Headlines:

• BOE surprises with 50 bps rate hike, bringing bank rate to 5.00%
• Sterling jumps initially on BOE surprise but gains look limited
• SNB raises policy rate by 25 bps to 1.75%, as expected
• SNB’s Jordan: We cannot rule out further monetary policy tightening
• SNB’s Jordan: The view that policy would be better by not tightening today is false
• BOJ’s Noguchi: Exchange rate should move stably reflecting fundamentals
• France June business confidence 100 vs 100 prior
• Japan maintains overall economic assessment for the month of June

Markets:

• GBP leads, AUD lags on the day
• European equities lower; S&P 500 futures down 0.3%
• US 10-year yields up 2.7 bps to 3.75%
• Gold down 0.4% to $1,926.04
• WTI crude down 2.1% to $70.99
• Bitcoin flat at $29,983

It was all about central banks today but the BOE stole the spotlight with a somewhat surprising 50 bps move to bring the bank rate to 5.00%.

The more hawkish move came after the hotter than expected UK inflation report yesterday, which suggests that the BOE is taking on the issue with a ‚go big or go home‘ approach. On the one hand, it speaks to their commitment and credibility in tackling inflation. On the other, such persistence could end up breaking something along the way in the economy.

For now, the pound got a brief jump on the decision with GBP/USD moving up from 1.2780 to 1.2835 before giving all of that back. I outlined some reasons for that move here and that post details better how markets are feeling right now just after the suprise.

The SNB was also on the agenda but the 25 bps rate hike there was rather straightforward and the communique was consistent with what markets were expecting. The franc is little changed as a result with USD/CHF sitting around 0.8940-50 currently with the dollar also keeping steady.

There isn’t much appetite among major currencies so far today but keep an eye out on a further risk rotation in broader markets. There has been a consistent theme of equities selling this week and things look to be continuing today as well. Some food for thought here.

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

The Federal Reserve decided
to maintain interest rates at 5.00-5.25% last week. This choice was motivated
by their desire to gather additional economic data before determining whether
another hike is appropriate. Their aim is to strike the right balance of
monetary restraint that can effectively lower inflation to the target level,
while minimizing adverse effects on the economy.

In contrast, the European
Central Bank (ECB) followed expectations and raised interest rates by 25 basis
points. They also hinted at a potential additional increase in July. ECB speakers
have reiterated this stance and signalled the likelihood of another hike in
September if the prevailing conditions warrant such action. As a result, a
divergence in monetary policies has emerged between the Federal Reserve and the
ECB, ultimately benefiting the Euro.

EURUSD Technical Analysis –
Daily Timeframe

On the daily chart, we can see that EURUSD has now
completely erased all the Dollar strength seen in May and it’s eyeing again the
1.1033 high. Last time, the pair had a hard time at this resistance, so we
will likely need strong fundamental catalyst to see a breakout. This may come
in the form of hot inflation data for the Eurozone or weak, but not too weak,
data for the US. Anyway, the price looks overstretched as depicted by the
distance from the blue 8 moving average. In such
cases, we can generally see some consolidation or a pullback into the moving
average before the next move.

EURUSD Technical Analysis –
4 hour Timeframe

On the 4 hour chart, we can see that this latest
extension to the upside is diverging with the
MACD. This is
generally a sign of weakening momentum often followed by pullbacks or
reversals. In fact, from a risk management perspective, the buyers would be
better off waiting for a pullback into the 1.0950 support where we can also
find the trendline before
considering new long positions, all else being equal.

EURUSD Technical Analysis –
1 hour Timeframe

On the 1 hour chart, we can see that the
price is rallying towards the 1.1033 high today. That is where we should expect
some sellers piling in with a defined risk above the level targeting a pullback
into the trendline.

Today
we have the US Jobless Claims report and tomorrow we conclude the week with the
US PMIs. Big misses should lead to more USD weakness as the market would price
out the rate hike in July, while big beats should result in Dollar strength as
the market would see the “two more rate hikes” expected by the Fed more likely.

This article was written by FL Contributors at www.forexlive.com.

The BOE went and did it, delivering a „surprise“ 50 bps rate hike today. To be fair, markets had already priced in a near coin toss ahead of it so this isn’t that shocking. Nonetheless, it’s one that is causing a bit of a stir across broader markets and sterling had benefited from it – at least initially.

GBP/USD moved up from 1.2780 to a high of 1.2835 before settling around 1.2800 just minutes after the decision. (Update: It is now falling to 1.2750 on the day)

Now, there are a couple of things to be mindful about here. Let’s take a look at them:

1. Markets had already priced in nearly 75 bps worth of rate hikes by August. That means either the decision today or August itself would have to be a 50 bps move to reaffirm that pricing. And we already got it here, so that is quickly out of the way already. So, this just confirms what market had priced in and doesn’t add any further hawkish connotations to it.
2. Markets had also already priced in a peak in the BOE bank rate of close to 6% coming into the decision. It was around 5.93% and as at time of writing, that has just moved up to 5.98%. As such, there is a ceiling in which traders are not comfortable getting above just yet and that means there isn’t any additional hawkish elements to price in as well based on this front.
3. With equities already rather sensitive this week, the BOE decision to go with a bigger rate hike is dampening the mood further. And as the pound tends to behave like a risk currency these days, that could stir up some headwinds for sterling to push gains on the day.

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

• Prior 4.50%
• Bank rate vote 7-2 vs 7-2 expected (Dhingra, Tenreyro voted to keep rates at 4.50%)
• Continuing to monitor closely the impact of the significant rate hikes so far
• Core goods price inflation has also been much stronger than projected
• But CPI inflation is expected to fall significantly further during the course of the year
• Food price inflation is projected to fall further in coming months
• If there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required
• Full statement

The pound jumps on the decision as the BOE takes the more hawkish step, following the hotter than expected UK CPI data yesterday. GBP/USD moving up from 1.2780 to a high of 1.2835 before settling down around 1.2800 at the moment.

The guidance and statement details don’t reflect much of a change to before, which suggests that the the central bank is still on the tightening path. As mentioned earlier, traders had been pricing in either a 50 bps move for today or August so it’s good to have this out of the way now.

The peak rate in terms of OIS pricing remains close to the 6% mark (now 6.05%), just a touch higher than the 5.93% priced in ahead of the decision. As such, there might be limited upside for sterling in this instance; all else being equal.

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

The Fed decided to maintain
the interest rates at 5.00-5.25% last week, citing the need for additional
economic data before considering additional hikes. They are trying to strike a
balance of monetary restraint that can effectively combat inflation and prevent
a severe recession.

In his testimony to
Congress yesterday, Fed
Chair Powell reaffirmed their commitment to lowering inflation to the
desired target. However, he acknowledged that there is still a long way to go
to reach their goal and added that if the economy performs as expected, the two
additional rate hikes outlined in the Dot Plot could be viewed as a „pretty
good guess”.

Overall, central banks are
now data-dependent as they are trying to fine tune their terminal rates, so
going forward the data is what really matters and not what the central bank
speakers say.

USDJPY Technical Analysis –
Daily Timeframe

On the daily chart, we can see that USDJPY has
reached a key resistance
level at 142.17 where we can also find the 61.8% Fibonacci
retracement level of the entire fall since October 2022. A strong break
above this resistance supported by a fundamental catalyst would open the door
for a rally into the 150.00 handle. We can also notice that this last leg
higher is diverging
with the MACD
which is generally a sign of weakening momentum often followed by pullbacks or
reversals. Seeing it here makes it more compelling that we might get a big
pullback soon.

USDJPY Technical Analysis –
4 hour Timeframe

On the 4 hour chart, we can see that the red 21 moving
average has been acting as dynamic support for the buyers but we are now
starting to see the convergence of the moving averages as the price action
becomes more rangebound. If we see them cross to the downside with a break below
the 141.25 level, it would further confirm a retracement back to the 138.00
support where there’s also the 50% Fibonacci retracement level and a trendline
for confluence.

USDJPY Technical Analysis –
1 hour Timeframe

On the 1 hour chart, we can see that the
price has recently bounced on a previous resistance
turned support, but couldn’t find enough strength to break above the 142.17
resistance. This little range gives us a clear setup:

• If the price breaks above the 142.17
  resistance supported by a fundamental catalyst, we can expect a rally towards
  the 150.00 handle.
• If the price breaks below the 141.25
  support, we can expect a pullback all the way back to the 138.00 handle.

Today we will see the US
Jobless Claims report and tomorrow the US PMIs. Big misses should lead to more downside
for the pair as the market would price out the July hike and probably price in
some cuts. On the other hand, big beats should lead to more upside as it would
signal that the Fed may have to do more.

See also the video below:

This article was written by FL Contributors at www.forexlive.com.

In case you missed it:

• UK May CPI +8.7% vs 8.4% y/y expected
• Hot UK inflation continues to vindicate higher BOE rates
• Traders continue to vote higher for longer on UK rates

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

Headlines:

• UK May CPI +8.7% vs 8.4% y/y expected
• Hot UK inflation continues to vindicate higher BOE rates
• Pound spike on inflation data fairly short-lived
• ECB’s Kazimir: Further policy tightening in September is not certain
• BOJ’s Ueda: Will patiently maintain easy monetary policy to achieve 2% inflation target
• BOJ’s Adachi: If there is a global recession, will have to keep easy policy
• Ifo sees German recession to be sharper than expected
• UK June CBI trends total orders -15 vs -17 expected
• US MBA mortgage applications w.e. 16 June +0.5% vs +7.2% prior

Markets:

• CAD leads, AUD lags on the day
• European equities lower; S&P 500 futures down 0.1%
• US 10-year yields up 2.9 bps to 3,753%
• Gold down 0.1% to $1,934.10
• WTI crude flat at $71.21
• Bitcoin up 2.8% to $28,966

The BOE would probably wish that their policy decision this month came a week earlier, as they now look further behind the curve in trying to address the inflation problem in the UK.

Headline annual inflation for the month of May was unchanged to April but core annual inflation continues to run higher. That is posing serious questions on the risk of stagflation in the UK, as monetary policy tightening is failing to have any effect it would seem.

A 25 bps rate hike was already well priced in coming into today but now traders are looking for at least a 50 bps move either tomorrow or in August, with nearly 75 bps worth of rate hikes priced in by then.

The pound caught a brief jump on the data, with GBP/USD moving up from 1.2765 to 1.2802 before quickly giving that back and then some after. The pair fell back to just below 1.2700 at the lows before keeping around 1.2720-30 at the moment. I touched more on the move in this post here.

The hotter UK inflation data kept bond yields underpinned during the session but the advance in Treasury yields is not too striking. At one point, yields even turned back flat in European morning trade. I reckon that speaks to the risk rotation we have been seeing so far this week, as equities also continue to stay more sluggish.

Again, month-end and quarter-end flows are a consideration in this regard. So, there’s that to think about when looking at the market moves this week.

In FX, the dollar remains somewhat steady as there is a lack of appetite among other major currencies today. USD/JPY did move a little higher to briefly hold above 142.00 but is now sitting back at 141.80 – just up by 0.3% on the day.

Let’s see what Powell has to offer next but as mentioned earlier, I won’t be holding my breath for any major remarks – not when it is just a testimony to Congress and it coming a week after the FOMC meeting.

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

• Prior +7.2%
• Market index 209.8 vs 208.8 prior
• Purchase index 165.6 vs 163.2 prior
• Refinance index 425.1 vs 434.1 prior
• 30-year mortgage rate 6.73% vs 6.77% prior

There was just a slight increase in mortgage activity in the past week, with the increase in purchases helping to offset a decline in refinancing. Overall, housing market conditions are still struggling and with the Fed still holding the higher for longer conviction, it’s tough to see things changing.

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

Ethereum’s
price faced significant pressures due to the recent regulatory crackdowns and
the more hawkish expectations on interest rates. However, despite these
challenges, the cryptocurrency displayed remarkable resilience and made a
strong comeback once the market’s hawkish sentiment subsided, and regulatory
concerns eased. Additionally, the recent robust recovery from a critical
support level hints at the possibility of further upward momentum, potentially
leading to a breakout of the 2100 high.

Ethereum Technical Analysis
– Daily Timeframe

On the daily chart, we can see that Ethereum has
recently bounced back from a strong support at the
1681 level where we can also find the 61.8% Fibonacci retracement level
and the upward trendline. Since
then, the price rallied strongly into the downward trendline and now the
formation looks like a descending triangle pattern.

The price can break on either side of the pattern
and generally what follows is a strong move in the direction of the breakout.
So, if the price breaks to the upside, we can expect Ethereum to reach again
the 2000 level, while if it breaks to the downside, we should expect a fall
into the swing low level at 1400.

Ethereum Technical Analysis
– 4 hour Timeframe

On the 4 hour chart, we can see that the rally is
getting a bit exhausted as depicted by the long candlestick wicks near the
trendline. This should be a sign of an imminent pullback and the likely support
zone would be at the 1775 level. In fact, we can see that the price has reacted
to that level multiple times in the past weeks and for more confluence we have
the upward trendline and the 38.2% or 50% Fibonacci retracement level.

The price is also a bit overextended as shown by
the distance between the price and the blue 8 moving average. In such
instances, we can generally see some consolidation or a pullback into the
trendline before the next move.

Ethereum Technical Analysis
– 1 hour Timeframe

On the 1 hour chart, we can see more
closely the support zone at the 1775 level with all the confluences mentioned
above. If we get a pullback into the zone, the buyers are likely to lean on it
with a defined stop just below it and target the breakout of the major downward
trendline to reach the 2000 level. More aggressive sellers can lean on the
downward trendline to target the support zone first and a break lower
afterwards, while more conservative sellers should wait for the price to break
below the upward trendline to target a breakout of the 1681 support that would
open the door for a selloff into the 1400 level.

Today, we have the Fed
Chair Powell testifying to Congress and if he sounds very hawkish, we should
expect the above-mentioned pullback to play out. Tomorrow we will see the US
Jobless Claims report, while on Friday we conclude the week with the US PMIs.

See also the video below:

This article was written by FL Contributors at www.forexlive.com.

The
recent regulatory attacks and the more hawkish repricing for the Fed interest
rates path weighed a lot on the Bitcoin price, but the cryptocurrency showed a
surprising resilience and rallied back strongly as soon as the hawkish
expectations waned, and the dust settled on the regulatory front. All else
being equal, the recent strong bounce from a key support level may also suggest
that we are about to see another extension to the upside, with a break of the
31K high being likely.

Bitcoin Technical Analysis
– Daily Timeframe

On the daily chart, we can see that the big divergence with the
MACD
eventually led to a sizeable pullback into the 25231 support where we
had also the 50% Fibonacci retracement level.
Since then, the price has rallied strongly into the trendline and yesterday
we got a breakout that led to a fast move upwards as more momentum buyers
jumped onboard. Now we can expect a pullback from the 28500 swing high level,
which from a risk management perspective would be better for the buyers.

Bitcoin Technical Analysis
– 4 hour Timeframe

On the 4 hour chart, we can see that we are
starting to get some long candlestick wicks as the sellers fight back and the
buyers take some profits off the table. A good support level where the buyers
can lean onto is the upward trendline. In fact, we can find confluence with the
50% or 61.8% Fibonacci retracement level, the red 21 moving average, a
previous swing point and possibly even the broken downward trendline that may
act as support now.

Bitcoin Technical Analysis
– 1 hour Timeframe

On the 1 hour chart, we can see more
closely the quick rally since the break of the downward trendline into the
29000 level. Here is where we should start to see the pullback and we can see
even better how strong the support at the trendline is with so many confluences
in one spot. Aggressive sellers may want to pile in as soon as the price breaks
below the 28500 level to target the trendline. More conservative sellers should
wait for the price to break below the upward trendline to target the 25200
support.

Today, we have the Fed
Chair Powell’s Testimony to Congress and if he delivers very hawkish comments,
we can expect some selling in Bitcoin. Tomorrow we will see the US Jobless
Claims and on Friday we conclude with the US PMIs. If the data misses
expectations, we can expect more upside for Bitcoin, while if it beats, it
would put some pressure on the cryptocurrency.

This article was written by FL Contributors at www.forexlive.com.