and Fed policy would heighten in the approach to the Fed’s Jackson Hole symposium. Our expectations for a stronger USD have meant that our forecasts for NZD/USD and AUD/USD have also been trailing the market consensus.”
“With the July RBNZ policy meeting in view we continue to see scope for moderate upside in NZD/USD and we retain a 3 month forecast of 0.73. The release of New Zealand Q2 CPI inflation is not due until July 15, one day after the RBNZ policy review.”
- Loonie under pressure amid lower crude oil and a decline in Wall Street.
- US Dollar’s momentum remains in place, even as US yields pullback.
The USD/CAD is rising for the fifth consecutive day in a row and is holding onto all gains. It is hovering around 1.2340, near the six-week high it reached on Thursday at 1.2346, boosted by a rally of the US dollar.
The greenback accelerated to the upside after the FOMC statement and projections. The Fed signaling the possibility of rising interest rate earlier than previously expected, triggered a new leg higher of the dollar that is still running. The USD/CAD found resistance at 1.2340/45 for now. It continues to press higher. Above the next resistance is seen at 1.2380 followed by 1.2400.
The odds of a consolidation or a bearish correction arise from the fact that USD/CAD has risen more than 250 pips from the level it had a week ago. No signs are seen at the moment and the bullish tone remains intact.
Economic data from the US came in below expectations with jobless claims rising back above 400K and the Philly Fed falling to 30.7. Still the dollar held onto gains. Not even a retreat in US yields offset the recent strength.
Another negative factor for the loonie and also commodity and emerging market currencies is the decline in equity prices. Investors turned cautious after the FOMC. Weaker stocks mean more demand for safe havens, like the US dollar.
The Bank of Japan (BoJ) will announce its Interest Rate Decision and release the Monetary Policy Statement on Friday, June 18 at 03:30 GMT. As we get closer to the release time, here are the expectations forecast by the economists and researchers of five major banks.
Ahead of the event, USD/JPY has reversed its direction in the second half of the day and was last seen losing 0.45% on a daily basis at 110.20.
See: USD/JPY to test long-term resistance starting at 111.94 above the 110.97 year high – Credit Suisse
“At its June meeting, we think the Bank of Japan may extend the deadline on its emergency lending facility from September to December. Beyond that point, it should further taper its purchases of short-dated debt as it digs in for a prolonged hold.”
“We expect the BoJ to keep the policy balance rate unchanged at -0.1% and the 10Y yield target at c.0%. Macro data has shown signs of improvement since the last meeting in April. Q1 GDP growth was revised up, and industrial production and retail sales improved as well. However, economic challenges remain. While Q1 GDP contracted less than the initial forecast, it fell a significant 3.9% on an annualised basis. We expect the BoJ to maintain its accommodative stance until it sees further economic improvement.”
“We expect BoJ to hold policy rates and its QQE programme unchanged on Friday, but in light of the service sector still struggling with a state of emergency in big parts of the country, the BoJ will likely extend its special programme aimed at channelling money to cash-strapped firms.”
“Main focus for the BoJ meeting is whether they extend COVID-19 aid for businesses past the current expiration date of September, with a high probability of such an announcement at this meeting.”
“We still keep our view for the BoJ to do more and enhance its monetary policy easing further, most likely through re-accelerating its GB to Japanese corporates and SMEs. Market expectations are now tilted to the BoJ having reached the end of the line on normalization and will remain in a holding pattern on policy until at least April 2023 when Governor Kuroda is scheduled to leave the BoJ.”
- USD/CHF builds on Wednesday's gains, renews multi-week highs.
- US Dollar Index preserves its bullish momentum on Thursday.
- Swiss National Bank left its policy settings unchanged in June.
The USD/CHF pair gained more than 100 pips on Wednesday and continued to push higher on Thursday. After touching its best level since late April at 0.9167, the pair seems to have gone into a consolidation phase and was last seen gaining 0.73% on the day at 0.9151.
DXY is up more than 1% this week
The broad-based USD strength fueled USD/CHF's rally in the late American session on Wednesday. The FOMC's updated Summary of Projections revealed that the number of policymakers who see a lift-off in the fed funds rate from zero in 2023 rose to 13 from seven in March. Additionally, FOMC Chairman Jerome Powell acknowledged that they are not dismissing the possibility of inflation staying high for longer than expected.
Boosted by the hawkish shift in the FOMC's rate outlook, the US Dollar Index (DXY) gained nearly 1% on Wednesday and stretched to a fresh two-month high of 91.84 on Thursday.
On the other hand, the Swiss National Bank (SNB) announced earlier in the day that it left its policy settings unchanged as expected. Furthermore, the SNB reiterated that the CHF remains highly valued and that it will maintain its expansionary monetary policy.
Meanwhile, the data from the US showed that the Initial Jobless Claims rose to 412,000 in the week ending June 12. This reading came in worse than the market expectation of 359,000 but failed to trigger a noticeable market reaction.
Technical levels to watch for
- USD/JPY lost its traction after rising to multi-month highs.
- Falling US Treasury bond yields seem to be weighing on the pair.
- US Dollar Index clings to strong daily gains above 91.70.
Following Wednesday's upsurge, the USD/JPY extended its rally and reached its highest level since early April at 110.82. However, the pair reversed its direction in the second half of the day and was last seen losing 0.25% on a daily basis at 110.40.
Despite the unabated USD strength, a sharp decline witnessed in the US Treasury bond yields seems to be weighing on USD/JPY. At the moment, the benchmark 10-year US T-bond yield is down 2.3% on the day at 1.541%.
On Wednesday, the hawkish shift seen in the FOMC's Summary of Projections provided a boost to the greenback. With the number of policymakers expecting a lift-off in the fed funds rate from zero in 2023 rising to 13 from seven in March, the US Dollar Index (DXY) gained nearly 1% on a daily basis. At the moment, the DXY is up 0.42% on the day at 91.77.
Earlier in the day, the data published by the US Department of Labor revealed that the weekly Initial Jobless Claims rose to 412,000 from 375,000. Nevertheless, this data failed to trigger a meaningful market reaction.
Eyes on BoJ
On Friday, the Bank of Japan (BoJ) will announce its Interest Rate Decision and release the Monetary Policy Statement.
Previewing this event, "We still keep our view for the BoJ to do more and enhance its monetary policy easing further, most likely through re-accelerating its GB to Japanese corporates and SMEs," said Lee Sue Ann, Economist at UOB Group. "Market expectations are now tilted to the BoJ having reached the end of the line on normalization and will remain in a holding pattern on the policy until at least April 2023 when Governor Kuroda is scheduled to leave the BoJ."
Technical levels to watch for
- EUR/USD appears stabilized in the 1.1930 region so far.
- The dollar extends the post-FOMC rally to fresh tops.
- US Claims, Philly Index surprised to the downside.
The selloff in the European currency stays unabated, with EUR/USD hovering around the lower end of the range in the mid-1.1900s so far on Thursday.
EUR/USD weaker on USD-buying
EUR/USD accelerates the losses and clinched new 2-month lows in the 1.1930/25 band, where it is now looking to consolidate.
The sharp rebound in the greenback follows the unexpected upbeat message from the FOMC event late on Wednesday, where the Committee opened the door to interest rate hikes in H2 2023.
Earlier in the session, final May inflation figures in Euroland showed the headline CPI rose 2.0% and the Core gauge rose 1.0% on a year to May.
In the US data space, Initial Claims rose by 412K from a week earlier while the Philly Fed index eased a tad to 30.7 for the current month, both prints coming in short of expectations.
What to look for around EUR
EUR/USD plummets to fresh levels well south of the 1.2000 mark on Thursday, always in response to the investors’ shift to the greenback, exclusively following the FOMC event on Wednesday. In the meantime, support for the European currency comes in the form of auspicious results from fundamentals in the bloc coupled with higher morale, prospects of a strong rebound in the economic activity and the investors’ appetite for riskier assets.
Key events in the euro area this week: Final May Core CPI (Thursday).
Eminent issues on the back boiler: Asymmetric economic recovery in the region. Sustainability of the pick-up in inflation figures. Progress of the vaccine rollout. Probable political effervescence around the EU Recovery Fund. German elections. Investors’ shift to European equities.
EUR/USD levels to watch
So far, spot is losing 0.53% at 1.1930 and a breakdown of 1.1926 (monthly low Jun.17) would target 1.1887 (61.80% Fibo retracement of the November-January rally) en route to 1.1835 (low Mar.9). On the flip side, the next hurdle lines up at 1.2037 (100-day SMA) followed by 1.2064 (38.2% Fibo retracement of the November-January rally) and finally 1.2101 (weekly high Jun.15).
- Wall Street's main indexes trade flat on Thursday.
- Initial Jobless Claims in the US rose last week.
- Hawkish shift in FOMC's policy outlook limits stocks' upside.
After falling on Wednesday with the FOMC's Summary of projections showing a hawkish shift in the policy outlook, major equity indexes in the US opened little changed on Thursday.
As of writing, the Dow Jones Industrial Average was up 0.1% on the day at 34,060, the S&P 500 was flat at 4,226 and the Nasdaq Composite was rising 0.15% at 14,001.
Earlier in the day, the data published by the US Department of Labor showed that Initial Jobless Claims rose to 412,000 in the week ending June 12 from 375,000. Nevertheless, this reading doesn't seem to be having a negative impact on market sentiment.
Among the 11 major S&P 500 sectors, the Materials Index is the biggest percentage decline after the opening bell, losing 0.3%. On the other hand, the Energy Index is up 0.3%.
Wake Up Wall Street (SPX) (QQQ): Fed hints at taper, markets fail to tantrum.
S&P 500 chart (daily)
Update: Gold witnessed another downswing during the early North American session and dropped to $1,775 region, or the lowest level since May 5 in the last hour. The US dollar built on the post-FOMC strong positive move and shot to over two-month tops on Thursday. This, in turn, was seen as a key factor that acted as a headwind for dollar-denominated commodities, including gold.
It is worth recalling that the Fed on Wednesday stunned investors and brought forward its projections for the first post-pandemic interest rate hikes into 2023. The Fed also indicated that it will soon work on tapering down the current $120 billion in monthly bond purchases, which further contributed to driving flows away from the non-yielding yellow metal.
Apart from this, the downfall could further be attributed to some technical selling below the $1,800 round-figure mark. This comes on the back of the overnight sustained break below the very important 200-day SMA and sets the stage for additional weakness. That said, extremely oversold conditions might help limit any further losses for gold, at least for now.
Apart from this, a generally softer tone surrounding the equity markets and a modest pullback in the US Treasury bond yields might hold traders from placing any aggressive bets around gold. Nevertheless, the bias remains tilted in favour of bearish traders and supports prospects for a slide towards testing the next relevant support near the $1,760-58 region.
Previous update: Gold price snapped its recovery mode and resumed its downtrend, now flirting with fresh monthly lows just above $1800. Resurgent supply in the European session prompted another downswing for gold price, as the dead cat bounce witnessed earlier in the Asian trades vanished.
The European traders hit their desks and reacted to Wednesday’s US Federal Reserve’s (Fed) hawkish surprise, fuelling a fresh leg up in the US dollar across the board. The Fed hinted a sooner-than-expected rate hike while keeping tapering expectations alive. The US dollar index jumped from 91.33 to 91.76 after the Asian consolidation, hitting fresh two-month highs. However, the US Treasury yields remain on the defensive, although hold onto the post-FOMC rally, keeping the bearish pressures intact on gold price.
The Fed-induced blow on gold price is likely to have a lasting impact, as attention now turns towards the US weekly Jobless Claims data for fresh trading impetus.
Read: Gold Price Forecast: ‘Buy the dips’ rescues XAU/USD after the Fed-blow, but for how long?
Gold Price: Key levels to watch
The Technical Confluences Detector shows that gold price is challenging the critical support around $1802, the convergence of the previous day low and Bollinger Band 15-minutes Lower.
Sellers remain poised to test the key SMA100 one-day at $1797 is the latter caves in.
The next downside target is aligned at the pivot point one-day S1 of $1789.
However, if the $1800 round number holds up, a bounce-back towards $1810 could be in the offing. That level is the pivot point one-month S1.
Gold bulls will then flex their muscles to probe $1817, the intersection of the SMA10 one-hour and Fibonacci 23.6% one-day.
Recapturing $1822 is critical to negate the bearish momentum in the near term. The powerful resistance is the confluence of the Fibonacci 61.8% one-month and the previous high four-hour.
Here is how it looks on the tool
About Technical Confluences Detector
The TCD (Technical Confluences Detector) is a tool to locate and point out those price levels where there is a congestion of indicators, moving averages, Fibonacci levels, Pivot Points, etc. If you are a short-term trader, you will find entry points for counter-trend strategies and hunt a few points at a time. If you are a medium-to-long-term trader, this tool will allow you to know in advance the price levels where a medium-to-long-term trend may stop and rest, where to unwind positions, or where to increase your position size.
- USD/TRY pushes higher and approaches the 8.70 area.
- No surprises after the CBRT kept the steady hand at its meeting.
- Dollar’s improved mood also helps with the upside in the pair.
The Turkish lira depreciates further and now lifts USD/TRY to fresh multi-day highs around 8.670.
USD/TRY weaker on USD-rally, CBRT inaction
USD/TRY advances uninterruptedly since Monday and almost fully retraced last week’s drop to as low as the 8.28 zone (June 11).
The lira started the week on the defensive and intensified the selling bias after the Biden-Erdogan meeting yielded no progress regarding Turkey’s purchase of Russian S-400 defence missile system on Tuesday.
Extra weakness in the currency turned up today following the decision by the Turkish central bank (CBRT) to leave the One-Week Repo Rate unchanged at 19.00%. In the statement, the central bank reiterated that both inflation and inflation expectations remain high, while the level of the policy rate will be determined above the inflation.
In addition, the strong buying interest in the dollar in the wake of the FOMC event on Wednesday also lends extra wings to the weekly leg higher in spot.
What to look for around TRY
The outlook for the Turkish lira continues to deteriorate almost on a daily basis, as rumours of interest rate cuts keep running in the background and remain supported by the Erdogan’s administration. Despite inflation appears to have peaked in April, it still remains (very) high and a move on rates in the short-term horizon seems to have lost some motivation for the time being. In the meantime, political effervescence within the ruling AK Party, the impact of the pandemic on the economic outlook, high unemployment and the so far utter absence of any intentions to implement the much-needed structural reforms remain poised to keep the lira under perseverant pressure.
Eminent issues on the back boiler: Potential US/EU sanctions against Ankara. Government pressure on the CBRT vs. bank’s credibility/independence. Bouts of geopolitical concerns. Much-needed structural reforms. Growth outlook vs. progress of the coronavirus pandemic. Capital controls? The IMF could step in to bring in financial assistance.
USD/TRY key levels
So far, the pair is gaining 1.03% at 8.6793 and faces the next resistance at 8.7472 (all-time high Jun.4) ahead of 9.0000 (round level). On the other hand, a drop below 8.3569 (50-day SMA) would aim 8.2803 (monthly low Jun.11) and finally 8.2161 (low May 7).
- AUD/USD struggled to capitalize on upbeat aussie jobs report-led intraday positive move.
- The USD added to the post-FOMC strong gains and prompted fresh selling around the pair.
- Technical selling below the 0.7600 mark further contributed to the steep intraday decline.
The AUD/USD pair continued losing ground through the early North American session and dived to the lowest level since early April, around the 0.7560 region in the last hour.
The pair witnessed a dramatic turnaround on Thursday and fell nearly 80 pips from the intraday swing highs, around the 0.7645 region touched in reaction to the blowout Australian jobs report. The sharp fall for the third consecutive day was sponsored by strong follow-through US dollar buying interest.
The Fed surprised markets with a hawkish turn and signalled that it might raise interest rates at a much faster pace than anticipated previously. The so-called dot plot pointed to two hikes by the end of 2023 and triggered a massive rally in the USD, pushing it to the highest level since April 13.
The USD bulls seemed rather unaffected by a modest pullback in the US Treasury bond yields and largely shrugged off disappointing US macro data. The number of Americans claiming unemployment-related benefits jumped to 412K, while the Philly Fed Manufacturing fell more than expected to 30.7 in June.
The negative factor, to some extent, was offset by a generally softer risk tone – as depicted by a modest pullback in the global equity markets. This was seen as another factor that benefitted the greenback's relative safe-haven status and drove flows away from the perceived riskier aussie.
Meanwhile, Thursday's downfall could further be attributed to some aggressive technical selling below the 0.7600 round-figure mark. The AUD/USD pair has now dropped closer to the very important 200-day SMA support, which if broken decisively should pave the way for a further near-term depreciating move.
Technical levels to watch
- Private sector employment in Canada continued to increase in May.
- USD/CAD clings to strong daily gains above 1.2330.
Private sector employment in Canada increased by 101,600 jobs from April to May, the ADP Research Institute revealed in its monthly report on Thursday. This reading followed the previous print of 101,300 (revised from 351,300).
Commenting on the data, "May reported an increase in jobs, marking four straight months of job growth," said Nela Richardson, chief economist, ADP. "Professional and business services; construction; and leisure and hospitality indicated strong employment gains; while trade, transportation and utilities; information and natural resources and mining saw layoffs."
This report was largely ignored by market participants and the USD/CAD pair was last seen gaining 0.48% on a daily basis at 1.2335.
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