- Crude oil bulls are challenging $57.00 a barrel.
- WTI is having a strong recovery and seems poised to reach 58.00 and 59.75 to the upside.
Oil daily chart
WTI (West Texas Intermediate) is recovering strongly as it rebounded from above the 50.00 mark. The market stays below its main daily simple moving averages (DSMAs).
Oil 4-hour chart
The oil market is rising sharply above the 54.00 figure and the 50 and 100 SMAs. WTI is challenging the 57.00 figure and is approaching the 200 SMA at 57.76. A break beyond 57.00 can lead to a continuation of the up move towards 58.00 figure and 59.75 swing high. Immediate support is seen at 56.00 and 55.00 figure.
Additional key levels
- US Dollar off lows but still holds to most of the post-Fed losses.
- Australian Dollar losses strength as equity prices pull back from highs.
The rally of the AUD/USD pair that started after the FOMC meeting on Wednesday and pushed it back above 0.6900, run into resistance at 0.6935. As of writing, trades at 0.6915, 40 pips above yesterday’s close and still holding a bullish tone.
From a technical perspective, the area around 0.6935 is a strong barrier that if broken could lead to a test of the next critical level seen at 0.6950. On the flip side, the 0.6900 area has become a key support.
The move higher in AUD/USD was boosted by the dovish Fed meeting. The greenback accelerated the decline today as markets price in more rate cuts from the Fed. Data released today in the US came in mixed with a decline in jobless claims and also a larger-than-expected slide in the Philly Fed. The numbers were ignored by market participants that continue to focus on the implication of yesterday’s FOMC statement. In Australia, the central bank meets on July 2 and a rate cut is mostly discounted.
The rally in global stocks also added support to the pair, but over the last three hours it lost momentum and Wall Street indexes move off highs, favoring the correction in AUD/USD.
"Consumer confidence falls from -6.5 to -7.2. Even though the household income situation is moving in the right direction, growth concerns seem to be the cause of increased pessimism," notes Bert Colijn, ING Eurozone Senior Economist.
"What’s not to like for consumers? They saw wage growth improve again in Q1 as labour shortages have finally taken wage growth back to pre-crisis levels. On top of that, unemployment has been coming down more rapidly than expected and is at the lowest level in more than a decade. The bottom line remains quite a positive story for the consumer, but worries about the growth environment are not helping future expectations right now."
"The decline in consumer confidence casts some doubt on the dichotomy between industry and services. The service sector delivers more directly to the consumer and therefore fares well in an environment of strong consumer spending. More pessimistic consumers could result in slower spending, which would in turn impact the performance of the service sector. That would spell problems for the Eurozone growth outlook in the rest of the year, which is already moderate at best."
- Dovish shift in major central banks' policy outlook boosts demand for gold.
- US Dollar Index drops to fresh 2-week lows on Thursday.
- Stock market rally keeps precious metal's gains limited for now.
With major central banks adopting a more cautious tone with regards to the economic outlook and hinting at rate cuts this week, gold became an investor favourite and the troy ounce of the precious metal rose more than $50 since the start of the week to touch its highest level since September 2013 at $1393.27. Following that impressive rally, the XAU/USD pair has gone into a consolidation phase and was last seen trading near $1383, still adding more than $20 on a daily basis.
Earlier this week, European Central Bank President Draghi opened the door for rate cuts while speaking at the bank's event in Portugal. Yesterday, the FOMC dropped the term "patient" from its policy statement with regards to future policy adjustments and gave a reason for markets to believe that a rate cut will happen as early as July. The greenback came under heavy selling pressure and dragged the US Dollar Index to its lowest level in two weeks.
During the Asian session on Thursday, Bank of Japan Governor Kuroda said that it was possible for them to keep the rates at current lows beyond spring of 2020. Finally, the Bank of England today in its policy statement acknowledged that downside risks to growth had increased since the last meeting in May and revised its second-quarter growth expectation down to 0% from 0.2%.
Meanwhile, stock markets capitalized on hopes of central banks injecting additional stimulus into the economy and the S&P 500 Index hit an all-time high, grabbing investors' attention and keeping gold's gains limited for the time being. At the moment, all three major indexes of Wall Street are rising around 1% on a daily basis.
Technical levels to watch for
- AUD/USD is recovering after seeing intense selling in the last weeks.
- The level to beat for bulls is at 0.6930 resistance according to the Technical Confluences Indicator.
The US Dollar is weakening across the board on the back of dovish comments from the Fed.
AUD/USD daily chart
AUD/USD is trading in a bear trend below its main daily simple moving averages (DSMAs). The market is rebounding sharply above the 0.6900 figure.
AUD/USD 4-hour chart
The Aussie made a sharp recovery as it now challenging the 100 and 200 SMAs near 0.6939 resistance which is a cluster of technical levels according to the Technical Confluences Indicator.
AUD/USD 30-minute chart
AUD/USD is trading above its main SMAs suggesting bullish momentum in the near term. A sustained break above 0.6930 can send the Aussie to 0.6960, the next main resistance according to the Technical Confluences Indicator. Support is at 0.6915 and 0.6900 figure.
Additional key levels
- The USD/CHF pair struggled to find any buyers and continued losing ground through the early North-American session, hitting fresh five-month lows in the last hour.
- The pair's inability to find acceptance above 200-day SMA reaffirmed the recent break below a medium-term ascending trend-line - extending from Feb. 2018 swing lows.
The pair has now dropped to the 38.2% Fibo. level of the 0.9210-1.0238 (Feb. 2018 to April 2019) appreciating move, which if broken will set the stage for an extension of the ongoing downfall from over 27-month tops set on April 26.
Below the mentioned support, the pair seems more likely to easily break through the 0.9800 round figure mark and aim towards testing yearly lows support near the 0.9715-10 region – coinciding with 50% Fibo. level.
Meanwhile, technical indicators on the daily chart have moved on the verge of falling into oversold territory and are already pointing to extreme oversold conditions on hourly charts, warranting some near-term consolidation.
USD/CHF daily chart
- Heightened expectations of Fed rate cuts boost stock markets on Thursday.
- Energy sector outperforms rivals boosted by rallying oil prices.
- All 11 major S&P 500 sectors start the day in the positive territory.
As hinted by the strong upsurge witnessed in the S&P 500 Futures, major equity indexes in the U.S. started the day sharply higher and the broad S&P 500 reached a fresh record high. The FOMC's dovish shift in its policy statement yesterday revived hopes of the bank cutting interest rate as soon as July and provided a boost to global stock markets. As of writing, the Dow Jones Industrial Average was up 0.9% on the day while the S&P 500 and the Nasdaq Composite were adding 0.95% and 1.3%, respectively.
Among the 11 major S&P 500 sectors, which are all in the positive territory in the early trade, the Energy Index is rising nearly 2% to lead the rally on the back of a 4% increase in crude oil prices. On the other hand, the rate-sensitive Financial Index is only adding 0.05% on the day limited by falling Treasury bond yields.
Reviewing the FOMC event, “Overall, our econ team expects conditions to evolve sufficiently to warrant a cut in July, and view a 25bps move as more likely than 50bps, and they continue to anticipate a total of three rate cuts this year,” said Deutsche Bank analysts.
According to Morten Lund, analyst at Nordea Markets, the Bank of England (BoE) stroke a more dovish tone at the June meeting, as growth has softened, and the perceived risk of a no-deal has increased.
“In line with both our view and consensus, the Bank of England (BoE) kept both the Bank Rate and the bond purchase programme unchanged. Although there was some speculation before the meeting whether MPC members Michael Saunders (most likely) or Andy Haldane could dissent due to recent high pay growth numbers, the decision was unanimous (9-0) to keep the policy rate on hold at 0.75%.”
“The overall message was, in our opinion, clearly to the dovish side.”
“Adding to the dovish message, the MPC noted that the global risk sentiment had weakened and the perceived risk of a no-deal had increased, as reflected by the weak sterling.”
“We, however, find it difficult to argue for any rate hikes anytime soon as growth is set to slow in Q2, inflation has downside risks (see model below), G10 central banks have shifted in a dovish direction and the fear of a no-deal Brexit is very much alive and kicking.”
“At the other side of the coin, we also do not find a rate cut likely (our AI model does not as well, see below). Basically, we think the BoE’s hands are tied due to Brexit and with inflation currently at target, a cut does not seem warranted in the coming months. We would only expect a cut in the case of a no-deal event.”
- The USD/JPY pair finally broke down of its recent consolidative trading range, held over the past one week or so and tumbled to its lowest level since the early-Jan. flash crash.
- Bulls, however, showed some resilience near 61.8% Fibonacci retracement level of the 104.69-112.40 up-move, which should now act as a key trigger point for bearish traders.
Looking at a slightly bigger picture, the pair has been trending lower along a short-term descending trend-channel from yearly tops - set on April 24, clearly indicating a well-established near-term bearish trend and supporting prospects for further declines.
However, oversold conditions seemed to be the only factor holding investors from placing any fresh bearish bets and might now lead to near-term consolidation or a modest rebound though might still be seen as a selling opportunity near the 108.00 handle.
A convincing break through the mentioned support will reinforce the bearish bias and turn the pair vulnerable to weaken farther below the 107.00 handle and aim towards challenging the trend-channel support, currently near the 106.70 region.
Having said that, a sustained recovery beyond the 108.50-70 supply zone - marking 50% Fibo. level and also nearing the descending trend-channel hurdle, might negate the bearish outlook and prompt some aggressive short-covering move in the near-term.
USD/JPY daily chart
Rabobank analysts point out that as per expected lines, the Bank of England MPC kept rates unchanged at 0.75% and there were no dissenters, even though there had been some speculation of a split vote.
“The statement notes that the downside risks to growth have increased due to trade tensions and Brexit uncertainties. The MPC also expects inflation to fall below the 2%-target later this year.”
“The forward guidance was left untouched nonetheless. The MPC still judges that a tightening of monetary policy at a gradual pace and to a limited extent would be appropriate.”
“This optimism is grounded on a model-based view of the world, which in turn is centred on the assumption of a smooth transition towards new trading relationships. The market is not willing to take this for granted – rightly so.”
“Despite several recent hawkish speeches, there was no signal that the MPC actually wants to hike this year. We forecast no rate hikes for this year and next.”
- USD/CAD is trading at levels not seen since March.
- The next supports to the downside are seen near 1.3110 and 1.3068.
USD/CAD daily chart
USD/CAD broke below 1.3200 figure and its main daily simple moving average (DSMA). The overall picture is turning negative for the commodity-linked currency pair.
USD/CAD 4-hour chart
USD/CAD is under bearish pressure below 1.3180 and its main SMAs. The market reached levels not seen since March of this year.
USD/CAD 30-minute chart
The 50 SMA crossed below the 200 SMA which is seen as a bearish sign. The path of least resistance is to the downside. The next support cab be seen at 1.3110 (near weekly Pivot Point S3) and 1.3068 ( February low).
Additional key levels
According to Reuters, Bank of America Merrill Lynch (BAML) in a recently published report said that it saw the next two weeks as "absolutely critical" in determining the timing of the Fed's first rate cut.
"If there are another weak U.S. Payroll report, disappointing ISM data and a "bad" G20 summit outcome, the Fed would begin cutting interest rates in July," BAML noted. "If U.S. data are mixed and markets are "content," the Fed would begin lowering U.S. rates in September."
BAML analysts still expect the Fed to cut rates by a total of 75 basis points by early 2020.
The US Dollar Index ignored these headlines and was last down 0.55% on a daily basis at 96.65.
- The GBP/USD pair stalled this week's strong recovery move from multi-month lows and quickly retreated around 40-50 pips from intraday tops - around the 1.2725 region.
- Slightly overbought conditions on hourly charts seemed to be the only factor prompting some profit-taking after the recent up-move of around 120-pips over the past three days.
The downside, however, remained cushioned, at least for the time being, and the pair now seemed to show some resilience near 23.6% Fibo. level of the 1.2506-1.2727 latest upsurge. This is followed by the 1.2645 confluence region - comprising of 200-hour SMA and 38.2% Fibo. level, which should now act as an important pivotal point for short-term traders.
Meanwhile, technical indicators on the daily chart are yet to catch up with the ongoing recovery momentum and might turn out to be one of the key factors holding investors back from placing any aggressive bets. Hence, it would be prudent to wait for follow-through move beyond the 1.2750-60 supply zone before positioning for any further appreciating move.
Failure to clear the mentioned barrier and a subsequent break below the 1.2645 confluence support would suggest that the corrective bounce might have already run out of the steam and the pair seems all set to resume its prior well-established bearish trend.
GBP/USD 1-hourly chart
Sacha Tihanyi, deputy head of emerging markets strategy at TD Securities, points out that the BCB has revised lower its inflation outlook, but continues to point to the economic reform process as crucial, implying the constraint it poses for monetary policy action.
“Policy makers did drop elements of the statement that emphasized monetary policy stability, and while not signalling an imminent rate cut, it does open up future policy flexibility to some degree, contingent on continued economic reform in Brazil.”
“We remain of the view that the BCB sits on hold for 2019, at least until pension reform is closer to completion, but we push out our call for future tightening by 6 months to Q3 of 2020. The bias of near-term risk to our view remains for additional easing in 2019.”
- DXY reverses part of the pullback, tests 96.70.
- USD weaker in the wake of FOMC meeting.
- Philly Fed index came in well below estimates.
The greenback, in terms of the US Dollar Index (DXY), remains well on the defensive albeit managing to rebound from daily lows in the 96.60/55 band.
USD Dollar Index supported at the 200-day SMA
The index appears to have met dip-buyers in the vicinity of 96.50, an important area of contention where converge the critical 200-day SMA and the multi-month support line.
The buck is bouncing off lows despite the key Philly Fed manufacturing gauge came in at 0.3 for the current moth, well below estimates and lower than May’s 16.6. further data saw Initial Claims at 216K WoW, bettering consensus and taking the 4-Week Average to 218.75K from 217.75K.
Additional data noted the Current Account deficit shrunk to $130.0 billion during the January-March period, albeit coming in below forecasts.
Despite rate cuts are now a palpable option - with the occurrence of such a move in July gaining some momentum – the case for a weaker greenback in the near-to-medium term looks less clear against the backdrop of the generalized twist to a looser stance from the Fed’s peers in the G-10 space and the so far outperformance of the US fundamentals vs. the majority of developed economies.
What to look for around USD
The Federal Reserve is not ‘patient’ anymore, and rate cuts have already emerged on the horizon (likely to be delivered at the September and/or December meeting), while an ‘insurance cut’ could come as early as July. Compared with other central banks, the Fed has more room to manoeuvre in case it goes ‘full accommodative’ in the next months (due to the hiking cycle that started in 2015). If we add that the US economy is healthier than its overseas peers, the greenback’s status of ‘global reserve currency’ and its safe haven appeal, further weakness in the buck is far from a done deal.
US Dollar Index relevant levels
At the moment, the pair is retreating 0.57% at 96.66 and a breach of 96.46 (low Jun.7) would open the door for 96.04 (50% Fibo of the 2017-2018 drop) and then 95.82 (low Feb.28). On the other hand, the next up barrier emerges at 97.80 (monthly high Jun.3) seconded by 97.87 (61.8% Fibo of the 2017-2018 drop) and finally 98.37 (2019 high May 27).
Italian Prime Minister Giuseppe Conte crossed the wires in the last minutes saying that the letter that they have sent to the European Commission is a political message explaining that the EU has to change its fiscal rules to prioritize growth.
"The tax competition within the EU should be fair," Conte added. "Countries that do not invest their surplus do not help us."
The EUR/USD didn't pay any attention to Conte's remarks and continues to consolidate its daily gains near the 1.13 mark.
- US Dollar Index retraces small portion of daily fall in the early American session.
- New Zealand GDP expands by 0.6% in the first quarter as expected.
- Weekly jobless claims in the U.S. comes in slightly better than the market estimate.
The NZD/USD pair took advantage of the broad-based selling pressure surrounding the dollar following the FOMC's dovish shift yesterday and advanced to its highest level in 9 days at 0.6597 before staging a technical correction in the last hour. As of writing, the pair was up 0.66% on a daily basis at 0.6581.
The Fed removed the term "patient" from its policy statement when talking about possible future policy adjustments and triggered a USD selloff. After this event, “We continue to expect a 25bps FFTR cut in July; we believe it would take a definitively positive G20 outcome and an improvement in the data for the FOMC not to cut next month," Standard Chartered analysts argued. "A 50bps cut is also on the table in case of a poor G20 outcome or a pronounced economic deterioration.”
The US Dollar Index, which fell to its lowest level in two weeks at 96.57, was last seen at 96.67, where it was down 0.57% on the day. The weekly data from the U:S. revealed that the initial jobless claims fell to 216,000 in the week ending June 14 but didn't have a notable impact on the greenback's valuation.
On the other hand, the data published by the Statistics New Zealand during the Asian trading hours revealed that the real Gross Domestic Product expanded by 0.6% on a quarterly basis in the first quarter to match analysts' estimates and kept the annual growth rate steady at 2.5%.
Technical levels to consider
- EUR/USD eases a tad from tops near 1.1320.
- US Philly Fed index dropped to 0.3 in June.
- EMU Consumer Confidence coming up next in the docket.
The buying bias remains well and sound around the European currency, with EUR/USD hovering over the 1.1300 neighbourhood following US data releases.
EUR/USD looks to 1.1350, monthly highs
The march north in the pair stays unabated so far today, fuelled by increasing selling pressure around the buck in the wake of the dovish shift from the Federal Reserve at the FOMC meeting on Wednesday.
Supporting USD-selling, the key Philly Fed manufacturing gauge dropped to 0.3 for the current month, also coming in short of expectations. Further data across the pond saw the Current Account deficit shrinking to $130.0 billion during Q1, although missing previous estimates.
However, the continuation of the up move in the pair is expected to be short-lived, as the ECB too is now looking to the possibility of lower rates and/or restarting the QE programme if the outlook on the region worsens and inflation fails to move closer to the bank’s target.
Later in the day, the European Commission will publish its preliminary measure of the Consumer Confidence in the region for the current month.
What to look for around EUR
The renewed dovish stance from the ECB and USD-dynamics appear to be dictating the price action around the European currency for the time being, relegating to a secondary role the broad risk-appetite trends and trade tensions. Furthermore, the slowdown in the region looks unremitting and reinforces at the same time the current attitude of the central bank. On the political front, Italian politics is expected to remain a source of uncertainty and volatility for EUR, with the centre of the debate gyrating around the country’s opposition to EU fiscal rules as well as the challenging tone from LN’s M.Salvini.
EUR/USD levels to watch
At the moment, the pair is advancing 0.64% at 1.1297 and a breakout of 1.1347 (high Jun.7) would target 1.1353 (200-day SMA) en route to 1.1448 (monthly high Mar.20). On the downside, immediate contention is located at 1.1181 (low Jun.18) seconded by 1.1176 (monthly low Mar.7) and finally 1.1115 (low May 30).
- The GBP/JPY cross witnessed a dramatic intraday turnaround from weekly tops - levels beyond the 137.00 handle and dropped to fresh session lows in the last hour.
- The cross struggled to find acceptance above 200-hour SMA and started retreating from resistance marked by 61.8% Fibonacci level of the 138.24-135.38 recent decline.
The pair’s inability to capitalize on this week’s attempted recovery from multi-month lows clearly suggest that the near-term bearish pressure might still be far from over amid growing fears of a no-deal Brexit.
Meanwhile, technical indicators on the daily chart maintained their bearish bias and have already started losing positive momentum on hourly charts, adding credence to the near-term negative outlook for the cross.
However, the intraday slide seems to have found some support near the 136.40 region, which if broken will set the stage for the resumption of the well-established bearish trend and drag the cross towards retesting sub-136.00 level.
A follow-through selling has the potential to drag the cross further towards the recent swing lows, around the 135.40-35 region en-route the key 135.00 psychological mark.
GBP/JPY 1-hourly chart
While speaking to reporters in Luxembourg, Irish Prime Minister Leo Varadkar said that if Boris Johnson were to become the new Prime Minister, he will have to deal with the EU deal struck by Theresa May and reiterated that the Withdrawal Agreement won't be reopened.
Varadkar further added that there won't be a transition period if they failed to reach an agreement on the withdrawal deal and repeated there won't be a deal without the Irish backstop.
The market reaction was muted to these remarks as they are nothing new or surprising.