Barclays notes that: „Markets had reacted to slightly softer US data in May, as seen in outsized moves to PPI, CPI, and retail sales, with bonds rallying and stocks reaching new highs. This will likely trigger more rebalancing needs to sell dollars at month-end.“ Adding that „although the broad rally extended to other G10s, the large market cap in US equity markets has dominated hedging flows“ on the month. Taking that into consideration, their model „suggests this dollar-selling signal is consistent across G10s“.

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

• German economy fared better than expected in Q1
• Wage developments have been strong but we expected it to flatten

For one of the more hawkish members, the headline comment is pretty much a concession that they will cut rates in two weeks‘ time.

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

Headlines:

• Nvidia earnings boost the S&P 500. What’s next?
• Eurozone Q1 wages come in hotter than the previous quarter
• Eurozone May flash services PMI 53.3 vs 53.5 expected
• Germany May flash services PMI 53.9 vs. 53.5 expected
• France May flash services PMI 49.4 vs 51.7 expected
• UK May flash services PMI 52.9 vs 54.7 expected
• HSBC, Deutsche now expects BOE to only start cutting rates in August
• Morgan Stanley the next to revise BOE rate cut call to August from June previously
• Commodities brace for a stronger pullback after the rough showing yesterday

Markets:

• NZD leads, USD lags on the day
• European equities higher; S&P 500 futures up 0.6%
• US 10-year yields down 1.2 bps to 4.421%
• Gold down 0.4% to $2,368.01
• WTI crude up 0.8% to $78.20
• Bitcoin up 0.5% to $69,730

The dollar is lagging in trading today as the overall risk mood is propped up by Nvidia’s earnings beat after the close yesterday. US futures are pointing higher with tech shares leading the way. And that is helping to boost risk assets as well.

During the session, we also got euro area and UK PMI data. The former was a mixed bag but the sluggish French readings were offset by slightly better readings in Germany. EUR/USD fell initially to 1.0813 before finding a bounce off its 100-day moving average as well to 1.0840 levels now.

Meanwhile, the UK figures were less than ideal but GBP/USD is still seen up 0.1% to 1.2727 after a brief drop to test its 100-hour moving average at 1.2708.

Overall, the dollar is looking sluggish as the push and pull this week continues to play out. AUD/USD is up 0.2% to 0.6633 while NZD/USD is up 0.4% to 0.6121, buoyed by the better risk sentiment.

In other markets, commodities are continuing to struggle after yesterday’s rough showing. Gold is down 0.5% to $2,367 with the low earlier touching $2,355. Meanwhile, copper futures fell to a low of $4.74 earlier but is now back to $4.81 after a 6% drop yesterday – its worst showing since the pandemic.

Let’s see what the US PMI data later has to offer next.

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

The euro area PMI data was a bit mixed but at the balance, it was salvaged by the better German PMI figures. That continues to give the ECB a bit of breathing room after their impending June rate cut at least. That is helping the euro a tiny bit with the dollar also looking sluggish amid a better risk mood today.

Equities are keeping higher as the mood music is buoyed by Nvidia’s earnings beat after the close yesterday. That is helping to see the aussie and kiwi hold higher against the dollar as well.

Going back to EUR/USD, the pair fell to test its 100-day moving average (red line) after the French PMI data earlier. But since then, it has caught a bounce to trade back up to 1.0845 currently.

So, what’s next for the pair?

From a technical perspective, the pair is seeing layers of support from 1.0800-14 with the 200-day moving average (blue line) just under that as well as 1.0787. Those will be crucial in keeping any downside momentum from gathering pace for the time being.

As for the upside, there is modest daily resistance from the April high at 1.0885. And that is limiting any upside momentum for now.

So, something has to give on either side of those levels in order for the next trending leg to come by.

From a fundamental perspective though, the euro still has to figure things out on what the ECB is going to do after June. And that might take a while to sort out depending on inflation developments in the months ahead.

On the dollar side of the equation, it’s all about big data. And there is the US PMI readings to watch later at least.

That aside, it’s a tall order for traders to price in anything beyond two rate cuts for the Fed this year. That is likely to put a floor on any dollar declines until the Fed narrative changes. Currently, traders are back to pricing in ~40 bps of rate cuts for the year.

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

From before:

• Barclays no longer sees the BOE cutting rates in June
• HSBC, Deutsche now expects BOE to only start cutting rates in August

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

Fundamental
Overview

The USD has been generally
under pressure since the benign US CPI report last week as the hawkish
expectations subsided and the market switched its focus from inflation back to
growth. This triggered a positive risk sentiment which is generally negative
for the greenback.

The CAD,
on the other hand, got pressured from the weaker than expected Canadian CPI
figures which raised the chances of a rate cut in June (although it remains
basically a coinflip). If the positive risk sentiment were to continue though,
we might see the CAD gaining ground against the USD anyway.

USDCAD Technical
Analysis – Daily Timeframe

On the daily chart, we can
see that USDCAD bounced from the key support zone
around the 1.36 handle where we had the confluence
of the trendline
and the 61.8% Fibonacci retracement level and extended the rally into the 1.37 handle following the weaker
Canadian CPI report.

The
buyers will need the price to break above the 1.37 handle to start targeting
the 1.38 handle next. The sellers, on the
other hand, will want to see the price breaking below the trendline and especially
the 1.36 support to gain more conviction and increase the bearish bets into the
1.34 handle.

USDCAD Technical
Analysis – 4 hour Timeframe

On the 4 hour chart, we can
see that the sellers stepped in around the 1.37 handle where they had also the
confluence of the downward trendline and the 61.8% Fibonacci retracement level.
As previously mentioned, they will need the price to fall below the 1.36
support to increase the bearish bets into new lows.

The
buyers, on the other hand, will want to see the price breaking above the
trendline to invalidate the bearish setup and increase the bullish bets into
the 1.38 handle next.

USDCAD Technical
Analysis – 1 hour Timeframe

On the 1 hour
chart, we can see that we have a good support around the 1.3650 level where we
can find the confluence of the upward minor trendline and the 61.8% Fibonacci retracement
level.

This is where we
can expect the buyers to step in again to position for a break above the
downward trendline with a better risk to reward setup. The sellers, on the
other hand, might want to pile in on a break lower to increase the bearish bets
in expectations of a breakout to the downside.

Upcoming
Catalysts

Today we get the latest US PMIs and Jobless Claims figures.
Tomorrow, we conclude with the Canadian Retail Sales data.

This article was written by Giuseppe Dellamotta at www.forexlive.com.

Nvidia reported earnings yesterday after the close and not surprisingly it beat expectations across the board. We saw a rally in the S&P 500 futures as a result given the big weight of Nvidia on the index. The downward spike triggered by the FOMC minutes was clearly a dip-buying opportunity since there was nothing new there.

On the 1 hour chart, we can see that the S&P 500 broke out of the recent consolidation and the buyers are now stepping in around the resistance turned support. Today, we get the US PMIs and jobless claims figures which might trigger another downward spike.

In such a scenario, the dip-buyers will likely step back in around the 5306 level (unless the data is recessionary). The sellers, on the other hand, will want to see the price breaking below the 5306 level as that should open the door for a correction into the 5217 level.

This article was written by Giuseppe Dellamotta at www.forexlive.com.

Headlines:

• UK April CPI +2.3% vs +2.1% y/y expected
• Sterling gains as UK inflation slows by less than anticipated
• Traders move to pare back BOE rate cuts odds after UK CPI report
• What are the main events to look out for today?
• 10-year JGB yields touch 1% for the first time since 2013
• US MBA mortgage applications w.e. 17 May +1.9% vs +0.5% prior
• China announces countermeasures against 12 US companies and their senior executives
• ForexLive Asia-Pacific FX news wrap: NZD jumped on a more hawkish RBNZ Statement

Markets:

• NZD leads, CHF lags on the day
• European equities lower; S&P 500 futures down 0.1%
• US 10-year yields up 2.7 bps to 4.443%
• Gold down 0.3% to $2,413.92
• WTI crude down 0.6% to $78.14
• Bitcoin up 0.5% to $70,054

The highlight of the session was the UK CPI report, which came in hotter than expected. While the April readings still reflected a decline from March, it owed much to Ofgem dropping the energy price cap by 12% for UK households.

The more exasperating development for the BOE is that annual services inflation was seen at 5.9%, not much changed from 6.0% previously.

That saw traders pare back rate cut odds and effectively rules out a June rate cut. Cable rallied on the back of that in a move from 1.2710 to 1.2760 in the aftermath. Despite rate cuts odds being slashed, we are seeing sterling give back most of its earlier gains though. GBP/USD is now back down to 1.2715 as buyers fail to build on the earlier momentum surprisingly.

The dollar itself was steadier throughout the session, with yields holding higher and the risk mood in a more cautious position.

EUR/USD is down 0.2% to 1.0830 while USD/CHF is up 0.4% to 0.9145 currently. Meanwhile, USD/JPY is also seen up by 0.2% to 156.48 with eyes on last week’s high of 156.78.

Besides that, the kiwi is the lead gainer on the day but NZD/USD has given back a chunk of those gains after a more hawkish RBNZ. The pair is up 0.4% to 0.6115 but is down from a high of 0.6150 earlier.

In other markets, equities remain cautious with European indices down again and US futures also lower. The mood is soured slightly by the UK CPI report but we have Nvidia earnings to focus on after the close later today.

In the commodities space, gold is lower in a push to $2,413 while copper is also seeing its upside momentum wane in a drop back under $5 per pound.

It is on to the Fed minutes next.

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

• Prior +0.5%
• Market index 201.9 vs 198.1 prior
• Purchase index 140.0 vs 141.7 prior
• Refinance index 536.9 v 499.9 prior
• 30-year mortgage rate 7.01% vs 7.08% prior

Mortgage applications moved up in the past week but owed to a jump in refinancing activity. That is slightly offset by a drop in purchases activity, even as the average rate of the most popular US home loan eased further to near 7%.

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

Fundamental
Overview

The USD has been
generally under pressure since the benign US CPI report last week as the
hawkish expectations subsided and the market switched its focus from inflation
back to growth. This triggered a positive risk sentiment which is generally
negative for the greenback and benefited the other major currencies.

The NZD, on the
other hand, got a boost today from a hawkish RBNZ
decision where the central bank pushed further out the timing for a rate
cut and even added that they considered a rate hike. The currency should remain
supported amid the positive risk sentiment and a hawkish RBNZ for the time
being.

NZDUSD Technical
Analysis – Daily Timeframe

On the daily
chart, we can see that NZDUSD broke above the trendline recently following the US CPI report and consolidated
around the highs. This has opened the door for a rally into the 0.6217 swing
level and should give the buyers more conviction especially after the hawkish
RBNZ decision.

NZDUSD Technical
Analysis – 4 hour Timeframe

On the 4 hour
chart, we can see that from a risk management perspective, the buyers will have
a good risk to reward setup around the upward trendline where they will also
find the 50% Fibonacci
retracement
level for confluence. The sellers, on the other hand, will want to see the
price breaking lower to invalidate the bullish setup and position for a drop
into the 0.60 handle.

NZDUSD
Technical Analysis – 1 hour Timeframe

On the 1 hour
chart, we can see that we’ve been stuck in a range between the 0.6095 support and 0.6140 resistance. Another breakout to the upside
should see the buyers piling in more aggressively to extend the rally into the
0.6217 level although it’s unlikely that we will see it today as we have the
upper limit of the average daily
range right at the
resistance.

The FOMC Minutes or the US PMIs might boost the USD in the short term and provide a dip-buying opportunity as long as there are no worrying inflationary comments in the PMIs.

Upcoming
Catalysts

Today we have the FOMC Minutes late in the day although it’s
unlikely to be market moving. Tomorrow, we will get the New Zealand Q1 Retail
Sales, the US PMIs and the latest US Jobless Claims figures.

This article was written by Giuseppe Dellamotta at www.forexlive.com.