MUFG maintains a long EUR/USD position to its TOTW portfolio (spot ref:
1.0920), with a target at 1.1320, and a stop at 1.0620. MUFG also
maintains a long AUD/NZD position targeting a move towards 1.1200, with a
stop at 1.0700.

„We are maintaining a long EUR/USD trade idea. The pair retested the top
of this year’s trading range between 1.0500 and 1.1000, and we expect
the pair to move closer to the year to date high from April at just
below the 1.1100-level,“ MUFG notes.

„We are maintaining our long AUD/NZD trade idea to reflect expectations
for narrowing policy divergence between the RBA and RBNZ,“ MUFG adds.

MUFG sees three reasons why sustained strength in the USD is unlikely.

1. Rebounding USD: The US dollar has rebounded and has been stronger against most G10 currencies over the week following a
   previous week of weakness. MUFG suggests that this pattern of alternating between strength and weakness could continue.
2. Tightening Cycles Uncertainty: The market has arrived at a stage in the
   tightening cycles where it’s harder to determine how much further
   tightening is necessary. This means that both central banks and markets
   will become more sensitive to incoming economic data. For example, the
   sharp depreciation of the EUR today was due to weak PMI data.
3. Potential Weakening of USD: MUFG maintains that there is a likelihood
   that the Federal Open Market Committee (FOMC) will continue with its
   pause in tightening, and if this happens, it could weaken the US dollar.
   However, this assumes that there is no significant decline in growth
   outside of the US. In other words, if upcoming US economic data supports
   the notion of the FOMC extending its pause in tightening policy, gains
   in the US dollar could be reversed.

In summary, MUFG suggests that the US dollar’s strength may not be
sustained in the longer term due to the uncertainty surrounding
tightening cycles and the sensitivity to economic data. They believe
that if the FOMC continues to pause its tightening, and if the economic
data supports this stance, it could result in a weakening of the US
dollar.

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This article was written by Adam Button at www.forexlive.com.

Worries about the global economy continue to weigh on oil. Crude fell as low as $67.35 today in a test of the post-Saudi cut lows but the bulls made a stand it rebounded to close only modestly lower.

Still, it was the second day of selling third weekly decline in the past four weeks. A larger theme that weighed this week was increasing evidence that Iran’s exports are getting to market.

The idea that Iran is exporting much more than believed, and possibly near full capacity, helps to explain how global oil markets are much looser than they appear. If there’s any silver lining in that for the bulls, it means that there’s less spare capacity to come online if/when an Iran deal is ever reached. Also, should Trump be re-elected, the US could also return to a harder line on Iran and take some of that oil out of the market.

The key going forward is inventory drawdowns. The US SPR selling finally ends this month with no more scheduled until 2026. Combine that with summer driving season and Saudi cuts starting July 1 and the market will be in deficit in H2. But that deficit is long anticipated so it’s not clear that it’s going to move the needle. I suspect we would have to see some large US draws, along with aggressive China

stimulus to turn the tide.

This article was written by Adam Button at www.forexlive.com.

Last week the Fed opted to pause
its tightening cycle, maintaining interest rates at 5.00-5.25%. The decision
was driven by their intention to accumulate additional economic data before
making further determinations regarding rate hikes. Their goal is to find the
optimal level of policy restraint that can effectively bring inflation down to
their target of 2% without triggering a severe recession.

Up until now, the economic
data in the United States has been encouraging, particularly within the housing
sector. Since the Federal Reserve initiated the process of scaling back its
rate hikes in December 2022, the housing market has exhibited significant
strength. It is possible that this robust performance has contributed to the
recent strength seen in the USD.

NZDUSD Technical Analysis –
Daily Timeframe

On the daily chart, we can see that NZDUSD couldn’t
sustain the breakout above the 0.6182 resistance and
pulled back. The price should now find some support at the red 21 moving average where
the buyers should position for another extension to the upside.

NZDUSD Technical Analysis – 4 hour Timeframe

On the 4 hour chart, we can see that besides the
daily 21 moving average we also have a previous swing high resistance at 0.61
and the 50% Fibonacci retracement level.
The buyers should lean on this support zone with a defined risk below 0.6084
and target the 0.63 handle. The sellers, on the other hand, may want to wait
for the price to break below the 0.6084 to pile in and extend the fall into the
0.5987.

NZDUSD Technical Analysis –
1 hour Timeframe

On the 1 hour chart, we can see that the
sellers can also lean on the trendline for
more shorts where they can also find the red 21 moving average for confluence. The
buyers, on the other hand, may wait for the price to break above the trendline
to pile in and target more higher highs.

Today
we will see the US PMIs and we can expect more downside for the pair if the
data surprises to the upside as the market would price more hikes, conversely
if the data misses expectations we may see more upside as the market would price
in less hikes.

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

Headlines:

• France June flash services PMI 48.0 vs 52.0 expected
• Germany June flash services PMI 54.1 vs 56.2 expected
• Eurozone June flash services PMI 52.4 vs 54.5 expected
• UK June flash services PMI 53.7 vs 54.8 expected
• ECB’s de Cos: We will hike rates again in July, not possible to say what comes after that
• Japan finance minister says firmly watching FX moves
• UK May retail sales +0.3% vs -0.2% m/m expected

Markets:

• USD leads, AUD lags on the day
• European equities lower; S&P 500 futures down 0.4%
• US 10-year yields down 6.2 bps to 3.736%
• Gold up 0.3% to $1,918.66
• WTI crude down 1.4% to $68.53
• Bitcoin down 0.3% to $30,079

The risk mood in markets was already leaning towards the softer side earlier today but the sentiment worsened after a rather disappointing set of PMI data from Europe.

In particular, there was a stark drop in French services activity and that alongside softer numbers in Germany is leading the euro area economy to stagnation towards the end of Q2.

The miss on estimates has reignited recession fears in the region and we saw yields fall as a result, with traders getting a little less certain about a September rate hike by the ECB.

EUR/USD fell from 1.0920 to a low of 1.0845 as sellers take charge, with the pair now down 0.8% on the day at around 1.0870. USD/JPY was also briefly dragged down by lower yields to 142.80 but has bounced back to 143.20 as the dollar holds firmer across the board.

Commodity currencies remain the laggard though as risk aversion takes hold with European equities and US futures keeping lower, alongside the bid in bonds after the PMI data.

USD/CAD is up 0.4% to retest the 1.3200 mark while AUD/USD is keeping 1% down on the day at around 0.6690, not much changed after the drop in Asia trading.

It’s now over to Wall Street to see if the risk-off wave will continue or if tech shares can pull off another bounce to wrap up the week.

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

• Core inflation is more resistant than expected
• We still have ground to cover
• We will raise interest rates again in July
• Not possible to say what we will do afterwards

They have pretty much pre-committed to a rate hike already next month, so there’s no backing down from that. But the PMI data today will certainly increase the debate about a September rate hike, especially if the trend continues into the summer.

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

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The UF AWARDS APAC 2023 organiser, Ultimate Fintech, would like to thank all participants and congratulate the deserving winners.

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

Last week, the FOMC made
the decision to pause its tightening cycle, keeping rates steady at 5.00-5.25%.
The rationale behind this choice is their desire to gather more economic data
before making further decisions regarding rate hikes. They are striving to
identify the optimal level of policy restraint that can effectively bring
inflation down to their 2% target without triggering a severe recession.

Thus far, the economic data
in the United States has been positive, especially in the housing sector, which
has exhibited considerable strength since the Fed began scaling back its rate
hikes back in December 2022. This may have contributed to some USD strength
seen lately.

AUDUSD Technical Analysis –
Daily Timeframe

On the daily chart, we can see that AUDUSD has
broke out above the key 0.6781 resistance but got smacked
back down from the resistance at the 0.69 handle. The price has now fell into
the red 21 moving average where we
should find some support and the buyers trying to position for another rally.

AUDUSD Technical Analysis –
4 hour Timeframe

On the 4 hour chart, we can see that since breaking
out of the rising channel, AUDUSD just kept on selling off. The moving averages
have crossed to the downside indicating a downtrend on this timeframe and with
the latest lower low we also have a downward trendline. The
sellers should wait for the price to pull back into the trendline to position
for more shorts, while the buyers may want to wait for the price to break above
the trendline to pile in and target a new high.

AUDUSD Technical Analysis –
1 hour Timeframe

On the 1 hour chart, we can see more
closely the possible trading setup for the sellers. In fact, at the 0.6741
level we can find a resistance zone from a previous swing low level, the 50% Fibonacci
retracement level and the trendline. The sellers
should lean on this zone with a defined risk above the trendline and target the
0.6563 support. The buyers, on the other hand, don’t have much to lean on to at
the moment, so the best thing they can do is to wait for the price to break
above the trendline to position for more upside.

Today
we have the US PMIs and it’s likely that we’ll see some USD weakness if the
data misses expectations as the market would price out the July hike, and USD
strength in case the data beats forecasts due to a more hawkish pricing
afterwards.

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

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.