Headlines:

• Euro holds steady ahead of the ECB later
• USD/JPY extends gains to 1% to highest levels since November last year
• Eurozone April trade balance -€11.7 billion vs €25.6 billion prior
• France May final CPI +5.1% vs +5.1% y/y prelim
• Switzerland May producer and import prices -0.3% vs +0.2% m/m prior
• North Korea has fired what could be a ballistic missile – Japan defence ministry

Markets:

• AUD leads, JPY lags on the day
• European equities lower; S&P 500 futures down 0.3%
• US 10-year yields up 3.1 bps to 3.829%
• Gold down 0.7% to $1,929.74
• WTI crude up 1.1% to $69.19
• Bitcoin flat at $24,925

Markets are still digesting the Fed policy decision yesterday, and I shared some thoughts on that earlier here.

It was a rather tentative session in Europe, as regional markets are also gearing up for the ECB meeting outcome later today. The central bank is surely going to hike rates by 25 bps but it will be interesting to see if they will pre-commit to another rate hike in July, which they had been talking up in recent weeks.

The dollar is mostly steady, with the help of a big jump higher in USD/JPY during Asia trading. The pair ran up from a low of 139.95 all the way above 141.00 and pushed to a high of 141.50 in European morning trade.

There weren’t much news driving the move but the technicals are your best bet in trying to read into the situation.

Besides that, the dollar is mostly little changed against the rest of the major currencies bloc. EUR/USD is largely hanging around 1.0820-30 levels, being little changed on the day currently.

The kiwi is the only exception with NZD/USD down 0.7% to 0.6163 amid a more cautious risk mood and also a further weakening in the Chinese yuan. The aussie is able to stay more resilient after a hot jobs report, which prompted traders to think about a RBA rate hike in July.

Elsewhere, gold is under pressure in the aftermath of the Fed decision and looks poised to break below its 100-day moving average at long last in a potential fall towards $1,900 next.

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

The Federal Reserve yesterday surprised the market by
maintaining interest rates at 5.00-5.25% but revising the projected terminal
rate in the Dot Plot by adding 50 basis points. The Fed’s decision to pause at
this meeting was aimed at gathering more economic data before considering
another potential rate hike in July. This approach is supported by the weaker
details in the latest NFP report and further disinflation in the latest CPI report, although the core readings remain
persistently high.

During the press conference,
Fed Chair Powell mentioned that the July meeting is „live,“ although
he did not make any firm commitments. The USDJPY rallied on a more hawkish Fed.
Overall, this demonstrates the Fed’s readiness to take additional steps to
address inflation, while emphasizing that their actions will depend on the
economic data.

USDJPY Technical Analysis –
Daily Timeframe

On the daily chart, we can see that USDJPY broke
out of the blue box and extended the rally towards the 142 level. The buyers
kept leaning on the red 21 moving average in the
past days and eventually succeeded as the Fed delivered a more hawkish than
expected decision. The 142.17 resistance will be
key as a break above it would open the door for a bigger rally into the 150
level. The sellers are likely to defend the resistance and position for a
bigger pullback into the upward trendline.

USDJPY Technical Analysis –
4 hour Timeframe

On the 4 hour chart, we can see that the USDJPY
rally keeps diverging with the
MACD right
when it’s coming near the 142 resistance. This is generally a sign of weakening
momentum often followed by pullbacks or reversals. The next move will be most
likely decided by today’s economic data, but on the technical side the sellers
will be looking to short at the 142 resistance, while the buyers will want to
long at a pullback into the 140.38 support.

USDJPY Technical Analysis –
1 hour Timeframe

On the 1 hour chart, we can see more
closely yesterday’s breakout and the subsequent rally. From a risk management
perspective, the buyers should wait for a pullback into the support turned
resistance at 140.38 where they can enter with a
better risk to reward ratio and target the 142 resistance. The sellers, on the
other hand, will either wait to enter at the 142 resistance or pile in more
aggressively if the price falls below the 140.38 support.

Today,
we will see the US Jobless Claims and Retail Sales reports. Tomorrow, the focus
will shift to the University of Michigan Consumer Sentiment survey. Another big
miss in Jobless Claims could potentially raise the market concerns on the
labour market, leading to a more dovish rates pricing that should send Treasury
yields lower and the USDJPY with it.

Conversely, if the data beats expectations,
it should keep the tight labour market view and thus lift Treasury yields and
the USDJPY pair. Additionally, the market will be interested in in the decrease
in long-term inflation expectations in tomorrow’s UMich report. A higher
reading could suggest a potential de-anchoring of inflation expectations going
on, which may raise concerns and lead to a more hawkish pricing.

This article was written by ForexLive at www.forexlive.com.

The missile is reported to be fired towards the East Sea, according to the South Korean military. This is quite a common event by now but still should never be taken lightly. For geographical context:

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

This follows from Goldman Sachs‘ call earlier this week here:

• Goldman Sachs slashed its December Brent forecast to $86 /bbl (from previous estimate $95)

As a reminder, oil prices took a hit after Goldman’s revised forecast, with WTI crude hitting a low of $66.85 earlier this week before rebounding off its 200-week moving average to just above $70 at the moment.

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

• Prior -1.4%
• Market index 208.8 vs 194.7 prior
• Purchase index 163.2 vs 151.7 prior
• Refinance index 434.1 vs 409.7 prior
• 30-year mortgage rate 6.77% vs 6.81%

That’s a solid bump up in mortgage applications in the past week but it comes after several weeks of rather subdued activity. Both purchases and refinancing activity improved as rates come down just ever so slightly ahead of the Fed decision this week.

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

Here’s a look at how the curve in Fed funds futures have changed since a month ago and at the start of this month:

It may seem like an eternity but it was just four weeks ago that traders were still convinced of three rate cuts by the Fed before year-end.

That pricing was ultimately reversed and it helped to spur a dollar rally in May. And earlier this month, there was still some consideration about a rate hike for June but after since talks of a „skip“ came about, we have seen that settle to where we are now.

But looking out to the end of the year, traders are quite convinced of a higher for longer narrative by the Fed.

And as policymakers are set to keep rates unchanged today, it will be a question of whether or not they can convince markets that the narrative has not changed.

If the Fed chooses to „skip“ this meeting, everyone is anticipating a hawkish pause of sorts. However, how will that look like?

For one, Powell surely cannot pre-commit to a rate hike in July. As usual, I would expect him to stress on data dependence but at the same time reaffirm that the Fed’s job is not done yet. So, if traders are hoping to get confirmation that this is just indeed a „skip“ and not a „pause“, they may end up being disappointed.

That’s a big downside risk for the dollar and it will be a key consideration for risk assets and bonds later in the day.

Besides that, there’s also the focus on the dot plots and economic projections. If that reaffirms a more hawkish narrative, what should markets focus on in the aftermath? Powell’s remarks/guidance or the overall outlook among Fed members?

Seeing as how markets have set up for the Fed to stick with a higher for longer narrative, I fear that the risk is skewed towards a disappointment. But as we saw with the US CPI data yesterday, the reaction may not be too straightforward.

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

Since the rumours of
China’s reopening emerged in November 2022, Copper experienced a notable surge.
The market anticipated a surge in demand for the metal, considering China’s
position as the largest global importer and consumer of copper. However, these
expectations started to diminish due to persistent disappointments in China’s recovery
data, leading to a decline in copper imports during the first quarter of 2023.
Moreover, the contraction of Manufacturing PMIs worldwide indicated a global
manufacturing slump.

Consequently, the
„China reopening trade“ reversed, and copper returned to the levels
observed in November 2022. However, there has been a recent rebound in copper
prices driven by more positive news from China and speculation regarding
potential economic stimulus measures. This speculation arises from the
declining inflation in China, which poses a threat of transitioning into
deflation. In response, the People’s Bank of China (PBOC) has already
implemented some rate cuts, and expectations are growing for
further cuts in the MLF (medium-term lending facility) and LPR (loan prime
rate) in the coming days.

Copper Technical Analysis –
Daily Timeframe

On the daily chart, we can see that copper’s rally
has stalled at the key 3.8245 resistance level.
The bearish trend has recently turned bullish after the price bounced from the
major upward trendline and the
3.5475 support. In fact, the moving averages have
crossed to the upside and we may be about to see a breakout to the upside as
China is trying to bolster demand with more expansionary monetary policy.

Copper Technical Analysis –
4 hour Timeframe

On the 4 hour chart, we can see that the price has
been diverging with the
MACD coming
into the 3.8245 resistance. This is generally a sign of weakening momentum
often followed by pullbacks or reversals. If the price breaks below the lower
bound of the channel, we should see the price falling back to the base of the
channel at 3.6955. A strong breakout to the upside would invalidate the bearish
setup though and lead to a rally towards the 4.000 level.

Copper Technical Analysis –
1 hour Timeframe

On the 1 hour chart, we can see that from
a risk management perspective, the best place for the buyers to enter the
market would be the lower bound of the channel so they can have a better risk
to reward setup. The sellers, on the other hand, can either lean on this
resistance area targeting a bigger move to the downside or wait for the price
to break the lower bound of the channel to pile in and target the 3.6955 level
first and eventually the 3.5475 support.

This article was written by ForexLive at www.forexlive.com.

The recent NFP report presented a mixed picture. While the headline
number exceeded expectations, there was also a notable increase in unemployment
and a decline in average weekly hours. These less favourable details led to a
weakening of the USD as the market began to reassess its hawkish expectations
and adopt a more cautious stance. The ISM Services PMI added to the subdued sentiment,
falling short of expectations, particularly in the prices paid sub-index, which
sparked hopes of a potential decline in core inflation.

Shifting focus to jobless claims, there was a significant deviation
from the expected number. However, seasonal adjustments were cited as the
likely culprit. On a positive note, continuing claims demonstrated further
improvement, suggesting that individuals are finding new employment relatively
quickly after experiencing a period of unemployment.

Overall, the previously hawkish
sentiment observed in May has started to fade, as evident from the recent
change in the outlook of Federal Reserve members. They have expressed a
preference for a cautious approach and avoiding significant actions during the
upcoming FOMC meeting. The latest set of data supports their concerns and
justifies their restrained approach but as we have seen yesterday with the US CPI report, core inflation remains stubbornly
high, and the month-over-month rate is stuck at 0.4%.

USDCHF Technical Analysis –
Daily Timeframe

On the daily chart, we can see that the rally in
USDCHF has stalled at a key resistance level at
the 0.91 handle. The moving averages are
still crossed to the upside indicating a bullish bias, but they are on the
verge of a crossover as the price keeps ranging. This may turn into a bullish flag
consolidation if the price confirms it breaking above the 0.91 resistance. The
target for the buyers will be the 0.94 handle. This will depend on the next set
of economic data. If they are strong, the USD is likely to rally, but if they
are weak the USD should weaken even more.

USDCHF Technical Analysis –
4 hour Timeframe

On the 4 hour chart, we can see that the price has
recently broke out of the upward trendline that
acted as a strong support in the past month. The strong move after the break
was also helped by hawkish comments from the SNB’s Governor Jordan.
Technically, the price has made a new lower low in that case, so the structure
on this timeframe turned bearish, but we will need a confirmation from the data
to start seeing more follow through and the USDCHF pair falling into the 0.8858
support.

USDCHF Technical Analysis –
1 hour Timeframe

On the 1 hour chart, we can see that we
have two levels to watch: the 0.9073 high and the 0.9032 low. We are likely to
range here trading into the FOMC rate decision and we might even see some
spikes that could lead to fakeouts once the Fed event gets underway, but a
break on either side should show what is the prevailing sentiment. A break to
the upside should take the USDCHF pair to the 0.91 resistance, while a break to
the downside should result in a move towards the 0.8980 low.

Today we have the FOMC rate decision to watch and in
the next days the highlights are the US Jobless Claims report on Thursday and
the University of Michigan consumer sentiment survey on Friday. Beware that the
last time the consumer sentiment survey impacted the market heavily as long
term inflation expectations showed a big jump to the upside, so another
increase may give the USD a boost while a big miss should weaken it.

This article was written by ForexLive at www.forexlive.com.

Headlines:

• Dollar under pressure as US CPI data looms
• Sterling gets a lift as UK jobs report vindicates another BOE rate hike
• UK May payrolls change 23k vs -135k prior
• BOE appointee Greene: It is reasonable to expect inflation to come down fairly quickly
• China reportedly considering broad stimulus package to bolster economic support
• OPEC maintains demand outlook for the year but warns on economic risks
• Germany June ZEW current conditions -56.5 vs -40.0 expected
• Germany May final CPI +6.1% vs +6.1% y/y prelim
• Spain May final CPI +3.2% vs +3.2% y/y prelim
• US May NFIB small business optimism index 89.4 vs 89.0 prior

Markets:

• GBP leads, USD lags on the day
• European equities mixed; S&P 500 futures up 0.1%
• US 10-year yields down 4.1 bps to 3.724%
• Gold up 0.4% to $1,964.37
• WTI crude up 1.8% to $68.32
• Bitcoin up 0.8% to $26,085

European trading today served more or less as a placeholder ahead of the US CPI data to come later.

The dollar dropped in the build up to the main event as markets seem to be leaning towards a softer report later in the day. EUR/USD briefly clipped the 1.0800 mark and is keeping just below its 100-day moving average of 1.0805 for now. USD/JPY is little changed though around 139.40-50 levels, despite lower Treasury yields.

The pound was a notable gainer after the UK labour market report showed a fall in the jobless rate while wages continue to run hot. That saw GBP/USD push up from 1.2530 to 1.2565 and is now keeping at the highs around 1.2575.

That saw money markets price in an additional rate hike as well for the BOE, with the terminal rate now seen at 5.75%.

Besides that, commodity currencies are also seeing a decent advance with USD/CAD down 0.2% to 1.3345 after rising yesterday on a plunge in oil prices. The key trendline support around 1.3336 is still the big technical level to watch for now.

Then, we have AUD/USD up 0.4% to 0.6780 as buyers are nearing a test of the April and May highs near 0.6800.

Equities were firmer earlier to start the session but have given back nearly all of its gains as traders appear to be squaring positions ahead of the key risk event in around 30 minutes‘ time.

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

Considering the recent hot CPI report and this
morning’s incredibly strong Employment report with
high wage growth, it is anticipated that the Bank of England (BoE) will
continue to raise interest rates in order to address one of the highest
inflation rates among the major economies. On the other hand, the Bank of Japan
(BoJ) is expected to maintain its accommodative monetary policy this week,
which has played a role in the significant depreciation of the Japanese Yen
(JPY) over the past two years.

This divergence in monetary policies has led to a
strong upward movement in the GBPJPY pair. It appears that only concerns about
a potential global economic downturn can cause the pair to decline, otherwise
the BoJ will need to switch to a hawkish stance to defend the JPY depreciation.

GBPJPY Technical Analysis –
Daily Timeframe

On the daily chart, we can see that the buyers keep
leaning on the moving averages to
position for more upside on the GBPJPY pair. The recent hot inflation data from
the UK and the high wage growth should keep the BoE on track to increase
interest rates.

GBPJPY Technical Analysis –
4 hour Timeframe

On the 4 hour chart, we can see that we have a big divergence with the
MACD going on,
which is generally a sign of weakening momentum often followed by pullbacks or
reversals. In this case, we only got some shallow pullbacks, and a reversal is
unlikely to occur at least until we get a fundamental catalyst that points to a
recession or the BoJ becomes hawkish.

GBPJPY Technical Analysis –
1 hour Timeframe

On the 1 hour chart, we can see that the
price has recently bounced from a support near
the 174.50 level where we had also the 38.2% Fibonacci
retracement level for confluence. The
big spike today is because of the strong employment report and unless we get
bad US CPI data today, we should keep seeing the GBPJPY pair rallying.

This article was written by ForexLive at www.forexlive.com.