Money markets now expect a 115 bps worth of tightening by the ECB by year-end, with 40% odds of a 50 bps rate hike in July. That is seen up from the 110 bps priced in at the end of last week.
However, with headline inflation crossing 8%, it isn’t just so much a story of energy prices surging already. The jump in price pressures is evident across all areas:

The question now is, can the ECB still stick to the script and only hike rates after ending asset purchases in July?If this is their queue to act, then why not next week then? I mean considering all the communication as of late, the imminent rate hike feels like semantics at this point. There’s going to be a lot of built-up pressure in the background surely as to the discussions for why they should wait until July before acting.As such, just be wary that we might get some murmurs about how those discussions are going and that could set up a more nervous backdrop to next week’s meeting. It may not yet be a ‚live‘ one based on what policymakers have told us, but let’s see what the ECB message after today will be to make sure.

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Headlines:Reminder: US markets are closed todayECB’s Lane: ECB should hike rates by 25 bps incrementsBOJ’s Kuroda: Rapid yen weakening not due to BOJ policyShanghai to resume basic operations for bus, rail transport from 1 JuneRussia oil embargo to be part of EU sanctions package, but final agreement left for laterSaxony May CPI +8.0% vs +7.2% y/y priorSpain May preliminary CPI +8.7% vs +8.3% y/y expectedGermany April import price index +1.8% vs +2.0% m/m expectedSNB total sight deposits w.e. 27 May CHF 754.0 bn vs CHF 754.1 bn priorSwitzerland May KOF leading indicator index 96.8 vs 102.3 expectedMarkets:EUR leads, CHF lags on the dayEuropean equities higher; S&P 500 futures up 0.8%Gold up 0.1% to $1,855.53WTI crude up 0.7% to $113.03Bitcoin up 6.6% to $30,647It was a quiet session for the most part as markets carried over the trading themes from last week.With it being a US holiday, there is little conviction to switch things around. The dollar weakened and equities are gaining modestly as we get things going on the new week. Meanwhile, economic data suggests inflation continues to run rampant in Europe with upside surprises seen in Spain and Germany.EUR/USD gained modestly from around 1.0740 to 1.0780 while GBP/USD pulled higher from 1.2630 to 1.2650 levels on the session. The dollar is softer for the most part, only gaining against the yen and franc in more risk-on trading.AUD/USD is also seen up 0.3% to close in on 0.7200 while USD/CAD is down 0.3% to below 1.2700 on the day.European indices are posting decent gains as equities are kicking things off on the right foot this week, while US futures are carrying over the positive mood from the cash market last week with solid gains today.

Adding to that, the city says that it will lift restrictions on private cars and free passage into housing communities from 1 June midnight as well. This will apply to all residential complexes except for medium and high-risk areas, closed and controlled areas, and designated control areas.Well, that is certainly a welcome development and adds to the earlier announcements today here. This will at least not detract from the more positive risk mood so far on the day.

It’s a quiet trading day but we’re carrying over the themes from last week with the dollar keeping lower for the most part while equities are looking to extend the bounce from last week.
I categorised last week’s move as that of markets looking for some breathing room after the moves from April to early May. That largely applies to major currencies and stocks. But it is the bond market that holds the key.
As things stand, we’ve gotten to the point where the bond market is looking past Fed rate hikes and that was evident as pointed out last week here. In a sense, we have priced in ‚peak hawkishness‘ by the Fed – at least per the current communique. But as recession risks start to creep into the picture, that’s perhaps a cause for repricing or at least a reason to reassess. I shared some thoughts on that with regards to the dollar here.
For now at least, we’re arguably just settling into a bit of a breather after the surging moves since the start of April. The dollar is weaker again today as we continue last week’s form (it is a US holiday today, so there might be little conviction to switch things around). EUR/USD remains on course to hit 1.0800, which may offer a bit more resistance considering it has been a previous contention point technically:

Meanwhile, GBP/USD continues to keep above 1.2600 and is in search of a firm daily break above the 4 to 5 May highs at 1.2634-38. The daily close today will be one to watch to see if buyers can stick with a stronger upside move in the days to follow.
Elsewhere, AUD/USD is taking aim at 0.7200 as buyers extend the retracement momentum and may be looking towards the 100-day moving average at 0.7230 next:

Only the yen and franc – marginally – is weaker than the greenback today as we see a more risk-on mood take hold in markets.European equities are posting solid gains with the Eurostoxx up 1.0%, DAX up 0.8%, and CAC 40 up 0.9% currently. Meanwhile, S&P 500 futures are up 1.1%, Nasdaq futures up 1.5%, and Dow futures up 0.8% after the cash market snapped their run of losses last week.

The Dollar
Index (DXY) extended its slide, easing 0.20% to 101.58 from 101.77 after a key
US inflation rate rose to its smallest increase since November 2020. The US
Personal Consumption Price Index (PCE) rose just 0.2% in April down from the
previous month’s 0.9% and lower than economist’s forecasts at 0.8%.

 

The PCE
report is the Federal Reserve’s preferred inflation indicator. On an annual
basis, US PCE eased to 6.3% from 6.6%. US April Core PCE, which strips volatile
food and energy costs, was up 4.9% year-on-year, from 5.2%. Wall Street stocks
soared with the DOW settling 1.49% higher to 32,587 (32,097 Friday) while the
S&P 500 gained 2.04% to 4,053 (3,973).

 

The rise in
risk sentiment boosted the Australian Dollar (AUD/USD) up to 0.7160 from 0.7097
Friday, finishing as best performing FX. The Kiwi (NZD/USD), considered the
smaller cousin to the Aussie, rallied to 0.6535 (0.6485 Friday). Sterling
(GBP/USD) edged higher to 1.2615 from 1.2600 on Friday while the Euro (EUR/USD)
saw modest gains, finishing at 1.0737 (1.0720 Friday).

 

Against the
Japanese Yen, the Greenback (USD/JPY) dipped to 127.00 from 127.12. The Dollar
was lower against most of the Asian and Emerging Market Currencies. USD/CNH
(Dollar-Offshore Chinese Yuan) slid to 6.7310 from Friday’s opening at 6.7650.
Against the Singapore Dollar, the Greenback dipped to 1.3700 from 1.3732 while
USD/THB (Dollar-Thai Baht) fell to 34.07 (34.22).

 

Global bond
yields were mostly lower. The benchmark US 10-year treasury rate dipped to
2.74% (2.75%). Germany’s 10-year Bund yield was last at 0.96% from 0.99%.

 

Other
economic data released on Friday saw Japan’s Tokyo Core CPI in May up at 1.9%,
matching April’s rise of 1.9%, but lower than median estimates at 2.0%.
Australia’s April Retail Sales rose 0.9%, matching estimates (0.9%) but lower
than March’s 1.6%. Spain’s April Retail Sales rose to 1.5% from a previous fall
of -4.1%, beating forecasts of -1.9%.

 

US monthly
Core PCE rose 0.3% from a previous 0.3%, matching expectations at 0.3%. US
April Personal Spending climbed to 0.9%, beating estimates at 0.7% while
Personal Income dipped to 0.4% from expectations at 0.5%. The University of
Michigan Consumer Sentiment Index fell to 58.4 from 65.2, and lower than
forecasts at 59.1.

·     

EUR/USD – Against the broadly
weaker US Dollar, the shared currency climbed to 1.0737 at the close of trade
on Friday, up from its open at 1.0720. Overnight, the EUR/USD pair traded to a
fresh monthly high at 1.0765, before easing to settle lower. Overnight low
traded was at 1.0725.

·     

AUD/USD – The Australian Battler
rebounded against the generally softer Greenback and improved risk sentiment.
At the close of New York, the AUD/USD pair settled at 0.7160 (0.7097 Friday).
Overnight high traded for the Aussie Dollar was at 0.7169.

·     

USD/JPY – In more subdued, end of
week trade, the Greenback dipped to 127.00 from Friday’s open at 127.12.
Overnight, the USD/JPY pair traded to a high at 127.17 while the overnight low
recorded was at 126.95.

·     

GBP/USD – The British Pound rose
modestly against the Dollar to 1.2615 from 1.2600 Friday. Overnight high traded
was at 1.2668 while the overnight low recorded was at 1.2593. There were no
major economic data releases out of the UK on Friday.

 

On the
Lookout: Ahead
of this week’s economic data dump, today’s calendar is light. There are no
major data releases out of Australia, New Zealand, and Asia today. US markets
will be partially open as the country celebrates its Memorial Day holiday.
Europe kicks off with German April Import Prices (m/m f/c 2% from a previous
5.7%; y/y f/c 32% from 31.2 % – ACY Finlogix). Switzerland follows with its May
KOF Leading Indicators (f/c 102.3 from previous 101.7 – ACY Finlogix).

 

The Eurozone
is next with its May Economic Sentiment Index (f/c 104.9 from 105.00 – ACY
Finlogix), Eurozone May Industrial Sentiment (f/c 7.5 from previous 7.9 – ACY
Finlogix). Germany follows with its Preliminary May Inflation Rate (m/m f/c
0.5% from 0.8%; y/y f/c 7.6% from 7.4% – ACY Finlogix). Canada rounds up
today’s data releases with its Current Account (f/c +CAD 3.2 billion from
previous -CAD 0.8 billion – ACY Finlogix).

 

Looking
ahead this week, Wednesday (1 June) sees Australia’s CPI and China’s Caixin
Manufacturing PMI. Thursday (2 June) in early Sydney sees the Bank of Canada’s
Interest rate meeting where the BOC is expected to hike its overnight rate for
the second consecutive time. Friday (3 June) sees the US Non-Farms Payrolls
report. The US also releases its Treasury Currency Report.

 

Trading
Perspective: Expect a tentative start to all markets in Asia today. The
risk-on theme should see Asian stocks to a firm start. In FX, the US Dollar
will trade mixed, albeit with a generally softer bias. US treasury bond yields
finished lower with the benchmark 10-year rate down 10 basis points from a week
ago. The Dollar Index (DXY) finished at a one month low on Friday at 101.50. A
moth ago, the DXY was at 103.70.

 

The drop in
the US PCE, which is known to be the Federal Reserve’s preferred inflation
indicator, may see the US central bank consider a pause in its rate increases.
From inflation, markets will now focus on the US employment report for April
which will see any further Greenback weakness limited. Expect FX volatility,
which took a breather on Friday, to pick up again this week. Keep those tin
helmets handy.

·     

EUR/USD – The shared currency had
a good bounce on Friday, finishing in New York at 1.0737 (1.0720 Friday).
Overnight, the Euro soared to a one-month high at 1.0765 before easing. For
today, immediate resistance lies at 1.0750 followed by 1.0780 and 1.0810. On
the downside, we find immediate support at 1.0700, 1.0670 and 1.0640. Look for
consolidation today in a likely range of 1.0670-1.0770. Prefer to sell rallies.

·     

AUD/USD – The Aussie Battler
jumped to an overnight high at 0.7170 in choppy trade before settling to close
at 0.7160 in New York. Immediate resistance today lies at 0.7180 followed by
0.7210 and 0.7240. On the downside, we can find immediate support at 0.7120
followed by 0.7090 and 0.7060. Look for the Aussie to consolidate, likely range
0.7090-0.7170. Preference is to sell rallies.

(Source: Finlogix.com)

·     

USD/JPY – Against the Japanese
Yen, the Greenback edged lower to 127.00 from 127.12 on Friday. Overnight low
traded was at 126.70 while the high recorded was at 127.40. On the day, we can
find immediate support at 126.70 followed by 126.40. Immediate resistance lies
at 127.30 followed by 127.60 and 127.90. Look for this currency pair to trade a
likely 126.70-127.70 range today. Preference is to buy dips.

·     

GBP/USD – Sterling also
benefitted from overall US Dollar weakness, closing at 1.2615 from Friday’s
open at 1.2600. Overnight high traded was at 1.2638. For today, we can find
immediate resistance at 1.2640 followed by 1.2670 and 1.2700. Immediate support
lies at 1.2590, 1.2560 and 1.2530. Look for further choppy trade in this
currency pair, with the likely range today between 1.2570-1.2670. Preference is
to sell into Sterling strength.

 

Have a good
trading week ahead all. Happy Monday.

 

This article was written by Michael Moran, ACY Senior
Currency Strategist at ACY Securities.

 

This content
may have been written by a third party. ACY makes no representation or warranty
and assumes no liability as to the accuracy or completeness of the information
provided, nor any loss arising from any investment based on a recommendation,
forecast or other information supplied by any third-party. This content is
information only, and does not constitute financial, investment or other advice
on which you can rely.

Watch
the video for the key trading levels for the week ahead for AUDJPY, AUDUSD,
EURJPY, EURUSD, GBPJPY, and GBPUSD.

Key Trading Levels For The Week Ahead – AUDJPY, AUDUSD, EURJPY, EURUSD, GBPJPY, and GBPUSD from ACY Securities Australia on Vimeo

Last week AUDJPY, AUDUSD, EURJPY, EURUSD,
GBPJPY, and GBPUSD all finished positive for the week. AUDUSD, EURUSD, and
GBPUSD all finished the week at strong resistance levels. Will the USD decline
for a third week as we head into a new trading month?

 

AUDJPY Daily chart:

Monthly
support at 86.24, resistance at 90.29 and 90.72.

Weekly
support at 87.28, resistance at 94.31 and 95.73.

Daily
support at 89.23 and 88.99, resistance at 91.03, 91.16, and 92.39.

Price consolidated between 89.23 daily support
and 91.03 daily resistance last week. Will price continue to
consolidate between 89.23 daily support and 91.03 daily resistance this week?

AUDUSD Daily chart:

Monthly
support at 0.6991, 0.6967, and 0.6826, resistance at 0.7555.

Weekly
support at 0.6967, resistance at 0.7314.

Daily
support at 0.7127 and 0.7035, resistance at 0.7165 and 0.7266.

Price
rallied back to the 0.7165 daily resistance level last week. Will price move
above the 0.7165 daily resistance level this week?

 

EURJPY Daily chart:

Monthly support
at 134.12 and 133.47, resistance at 137.49.

Weekly
support at 133.14 and 132.65, resistance at 137.52.

Daily
support at 134.77, resistance at 136.49, 136.69, and 136.79.

Price
consolidated between 134.77 daily support and 136.79 daily resistance last
week. Will price continue to consolidate between 134.77 daily support and
136.79 daily resistance this week?

EURUSD Daily chart:

Monthly
support at 1.0635, 1.0522, and 1.0340, resistance at 1.0879.

Weekly
support at 1.0349, resistance at 1.0727 and 1.0806.

Daily
support at 1.0642, resistance at 1.0748 and 1.0757.

Price
rallied back to the 1.0727-57 weekly/daily resistance area last week. Will
price move above the 1.0727-57 weekly/daily resistance area this week?

GBPJPY Daily chart:

Monthly
support at 158.21, resistance at 163.06 and 163.87.

Weekly
support at 158.06 and 155.59, resistance at 163.06.

Daily
support at 157.99 and 157.87, resistance at 161.00 and 161.85.

Price
consolidated between 157.99 daily support and 161.00 daily resistance last
week. Will price continue to consolidate between 157.99 daily support and
161.00 daily resistance this week?

GBPUSD Daily chart:

Weekly
support at 1.2251, 1.2195, and 1.2155, resistance at 1.2675 and 1.2813.

Daily
support at 1.2411, resistance at 1.2614 and 1.2638.

Price
rallied back to the 1.2638 daily resistance level last week. Will price move
above the 1.2638 daily resistance level or form a double top reversal pattern
this week?

 

This article
was written by Duncan Cooper – Senior Market Strategist & Trading Mentor

 

This content
may have been written by a third party. ACY makes no representation or warranty
and assumes no liability as to the accuracy or completeness of the information
provided, nor any loss arising from any investment based on a recommendation,
forecast or other information supplied by any third-party. This content is
information only, and does not constitute financial, investment or other advice
on which you can rely.

 

Via Singapore’s Straits Times:

China’s financial hub, Shanghai, reported another Covid-19 infection outside quarantine

Shanghai logged a total of 170 infections for Friday (May 27), one of which was found in the community

Shanghai has been taking tentative steps towards some reopening, based on no cases being found outside quarantine. Cases found outside quarantine pose a threat to reopening moves under China’s zero COVID policy. let’s see how this goes. 

The People’s Bank of China announce another step to open China’s financial markets to wider global access. A statement from the People’s Bank of China Friday:China will allow foreign institutional investors to buy bonds traded on its smaller exchange market

Qualified foreign institutional investors ranging from central banks and sovereign funds to commercial banks and pension funds will be allowed to invest in bonds on the exchange marketcan trade bond and invest in derivatives, among other bond-based instruments permitted by the PBOC and China’s securities regulatorfrom June 30via Bloomberg (gated)

Some background reading for the weekend in this report.
Rates may we have peaked for now.
The idea is not fresh, as economic data has come off the boil in the past few weeks yields have fallen, down sharply from the cycle highs reached in the month of May (info via Greg):

2 year 2.484%, +0.2 basis points. The cycle high yield reached 2.857%. The yield has moved down -37 basis points.

5 year 2.724%, +1.2 basis points. The cycle high yield reached 3.107%. The yield has moved down -38 basis points

10 year 2.743%, -0.8 basis points. The cycle high yield reached 3.203%. The yield has moved down -46 basis points..

30 year 2.972%, -1.2 basis points. The cycle high yield reached 3.309%. The yield has moved down -34 basis points

but the report has some comments from various analysts, come noting likely policy divergence between the Fed and the BoE.

Bank of England’s Bailey testifying