• Ding. Ding. Ding. Stocks close lower as debt ceiling talks stall.
• ECBs Lagarde: We should not trade-off price stability and financial stability
• US 2 year yield has the biggest gain since September 2022
• Jake Sherman: Nothing to report from Washington
• WTI Crude oil settles at $71.55
• Gold rebounds toward its 100 hour moving average today
• German DAX closes at the highest level on record
• Bakers Hughes oil rig count falls 11 to 575
• House Majority Leader McCarthy: yesterday I really felt we had a path to an agreement
• ECB’s Schnabel:Wage growth has picked up substantially.Concerns about second-round effects
• White House: Both sides need to recognize they will get everything they want in a deal
• Fed Powell summary: Inflation is still too high, but risk is more balanced.
• GOP debt negotiators : White House is not being reasonable.
• Fed Powell: Inflation is far above that objective
• ECB Schnabel: ECB can continue to do whatever needed to bring inflation back to 2% target
• US imposes new sanctions against Russia
• Feds Bowman: No monetary policy or economic comments
• Feds Williams: No comments on monetary policy or economic outlook from NY Fed President
• Canada retail sales March -1.4% versus -1.4% expected
• German DAX trades to a new record high
• The NZD is the strongest and the USD is the weakest as the North American session begins
• ForexLive European FX news wrap: Light dollar pullback ahead of Powell

The negotiations to raise the U.S. debt ceiling were put on hold. Dems pointed the finger at the GOP. The GOP pointed the finger at the Dems. Pres. Biden comes back from the G7 over the weekend, and I am sure both sides, know what is at stake. Nevertheless, the development alarmed market participants as they headed into the weekend. Initially, yields moved off high levels as focus was on expected lower growth. The dollar moved lower. Gold rebounded. Stocks slid. However, moves were somewhat limited.

Meanwhile (and at the same time), Fed’s Powell was participating in a panel discussion with former Fed Chair Bernanke. Powell picked his words closely and covered most bases in the process. Powell suggests that due to tightening bank credit conditions, policy rates might not need to rise as high as might otherwise be expected. Nevertheless, he notes that market pricing suggests a different rate path than the Fed, presumably anticipating a more rapid decrease in inflation. However, he maintains that current data support the view that reducing inflation will take time. He also highlights the inclusion of risk compensation in market prices (lowering rates below what even analysts expect). Finally, Powell states that while the Fed has not yet determined whether rates are sufficiently restrictive (inflation is still too high), the objective is to reach a sufficiently restrictive policy stance. The Fed hasn’t decided on how much more tightening might be necessary, but Powell suggests that the balance between doing too much and too little is becoming more evenly balanced.

After the dust settled, and the events were over, the US stocks are ending the day modestly lower. Yields are ending higher, but close to the middle of the ranges. The USD is ending the day as the weakest of the majors (despite higher rates) but off the lowest of levels.

Looking at the strongest to the weakest rankings, the NZD and the CHF are ending as the strongest of the majors. The USD and the CAD are the weakest.

For the trading week, the USD is closing mixed with the USD moving the most to the upside vs the JPY, but falling vs the NZD. The USDs changes showed:

• EUR +0.40%
• JPY, +1.51%
• GBP +0.06%
• CHF +0.11%
• CAD, -0.46%
• AUD, -0.09%
• NZD – 1.37%

The price of oil rose 2.61% which benefitted the CAD (the USD fell -0.46% vs the CAD). Gold meanwhile fell -1.67% this week. The move lower did not hurt the AUD (it ended little changed vs the greenback). The USD rose modestly versus the EUR by +0.40%. Overall, the dollar index (DXY) rose by 0.47%.

For US stocks this week:

• Dow rose 0.38%
• S&P rose 1.65%
• Nasdaq rose 3.04%.

In the US debt market, yields moved higher this week with the 2-year having its biggest week move since September 2022. The 10-year is ending the week up the most since February.

This article was written by Greg Michalowski at www.forexlive.com.

The major US stock indices are ending the day lower. The excuse will be the debt ceiling talks stalling (for now), but if there was a lot of worry, the stock market would be down much more.

Technically, however, the S&P index could not close above the 4200 natural level (it is closing at 4191.99), nor could the price of the S&P close above its 100-week moving average at 4201.1. Close but no cigar. That could be problematic from a technical perspective. It will take a move above the 100-week moving average next week to give the buyers more ammunition for further upside probing. Absent that and we could be in store for a corrective week.

Although closing lower, the major indices are closing higher in the week.

The final numbers are showing:

• Dow industrial average -109.30 points or -0.33% at 33426.64.
• S&P index -6.07 points or -0.14% at 4191.99
• NASDAQ index -30.95 points or -0.24% at 12657.89

For the trading week, the major indices are closing higher:

• Dow industrial average eked out a 0.38% gain.
• S&P index close up 1.65%
• NASDAQ index was the beginner with a 3.04% rise

Big winners included AI stocks:

• Nvidia up 10.31%
• Alphabet +4.48%
• Microsoft +3.03%

Another AI stock, Adobe rose 3.05% today and was up 10.73% on the week. Adobe will announce its earnings on June 15. Nvidia will announce its earnings next Wednesday after the close. Both earnings will be important in the short term for the AI euphoria.

The KRE Etf of regional banks closed lower on the day by -1.78%, but was still up 7.81% on the week on less banking fear. Neverthless, Treasury Sec. Yellen did warn that there may be more consolidation in the banking sector, and that reversed earlier gains.

PS. Technically, the KRE price tested the 200-hour MA at the highs today (at $40.36 – green line) before rotating lower. That did not help as the recent price history shows, the 200 hour MA is a level for sellers to lean against. However, the price is closing above the 100-hour MA at $37.88. The price is in a neutral area technically between the 100 and 200 hour MAs.

This article was written by Greg Michalowski at www.forexlive.com.

ECB’s Lagarde is speaking and says:

• ECB will do what is necessary to deliver price stability
• We should not trade-off price stability and financial stability
• We can successfully pursue both goals at the same time

Nothing new here

This article was written by Greg Michalowski at www.forexlive.com.

The EURUSD is rotating back lower in the US afternoon. The pair moved higher as Fed Powell (may not have to tighten as much due to banks slow lending), and the debt ceiling talk stall sent rates lower and the USD lower with it.

Technically, the price for the EURUSD moved above its 100-day MA at 1.0807 but stalled ahead of the falling 100-hour MA (blue line currently at 1.0832). The high reached 1.0828. Buyers turned to sellers.

The price has rotated lower and now trades below its 100-day moving average once again. The current price is trading at 1.0799.

We are heading into the weekend and then into a new trading week, but what is clear from the hourly chart at least is that the price has been able to stay below the 100-hour moving average since May 8. There have been 4 separate tests at lower successive levels, and each test has found willing sellers. The prices also looking to close a week below its 100-day moving average which is a more bearish bias shift.

This article was written by Greg Michalowski at www.forexlive.com.

The US 2-year yield is up about 30 basis points on the week trading at 4.296%. The high-yield today reached 4.349% the highest level since March 15, 2023. The move to the upside this week is the largest gain since the week of September 19, 2022, when yields moved up nearly 34 basis points. Ironically, the yield settled at 4.212% that week just 8 basic points away from the current level of 4.296%.

The catalyst to the upside this week was a better tone in regional banks. That took some of the flight to safety flows out of the market and had traders pricing in more Fed cuts into 2024.

The KRE regional bank ETF rose by 7.26% this week.

Boston Fed president Logan yesterday said she would pencil in a 25 basis point hike in June given current economic data. Feds Bullard also tilted toward another 25 basis point hike.

The January fed funds futures now implies 4.65%. That is still below the current target rate of 5.25%, but the implied yield in May reached as low as 4% back on May 4 and 4.22% as recently as May 11.

Although higher, the 2 year yield is still well off its high for 2023 at 5.085% reached on March 8, 2023

Further out the yield curve, the 10-year yield is up 25 basis points this week, or 6.599%. That is its largest 1 week gain since December 19, 2022 week. The yield today moved to a high of 3.719% which is the highest level since March 13, 2023. The high-yield in 2023 reached 4.089% on March 2. The high cycle yield was back on October 21, 2022 at 4.335%

This article was written by Greg Michalowski at www.forexlive.com.