Headlines:

• USD/JPY pauses for breath on the day
• Euro remains steady ahead of ECB meeting decision
• ECB meeting today to be a placeholder for July?
• Beijing’s Chaoyang district to close all entertainment venues for pandemic containment

Markets:

• JPY leads, AUD lags on the day
• European equities lower; S&P 500 futures up 0.5%
• US 10-year yields down 1 bps to 3.019%
• Gold down 0.3% to $1,846.93
• WTI crude flat at $119.76
• Bitcoin up 0.6% to $30,350

It was a quiet session as all eyes are fixed on the ECB policy meeting decision at 1145 GMT.

Major currencies didn’t show much appetite outside of the yen, which recouped back some of its staggering losses over the past week. USD/JPY fell from 134.00 to 133.20 and even with such a move, it barely feels like anything more than an ant bite to the unrelenting rally in the past two weeks.

The euro continues to keep steadier with EUR/USD little changed around 1.0720, awaiting Lagarde & co. later.

Bond yields are also little changed after a slight push higher at the start of the session, as traders are likely waiting on the ECB for clues on how to proceed before the end of the week. Meanwhile, European indices remain sluggish but US futures are pointing to a modest advance in a bit of a mixed showing in the equities space.

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

From a technical perspective, there’s not much in it in terms of EUR/USD price action at the moment. The pair looks to be caught in a bit of a consolidation phase in anticipation of the ECB meeting this week – after having seen the dollar retracement bounce stall at the 38.2 Fib retracement level at 1.0787.

Since then, there hasn’t been much direction as we also see more of a push and pull mood in the bond market and equities alike. But the ECB could be a catalyst for a move in the euro at least today, one way or another.

I mentioned here that the bar for any hawkish surprise is rather high and that will be a tough condition for the euro to bank on in order to rally. Lagarde needs to deliver clear hints of a potential 50 bps rate move in July for that to happen and I reckon we could see EUR/USD pop through 1.0800, all things being equal.

That said, with markets already pricing in ~130 bps worth of rate hikes through to year-end by the ECB, one can argue that any upside may be more limited especially if economic conditions worsen in the months ahead.

But barring any hawkish surprise, the euro might be set up for disappointment today. A drop back towards testing the lower bound of the consolidation range at 1.0627-42 will be a big test and if that gives way, we could be revisiting 1.0500 next.

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

Prior -2.3%Market index 288.4 vs 308.3 priorPurchase index 208.2 vs 224.1 priorRefinancing index 709.5 vs 751.6 prior30-year mortgage rate 5.40% vs 5.33% priorThe awful readings continue with the market index tumbling to a fresh 22-year low, suggesting that the housing market is cooling amid the rise in rates. The question now is how will all this feed into house prices, which have yet to significantly come off the boil. And if it does, what exactly does that say about the state of the US economy in general?

The euro is showing some bit part resilience on the day as it regains some ground after following other major currencies lower against the dollar earlier. It is now the best performer on the day with a focus on the ECB tomorrow. The technical picture shows a bit more of a consolidation in EUR/USD price action in the past two weeks:

Despite the dollar being firmer today, the euro is the exception as markets continue to aggressively price in ECB rate hikes. As things stand, money markets have priced in odds of 75 bps worth of rate hikes by September as compared to the 70 bps on Friday. Meanwhile, odds of a 50 bps rate hike in July is pretty much a coin flip.A lot will depend on the ECB language tomorrow to determine how aggressive or justified the market pricing currently is.I’m on the camp that markets have gone a little too far in pricing ECB hawkishness, especially considering the economic headwinds.It’s a tough one for policymakers when they are getting so little help from lawmakers in the inflation battle but rate hikes aren’t the solution. We’ve known that for a while already and so does Lagarde & co. surely.Anyway, the euro is pretty much waiting in line for a fresh catalyst to break on either side against the dollar. The ECB might offer some clues tomorrow, so keep your eyes and ears peeled for that.

GDP +5.4% vs +5.1% y/y second estimateThe upwards revision may look positive at first glance but the details are less rosy. The better-than-estimated growth in Q1 was largely driven by a rise in exports (+0.4%) and stocks (+0.6%), offsetting the drop in government expenditure (-0.1%) and household consumption (-0.3%). The material impact from the Russia-Ukraine conflict is more likely to be felt in Q2, so just be wary of that.

The dollar is keeping resilient as another push higher in USD/JPY is sparking flows into the currency today. The pair looks poised to march towards 135.00 and is up almost 120 pips today to 113.75 at the moment. The mood is helped by a rise in bond yields, with 10-year Treasury yield seen up 4 bps to 3.01%.
Elsewhere, the greenback is also posting modest gains with the sluggish risk mood seeing the aussie and kiwi punished the most.
EUR/USD is down 0.2% to 1.0675 as the push and pull continues ahead of the ECB. Meanwhile, GBP/USD as backed off the highs near 1.2600 to fall towards 1.2520 levels at the moment. The daily support levels below will be ones to watch:

That being the 38.2 Fib retracement level at 1.2471 and the 1 June low at 1.2458. Those are key levels to watch on the daily close to see if sellers have the appetite to go chasing for the next leg lower.
Besides that, AUD/USD is down another 0.6% to 0.7180 upon a rejection of its 100-day moving average:

Sellers are wrestling back for near-term control below the 200-hour moving average at 0.7194 but the minor support region around 0.7145-60 will be one to watch to see if the downside momentum will extend further.The more sluggish tones in the aussie and kiwi aren’t helped by the softer risk mood with European indices posting slight losses now with US futures also still pointing lower. S&P 500 futures are down 0.3% still at the moment.

Prior 58.2

That’s the softest reading since January as the weakest rise in residential work for two years holds back construction activity last month. Companies mentioned that rising borrowing costs and heightened economic uncertainty were all likely to act as headwinds to client demand in the next 12 months. S&P Global notes that:
„May data signalled a solid overall rise in UK construction output as resilience across the commercial and civil engineering segments helped to offset weakness in house building. Residential construction activity was close to stagnation in May, which represented its worst performance for two years amid signs of softer demand and a headwind from low consumer confidence.
„New order volumes expanded at the slowest pace since the end of 2021, which added to signs that heightened economic uncertainty has started to impact client spending. Concerns about the business outlook were signalled by a fall in construction sector growth projections to the lowest for more than one-and-a-half years in May. Around 19% of construction firms predict an outright decline in business activity during the year ahead, up from just 5% at the start of 2022.
„On a more positive note, supplier delays subsided in May, with the latest downturn in performance the least marked since February 2020. Meanwhile, rapid price pressures persisted due to rising energy, fuel and staff costs, but the overall rate of inflation eased to a threemonth low in May.“

Headlines:RBA raises cash rate by 50 bps to 0.85%A couple of early reactions to the RBA rate hike todayAussie gains after the RBA does not disappoint the hawksPoof.. Just like that and the aussie gains evaporateUSD/JPY continues ascend to fresh highs in two decadesGermany April factory orders -2.7% vs +0.3% m/m expectedEurozone June Sentix investor confidence -15.8 vs -20.0 expectedMarkets:USD leads, NZD lags on the dayEuropean equities lower; S&P 500 futures down 0.8%US 10-year yields down 1.3 bps to 3.025%Gold up 0.4% to $1,848.13WTI crude down 0.4% to $118.04Bitcoin down 6.2% to $29,494The day started off with the RBA pulling off yet another unorthodox rate hike, this time by raising the cash rate by 50 bps to 0.85% – against market expectations of either a 25 bps or 40 bps move.The aussie got a jolt higher from 0.7185 to 0.7245 on the decision as bonds continue to get slammed with yields moving higher. While yields did come off a bit as risk sentiment remains iffy, the aussie saw its gains vanish completely – and quickly for that matter.The more defensive risk tones are continuing to underpin the dollar but also the continued push higher in USD/JPY is helping with general flows, as the pair seeks to extend its technical breakout from the start of the week.The high today reached 132.99 and price action continues to hold close to the highs, with the dollar also seen gaining elsewhere across the board.EUR/USD is down 0.3% to 1.0668 while GBP/USD had a bit of a seesaw session, falling from 1.2500 to 1.2430 before climbing back to 1.2530 and then falling back to 1.2480-90 levels after running into familiar resistance.As risk is keeping on the softer side, the kiwi is the main laggard with NZD/USD slipping from 0.6490 to 0.6435 during the session with the high point coming right after the RBA rate decision.

Here’s a look at how the equities space is doing:Eurostoxx -1.1%Germany DAX -1.1%France CAC 40 -1.0%UK FTSE -0.2%S&P 500 futures -0.9%Nasdaq futures -1.1%Dow futures -0.7%That’s a bit of a retreat from the opening levels earlier in the day here. The bond selling is also hitting the pause button for now, with 10-year Treasury yields seen down to 3.02% from around 3.05% at the start of the session.But the dollar is still holding its ground with EUR/USD down slightly to 1.0670 near the lows for the day, while GBP/USD is down 0.3% to 1.2490 after a bounce from 1.2430 to 1.2530 as pointed out here. USD/JPY continues to stay perky and is up 0.7% to 132.80, staying in the hunt of a potential push towards 135.00 in the bigger picture.Meanwhile, AUD/USD is down slightly to 0.7180 after its post-RBA rally was faded quickly – falling from a high of 0.7245.

Wants to refrain from commenting on FX levelsJust the typical light jawboning by Japanese officials. The yen is still keeping on the softer side after the break to fresh highs in over two decades this week. USD/JPY is up 0.6% to 132.70 at the moment, after having briefly closed in on the 133.00 handle earlier in the day.