Headlines:

• BOE surprises with 50 bps rate hike, bringing bank rate to 5.00%
• Sterling jumps initially on BOE surprise but gains look limited
• SNB raises policy rate by 25 bps to 1.75%, as expected
• SNB’s Jordan: We cannot rule out further monetary policy tightening
• SNB’s Jordan: The view that policy would be better by not tightening today is false
• BOJ’s Noguchi: Exchange rate should move stably reflecting fundamentals
• France June business confidence 100 vs 100 prior
• Japan maintains overall economic assessment for the month of June

Markets:

• GBP leads, AUD lags on the day
• European equities lower; S&P 500 futures down 0.3%
• US 10-year yields up 2.7 bps to 3.75%
• Gold down 0.4% to $1,926.04
• WTI crude down 2.1% to $70.99
• Bitcoin flat at $29,983

It was all about central banks today but the BOE stole the spotlight with a somewhat surprising 50 bps move to bring the bank rate to 5.00%.

The more hawkish move came after the hotter than expected UK inflation report yesterday, which suggests that the BOE is taking on the issue with a ‚go big or go home‘ approach. On the one hand, it speaks to their commitment and credibility in tackling inflation. On the other, such persistence could end up breaking something along the way in the economy.

For now, the pound got a brief jump on the decision with GBP/USD moving up from 1.2780 to 1.2835 before giving all of that back. I outlined some reasons for that move here and that post details better how markets are feeling right now just after the suprise.

The SNB was also on the agenda but the 25 bps rate hike there was rather straightforward and the communique was consistent with what markets were expecting. The franc is little changed as a result with USD/CHF sitting around 0.8940-50 currently with the dollar also keeping steady.

There isn’t much appetite among major currencies so far today but keep an eye out on a further risk rotation in broader markets. There has been a consistent theme of equities selling this week and things look to be continuing today as well. Some food for thought here.

This article was written by Justin Low at www.forexlive.com.

The Federal Reserve decided
to maintain interest rates at 5.00-5.25% last week. This choice was motivated
by their desire to gather additional economic data before determining whether
another hike is appropriate. Their aim is to strike the right balance of
monetary restraint that can effectively lower inflation to the target level,
while minimizing adverse effects on the economy.

In contrast, the European
Central Bank (ECB) followed expectations and raised interest rates by 25 basis
points. They also hinted at a potential additional increase in July. ECB speakers
have reiterated this stance and signalled the likelihood of another hike in
September if the prevailing conditions warrant such action. As a result, a
divergence in monetary policies has emerged between the Federal Reserve and the
ECB, ultimately benefiting the Euro.

EURUSD Technical Analysis –
Daily Timeframe

On the daily chart, we can see that EURUSD has now
completely erased all the Dollar strength seen in May and it’s eyeing again the
1.1033 high. Last time, the pair had a hard time at this resistance, so we
will likely need strong fundamental catalyst to see a breakout. This may come
in the form of hot inflation data for the Eurozone or weak, but not too weak,
data for the US. Anyway, the price looks overstretched as depicted by the
distance from the blue 8 moving average. In such
cases, we can generally see some consolidation or a pullback into the moving
average before the next move.

EURUSD Technical Analysis –
4 hour Timeframe

On the 4 hour chart, we can see that this latest
extension to the upside is diverging with the
MACD. This is
generally a sign of weakening momentum often followed by pullbacks or
reversals. In fact, from a risk management perspective, the buyers would be
better off waiting for a pullback into the 1.0950 support where we can also
find the trendline before
considering new long positions, all else being equal.

EURUSD Technical Analysis –
1 hour Timeframe

On the 1 hour chart, we can see that the
price is rallying towards the 1.1033 high today. That is where we should expect
some sellers piling in with a defined risk above the level targeting a pullback
into the trendline.

Today
we have the US Jobless Claims report and tomorrow we conclude the week with the
US PMIs. Big misses should lead to more USD weakness as the market would price
out the rate hike in July, while big beats should result in Dollar strength as
the market would see the “two more rate hikes” expected by the Fed more likely.

This article was written by FL Contributors at www.forexlive.com.

The BOE went and did it, delivering a „surprise“ 50 bps rate hike today. To be fair, markets had already priced in a near coin toss ahead of it so this isn’t that shocking. Nonetheless, it’s one that is causing a bit of a stir across broader markets and sterling had benefited from it – at least initially.

GBP/USD moved up from 1.2780 to a high of 1.2835 before settling around 1.2800 just minutes after the decision. (Update: It is now falling to 1.2750 on the day)

Now, there are a couple of things to be mindful about here. Let’s take a look at them:

1. Markets had already priced in nearly 75 bps worth of rate hikes by August. That means either the decision today or August itself would have to be a 50 bps move to reaffirm that pricing. And we already got it here, so that is quickly out of the way already. So, this just confirms what market had priced in and doesn’t add any further hawkish connotations to it.
2. Markets had also already priced in a peak in the BOE bank rate of close to 6% coming into the decision. It was around 5.93% and as at time of writing, that has just moved up to 5.98%. As such, there is a ceiling in which traders are not comfortable getting above just yet and that means there isn’t any additional hawkish elements to price in as well based on this front.
3. With equities already rather sensitive this week, the BOE decision to go with a bigger rate hike is dampening the mood further. And as the pound tends to behave like a risk currency these days, that could stir up some headwinds for sterling to push gains on the day.

This article was written by Justin Low at www.forexlive.com.

• Prior 4.50%
• Bank rate vote 7-2 vs 7-2 expected (Dhingra, Tenreyro voted to keep rates at 4.50%)
• Continuing to monitor closely the impact of the significant rate hikes so far
• Core goods price inflation has also been much stronger than projected
• But CPI inflation is expected to fall significantly further during the course of the year
• Food price inflation is projected to fall further in coming months
• If there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required
• Full statement

The pound jumps on the decision as the BOE takes the more hawkish step, following the hotter than expected UK CPI data yesterday. GBP/USD moving up from 1.2780 to a high of 1.2835 before settling down around 1.2800 at the moment.

The guidance and statement details don’t reflect much of a change to before, which suggests that the the central bank is still on the tightening path. As mentioned earlier, traders had been pricing in either a 50 bps move for today or August so it’s good to have this out of the way now.

The peak rate in terms of OIS pricing remains close to the 6% mark (now 6.05%), just a touch higher than the 5.93% priced in ahead of the decision. As such, there might be limited upside for sterling in this instance; all else being equal.

This article was written by Justin Low at www.forexlive.com.

The Fed decided to maintain
the interest rates at 5.00-5.25% last week, citing the need for additional
economic data before considering additional hikes. They are trying to strike a
balance of monetary restraint that can effectively combat inflation and prevent
a severe recession.

In his testimony to
Congress yesterday, Fed
Chair Powell reaffirmed their commitment to lowering inflation to the
desired target. However, he acknowledged that there is still a long way to go
to reach their goal and added that if the economy performs as expected, the two
additional rate hikes outlined in the Dot Plot could be viewed as a „pretty
good guess”.

Overall, central banks are
now data-dependent as they are trying to fine tune their terminal rates, so
going forward the data is what really matters and not what the central bank
speakers say.

USDJPY Technical Analysis –
Daily Timeframe

On the daily chart, we can see that USDJPY has
reached a key resistance
level at 142.17 where we can also find the 61.8% Fibonacci
retracement level of the entire fall since October 2022. A strong break
above this resistance supported by a fundamental catalyst would open the door
for a rally into the 150.00 handle. We can also notice that this last leg
higher is diverging
with the MACD
which is generally a sign of weakening momentum often followed by pullbacks or
reversals. Seeing it here makes it more compelling that we might get a big
pullback soon.

USDJPY Technical Analysis –
4 hour Timeframe

On the 4 hour chart, we can see that the red 21 moving
average has been acting as dynamic support for the buyers but we are now
starting to see the convergence of the moving averages as the price action
becomes more rangebound. If we see them cross to the downside with a break below
the 141.25 level, it would further confirm a retracement back to the 138.00
support where there’s also the 50% Fibonacci retracement level and a trendline
for confluence.

USDJPY Technical Analysis –
1 hour Timeframe

On the 1 hour chart, we can see that the
price has recently bounced on a previous resistance
turned support, but couldn’t find enough strength to break above the 142.17
resistance. This little range gives us a clear setup:

• If the price breaks above the 142.17
  resistance supported by a fundamental catalyst, we can expect a rally towards
  the 150.00 handle.
• If the price breaks below the 141.25
  support, we can expect a pullback all the way back to the 138.00 handle.

Today we will see the US
Jobless Claims report and tomorrow the US PMIs. Big misses should lead to more downside
for the pair as the market would price out the July hike and probably price in
some cuts. On the other hand, big beats should lead to more upside as it would
signal that the Fed may have to do more.

See also the video below:

This article was written by FL Contributors at www.forexlive.com.