Headlines:

• A mostly sideways session in European morning trade
• How’s the Fed outlook shaping up to be right now?
• PBOC governor says expects inflation to gradually rebound in 2H this year
• French finance minister says gotten pledge from manufacturers to lower prices
• Japan PM Kishida to hold press conference on 13 June

Markets:

• NZD leads, JPY lags on the day
• European equities lower; S&P 500 futures flat
• US 10-year yields up 3.7 bps to 3.751%
• Gold down 0.1% to $1,965.53
• WTI crude up 0.3% to $71.50
• Bitcoin down 0.2% to $26,590

It’s just one of those days where markets decided to take a bit of a breather, as we start to turn the page to next week’s main events.

There wasn’t any real conviction in the market moves today as trading appetite is sapped considering that there are no more major economic releases before the weekend. We do still have the Canadian jobs report to come later but that isn’t one to reverberate to broader market sentiment.

The dollar is largely steady but trading more mixed on the day with gains against the euro, yen and franc but now slightly lagging against the commodity currencies. USD/JPY in particular is just swinging around 139.40-60 mostly with large expiries sandwiching price action at 139.00 and 140.00 today.

In the equities space, the mood remains rather subdued with US futures keeping little changed mostly and European indices tracking just slightly lower now in the last hour after a relatively sideways session.

We’ll see what Wall Street has to offer later but there doesn’t seem to be much conviction across the board for now. However, that might still change up before the weekend. That being said, next week’s US CPI and Fed decision will still be the make or break moment for markets moving forward.

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

Here’s a look at the changes in the Fed funds futures curve over the last one week and compared to a month ago:

After the US jobs report on Friday last week, traders moved in to further price a higher for longer narrative by the Fed and that hasn’t changed by much even after yesterday’s weekly jobless claims data.

And when you compare to a month ago when traders were pricing in three rate cuts by year-end, it’s been a dramatic shift in the outlook as the Fed succeeded in getting their message through.

It all comes down to what the next message will be from Powell & co. as they make their decision next week. If they keep rates unchanged i.e. pause, I would expect it to be a hawkish one (or at least an attempt to be) as they are likely to talk up chances that they could only be „skipping“ a meeting before raising rates again.

However, we know how easily markets can waver and all it will take is just one misworded communication and the dovish floodgates will open.

But if the Fed does decide to raise rates by another 25 bps, that will certainly mean more pain for risk assets and there will be significant repricing across broader markets. In turn, expect that to spur a strong rally in the dollar unless the Fed explicitly says that this would be their final rate hike and that they will pause to reassess moving forward.

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

Last Friday’s release of
the NFP report once again exceeded expectations,
maintaining its impressive streak of positive results for 14 consecutive instances.
However, upon closer examination, the report unveiled less favourable findings.
The unemployment rate saw a significant jump from 3.4% to 3.7%, representing
the largest month-over-month increase since the pandemic began. Additionally,
there was a slight reduction in average workweek hours, a potential indicator
of impending layoffs by employers. Overall, the report presented a combination
of data that could be interpreted differently by different participants.

Shifting our attention to
the US ISM Services PMI, it reported a considerably lower
figure of 50.3, falling short of expectations and narrowly missing the threshold
for contractionary territory. The employment sub-index indicated contraction,
and the prices paid sub-index experienced a substantial decline, returning to
levels last observed in May 2020. Consequently, the market reacted by further
reducing the likelihood of the Federal Reserve implementing additional interest
rate hikes.

The recent surprising BoC rate hike boosted the CAD and the big miss in
US Jobless Claims yesterday weakened further the USD
as the market is getting increasingly comfortable with the idea that the Fed
may be nearing the end of the tightening cycle even if it leaves a door open
for another hike.

USDCAD Technical Analysis –
Daily Timeframe

On the daily chart, the USDCAD eventually broke
below the 1.34 support and
extended the selloff as the BoC delivered the rate hike. The price is now near
the 1.3300 handle, and we started to see some consolidation as the market is
looking forward to the next week’s CPI report and FOMC meeting. We
might see a bounce or just a rangebound price action until then, so it would be
better to just wait until those risk events are out of the way and we get a
clearer picture.

USDCAD Technical Analysis –
4 hour Timeframe

On the 4 hour chart, we can see that USDCAD ranged
a bit at the 1.34 handle and then broke out as the sellers leant on the red 21 moving average and
pushed the price lower trading into the BoC meeting. We are now seeing some
weakening momentum falling right into the 1.33 handle as depicted by the divergence with the
MACD. That’s
generally a signal of an imminent pullback or reversal, so we may see some
profit taking at the 1.33 level, if the price gets there, as traders may want
to take out some risk before the next week’s events.

USDCAD Technical Analysis –
1 hour Timeframe

On the 1 hour chart, we can see more
clearly the recent breakout of the box at the 1.34 handle. The USDCAD hasn’t done
much since the BoC rate hike and the big miss in US Jobless Claims. This should
be a clear sign that the market is awaiting the CPI and the FOMC before getting
the conviction for the next direction. The levels to watch are of course the
1.33 support and the 1.34 resistance. A break to the upside, may take us to the
1.3553 resistance again, while a break to the downside should result in a test
of the key 1.3225 level first and possibly a breakout afterwards.

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

Major currencies are almost no different from the earlier snapshot here. EUR/USD is down slightly by 0.2% to 1.0760 but keeping within a 25 pips range only for the day. Meanwhile, USD/JPY is up 0.5% to 139.60 but again the pair is rather confined in between large option expiries between 139.00 and 140.00 currently. Besides that, there is a rather subdued mood everywhere else.

It’s a bit lifeless in equities space as well with US futures little changed near flat levels while European indices are also barely showing any change after the opening two hours. Here’s a look at how they are doing:

• Eurostoxx +0.1%
• Germany DAX flat
• France CAC 40 +0.1%
• UK FTSE +0.1%
• S&P 500 futures flat
• Nasdaq futures +0.1%
• Dow futures -0.1%

Talk about a snoozefest, eh? Meanwhile, bond yields are holding higher at least with 10-year Treasury yields up 3.3 bps to 3.747%. However, that just eats slightly into the over 7 bps drop yesterday after traders reacted to the US weekly initial jobless claims data.

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

It’s been yet another lackadaisical session mostly and while there is some dollar softness, it isn’t anything that stands out when put into context of the moves since Friday last week. Trading sentiment this week has been mired by a general sense of waiting and wondering, as market players are without any big data or Fedspeak to work with.

If not for the surprises by the RBA and BOC, it would’ve been an even more arduous wait and fewer moves in markets in general.

As things stand, Fed funds futures are pricing in 69% odds that Powell & co. will not hike rates next week. The other 31% are for a 25 bps move. Even though that feels like markets are favouring the former outcome, it must be said this is about as close to a coin flip as you can get on Fed odds.

Historically, policymakers have been clear on what they will do next for the most part. It was only in recent months, that we saw markets being unsure of whether the Fed will hike more aggressively or less aggressively. But this will be the first in this cycle in which the debate is between leaving rates unchanged and to hike rates once more.

The optics is going to be rather important, whatever the Fed may decide. A move to the sidelines means there is a chance that the Fed may be done. Meanwhile, hiking again suggests that they could pause at the next meeting but that’s no guarantee – similar to what we’re seeing now.

In any case, markets will only have a day to firm up their convictions ahead of the main event next week. Because whatever you might be thinking now, it will all change once we get to the US CPI data on Tuesday.

If there are further signs of inflation slowing down significantly, that will be a major boost for those expecting the Fed to „skip“ a meeting. It will also be a rather big boon for risk assets, all things being equal.

On the flip side, if inflation pressures are still rather persistent, there might be some angst and anxiety in markets as they prepare for another potential rate hike by the Fed.

In terms of Fed communication, it was a bit of a late message from the likes of Jefferson and Harker to call to „skip“ a rate hike at the June meeting. It was right before the blackout period and there were no other speakers on the agenda, leaving markets unsure if this was indeed a coordinated message from the central bank or just personal opinion.

The fact that markets can’t really make up their minds when looking at the odds in Fed funds futures, tells us that they are going to leave it up to fate the US CPI data next week before placing more heavy bets.

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

The most recent NFP report, released last Friday, once again
outperformed expectations, extending its impressive winning streak to 14. However,
upon closer analysis, the report revealed some less favourable details. The
unemployment rate experienced a significant increase from 3.4% to 3.7%, marking
the largest month-over-month jump since the pandemic began. Additionally, there
was a slight decline in the average workweek hours, which could indicate
potential layoffs being considered by employers. Overall, the report provided a
mix of information that could be interpreted differently by individuals.

Shifting focus to the US ISM Services PMI, it came in considerably lower than
anticipated at 50.3, narrowly missing the threshold for contractionary
territory. The employment sub-index indicated a contraction, while the prices
paid sub-index saw a substantial decrease, returning to levels last observed in
May 2020. As a result, the market responded by further reducing the likelihood
of additional interest rate hikes by the Federal Reserve (Fed).

Furthermore, the recent
surprising rate hikes by the RBA and the BoC may have influenced risk
sentiment, leading to concerns that the Fed might follow suit. However, it is
unlikely given that the Fed typically aligns its actions with market pricing,
and we should also take into account that the CPI report has not yet been
released.

GBPUSD Technical Analysis –
Daily Timeframe

On the daily chart, the GBPUSD is trading again
within the range between the 1.2340 support and
1.2530 resistance. Just a week ago it looked like the pair was topping out as
we also had the Head and Shoulders pattern
as an extra bearish signal, but now that the moving averages are on
the verge of another crossover to the upside, the bias is murkier. Maybe this
was just a bigger and more complex pullback.

GBPUSD Technical Analysis –
4 hour Timeframe

On the 4 hour chart, the levels to watch are of
course the resistance and support of the range. Given the uncertainty in the
markets, it may be better to wait for a breakout supported by a fundamental
catalyst. The buyers, should pile in if the price breaks above the 1.2550
level, while the sellers should jump onboard in case the price breaks below the
1.2300 handle.

GBPUSD Technical Analysis –
1 hour Timeframe

On the 1 hour chart, we can see the short
term price action within the range and we can notice that there isn’t much to
glean from this chart as support and resistance levels are confusing as they
generally are in rangebound markets. There’s just a possible trendline where
the price may bounce off of or break through and give the buyers and sellers an
extra opportunity to enter in line with their biases before the actual range
breakouts.

The US
Jobless Claims report is worth monitoring today in terms of potential risks,
although its impact on the market is not anticipated to be substantial unless
there are significant deviations from the expected number:

• If the
  report exceeds expectations by a significant margin, it could spark some
  hawkish expectations in the market. This could suggest that inflation may
  remain elevated due to a tight labour market, potentially influencing the
  market’s outlook.
• Conversely,
  if the report falls short of expectations by a significant margin, it
  should reaffirm the Federal Reserve’s neutral stance. Unless accompanied
  by a high Consumer Price Index (CPI), the market might even factor in the
  end of the interest rate hiking cycle.

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

A little higher, a little lower, and all around we go. That’s the mood in markets this week as we continue the slow countdown to the US CPI and Fed decision next week. The dollar is now slightly lower on the day as major currencies are stretching their previously narrow ranges in European morning trade.

EUR/USD is up 0.3% to 1.0730 after hanging around near 1.0700, with large option expiries in play at the figure level. USD/JPY remains down 0.2% to 139.80 and not much changed from Asia trading, as large option expiries at 140.00 are also serving to contain price action despite slightly higher Treasury yields.

Elsewhere, the dollar is seeing light declines against the pound and loonie, with the latter looking to contest key support as outlined earlier here. The antipodeans are holding higher with some improvements in the risk mood as Nasdaq futures are now up 0.1% after having been down around 0.3% to start the session.

AUD/USD is up 0.5% to 0.6680 levels but continues to stay below key resistance from its 200-day moving average at 0.6690 for now:

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

The latest NFP report, released last Friday, once again
exceeded expectations, extending its impressive winning streak to 14. However,
upon closer examination, the report didn’t present particularly favourable
details. The unemployment rate saw a significant increase from 3.4% to 3.7%,
marking the largest month-over-month jump since the pandemic began.
Additionally, the average workweek hours showed a slight decrease, which is
often an indication that employers may be considering layoffs. All in all, the
report contained a mix of information that could be interpreted differently by
different individuals.

Moving on to the US ISM Services PMI, it came in much lower than
anticipated at 50.3, narrowly missing the threshold for contractionary
territory. The employment sub-index reflected a contraction, and the prices
paid sub-index experienced a substantial decrease, returning to the levels seen
in May 2020. Consequently, the market responded by further discounting the
possibility of additional interest rate hikes by the Federal Reserve (Fed).

Moreover, recent surprising
rate hikes by the RBA and the BoC may have influenced risk sentiment, leading
to concerns that the Fed might follow suit. However, it is unlikely given that
the Fed typically aligns its actions with market pricing, and we should also
consider that the CPI report has not yet been released.

EURUSD Technical Analysis –
Daily Timeframe

On the daily chart, the EURUSD seems to be
bottoming out at the key 1.07 support level as
the price started to range around it and the market priced out hawkish
expectations for the June meeting. The bias remains bearish as the moving averages have
crossed to the downside and the trend is still downward. The possible double top at the
1.1033 high might indicate that we still have some room to the downside to
touch at least the 1.0533 neckline, but watch out for the price action in the
following days and after the CPI and FOMC next week.

EURUSD Technical Analysis –
4 hour Timeframe

On the 4 hour chart, the price has broken out of
the falling channel as it started to range around the 1.07 support. The
resistance at 1.0760 stalled the rally after some Fed members hinted to a pause
in June. The selloff that came soon after was caused by the NFP report, but as
we mentioned previously, it wasn’t such a great deal and the EURUSD restarted
its rangebound price action.

EURUSD Technical Analysis –
1 hour Timeframe

On the 1 hour chart, we can see that we
have a little box here where the EURUSD got stuck since the start of the week.
A breakout on either side may trigger some big moves but the levels to watch
should be the 1.0760 resistance and the 1.0635 support. If the buyers manage to
break above the resistance, then we may see the rally extending towards the 1.0845
level. On the other hand, if the sellers manage to break below the support, we
should see EURUSD trading at 1.0533 soon after.

The US Jobless Claims
report is the event to keep an eye on today in terms of risks, but its impact on the
market is not expected to be significant unless there are major deviations from
the expected number:

• If
  there is a significant beat in the report, it could trigger some hawkish
  expectations from the market as inflation may remain stuck at a higher level
  due to a tight labour market.
• Conversely,
  if there is a significant miss in the report, the market should validate the
  Fed’s neutral stance and, barring a hot CPI, may even price in the end of the
  hiking cycle.

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

Following a lower set of revisions, the euro area economy marginally contracted in Q1. Meanwhile, the annual reading is also revised lower to +1.0% from the +1.3% reading from the second estimate. The negative quarterly reading means that the euro area suffered a winter recession, but by the mildest of margins. Here’s the breakdown in terms of contribution to GDP for Q1:

• Household consumption -0.1%
• Government expenditure -0.3%
• Gross fixed capital formation +0.1%
• External balance +0.7%
• Changes in inventories -0.4%

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

The AUD is the strongest and the USD is the weakest at the North American session begins. The major currencies are relatively scrunched together and price action has been up and down (or down and up) for many pairs. The USD was higher earlier, especially vs the EUR and GBP with prices of the EURUSD and the GBPUSD declining in the Asian session. However, each has seen a rebound and are trading to new session highs as NA traders enter for the day. Each is also extending above hourly MAs indicative of a more bullish technical bias.

Looking at the EURUSD it is extending above the near converged 100/200 hour MAs at the 1.0214 area. The earlier low could not extend below the low from yesterday and sellers turned to buyers pushing the pair higher toward the moving average levels (see the chart below).

Overnight, Chinese trade data for May reveals a contraction in exports by 7.5% compared to the same period last year, pointing to weakened overseas demand for locally produced goods. This decline follows three consecutive months of export growth as Chinese manufacturers rushed to fill pending orders after COVID-19 restrictions were eased. Additionally, imports experienced a 4.5% drop, albeit at a slower pace than in April. Surprisingly, China’s trade surplus reached a one-year low in May at 452B (vs 676B est and 618B last month), signaling challenges in the post-pandemic recovery for the world’s second-largest economy. These figures underscore the sluggishness in China’s trade sector and highlight the impact of subdued global demand on the country’s export-oriented economy.The People’s Bank of China set the reference rate for onshore yuan at its weakest (for CNY, highest for USD/CNY) since December 1 last year. The PBOC’s persistent affirming of the slide for the yuan is a form of stimulus for the country’s export sector. The data supports that.

Also in the Asian Pacific session, Australian economic growth data for the first quarter of 2023 a day after the surprise 25 bp hike indicated a lower-than-expected GDP growth of 0.2% quarter-on-quarter, missing the already modest estimates of 0.3%. On a year-on-year basis, the growth stood at 2.3%, below the expected 2.4% and the previous quarter’s 2.7%. The data reveals little indication of diminishing price pressures, as the GDP implicit price deflator rose by 1.9% in the March quarter and 6.8% compared to the same period last year. The components of growth show that domestic final demand and capital investment were the primary contributors, while consumption expenditure by households and the government was subdued. Net trade had a negative impact, and changes in inventories did not contribute to growth. The household saving ratio decreased, reaching its lowest level since June 2008, and productivity also declined (inflationary).

The Organization for Economic Co-operation and Development (OECD) marginally upgraded its global growth outlook for 2023, citing lower energy prices and improving sentiment. Despite the positive forecast, headwinds remain, including tighter monetary policy and geopolitical tensions. U.S. stock futures dipped slightly, awaiting the Federal Reserve’s upcoming interest rate decision. The problem is that decision is not until next Wednesday. US CPI will be released on Tuesday next week ahead of the rate decision.

Oil prices experienced volatility in trading today as traders reacted to weaker-than-expected Chinese trade data, dampening hopes for increased oil demand from the world’s largest oil importer. Nevertheless, prices are higher in early US trading. Helping on the positive side is industry data released late yesterday indicating a larger-than-anticipated drawdown in crude inventories with crude showing a -1.710M drawdown vs an expected build of 1M. Gasoline saw a build of 2.417M vs +0.9M estimate as the summer driving season begins

A snapshot of the markets currently shows:

• Crude oil is up $0.71 at $72.45 after trading as low $71.01 overnight.
• Spot gold is trading down marginally by $-2.35 at $1960.91
• Silver is near unchanged $23.57
• Bitcoin is higher at $26,857 despite trouble with the SEC for Binance and Coinbase – two large crpyto exchanges. On Tuesday after the Securities and Exchange Commission sued Coinbase over operating an unlicensed exchange. The dip yesterday added on to steep losses seen on Monday that were sparked by similar charges brought by the SEC against rival Binance, but prices have rebounded from lows near $25,350.

In the premarket for US stocks, the major indices are now trading marginally higher:

• Dow Industrial Average is trading up 27 points after yesterday’s 10.42 point rise
• S&P index is trading up 6 points after yesterday’s 10.08 point rise
• NASDAQ index is trading up 28 points after yesterday’s 46.99 point rise

In the European equity markets, the major indices are also mostly higher. The exception is Spain which is up the strong 0.94%, and Italy which is down 10.3%

• German DAX +0.09%
• Frances CAC +0.11%
• UK’s FTSE 100 +0.14%
• Spain’s Ibex +0.94%
• Italy’s FTSE MIB -0.3%

In the Asian Pacific market today stock indices were mixed:

• Japan’s Nikkei came off of all-time highs on Tuesday and fell-1.82%
• Hang Seng index rose 0.80%
• Shanghai composite index rose 0.08%
• Australia’s S&P/ASX 200 index fell -0.16%

In the US debt market yields are mixed/little changed

• 2 year yield 4.533% +0.8 basis points
• 5 year yield 3.861% +0.6 basis points
• 10 year yield 3.700% unchanged
• 30 year yield 3.867% -0.7 basis points

In the European debt market, benchmark 10 year yields are mixed:

This article was written by Greg Michalowski at www.forexlive.com.