Headlines:

• ICYMI: The market now expects the Fed to hike by 75 bps tomorrow
• The post-ECB fallout in European bond spreads continues
• SNB to keep policy unchanged this week, to only hike rates in September – Reuters poll
• ECB’s Knot: A real possibility that rate hikes will continue in October and December
• RBA’s Lowe: Australians need to be prepared for higher interest rates
• UK May claimant count change -19.7k vs -49.4k expected
• Germany May wholesale price index +1.0% vs +2.1% m/m prior
• Germany May final CPI +7.9% vs +7.9% y/y prelim 
• Germany June ZEW survey current conditions -27.6 vs -31.0 expected

Markets:

• CHF leads, AUD lags on the day
• European equities lower; S&P 500 futures up 0.2%
• US 10-year yields down 5.3 bps to 3.316%
• Gold up 0.2% to $1,822.32
• WTI crude up 0.7% to $121.83
• Bitcoin down 5.9% to $21,845

The rout in markets took a bit of a breather in European morning trade today but there are still some nervous undertones persisting, as equities turned lower and the dollar regaining its footing after a softer start.

The bloodbath yesterday looked to calm down at first with US futures pushing gains of over 1% and European indices also opening higher across the board. But fast forward a few hours later and the mood has flipped around as European stocks are sitting in the red while US futures have nearly pared all of its advance from earlier.

The only relief is seen in long-end Treasuries, as yields settle lower for the time being. That said, there is still a bit of a push and pull and it is tough to draw much conclusions before US traders come in later in the day.

The dollar was initially softer to start the session but gradually reestablished its authority for the most part as risk appetite gets sapped.

EUR/USD moved up to 1.0485 before falling back to settle around 1.0430-40 levels, with USD/CHF having earlier dipped by 1% to 0.9875 as the franc gained with traders trying to figure out the SNB’s intentions later this week. The latter pair has recovered some ground back to 0.9935 currently.

Meanwhile, there wasn’t much reprieve for cable as it slumped to 1.2065 from 1.2200 at the start of European morning trade. Sellers continue to eye the 1.2000 level and it looks to be a matter of time before we get there.

Elsewhere, AUD/USD also tumbled from 0.6970 to 0.6885 as the dollar steadied and risk sentiment waned during the session.

As things stand, the market now expects the Fed to hike by 75 bps tomorrow. That is something that policymakers haven’t really given a clear message on but they are likely to still deliver on that regardless (considering the Fed’s recent history with being bullied). The kicking and screaming may not be over and done with if market players are vindicated for their moves this week.

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

As risk appetite gets sapped on the day, that has seen dollar bids come back into the picture today as mentioned here.

In turn, it has pushed AUD/USD to fresh lows in four weeks as the pair now dips just below the 0.6900 handle. From a technical perspective, there isn’t much relief on the way down for the pair amid the latest retreat through to the May low at 0.6828 and then the trendline support level (white line) just below 0.6800.

Those will be key levels to watch as sellers stay in the hunt for the next downside leg. A lot will depend on how the risk mood evolves though and after some heavy selling in recent days, there might be scope for some reprieve. However, there is the Fed to contend with tomorrow and that is the bigger factor at the moment.

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

There isn’t much that hasn’t already been said since last week. The ECB isn’t showing much signs of urgency to address fragmentation risks and they aren’t perturbed (yet) by the jump in periphery bond yields since Thursday last week.

For some context, 10-year Italian bond yields have jumped up by a staggering 67 bps since last Wednesday’s closing level. It’s all about this issue at the moment when it comes to European bond markets:

• ECB welcomes back an old friend

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

The early gains have vanished in the equities space and there’s a general uneasiness on how things are going to play out when Wall Street comes into play later today. The mood right now feels like this:

A look at European indices is showing that the Eurostoxx is down 1.0%, the DAX down 0.8%, CAC 40 down 1.3%, UK FTSE down 0.6%, IBEX down 0.6%, and FTSE MIB down 1.3% on the day.

Meanwhile, S&P 500 futures have steadily dropped during the session as it erases its earlier 55 points gains to just 6 points now:

The only bright spot I can pinpoint is that the long-end of Treasuries are not selling off today, as the market sees a bit of a relief. 10-year yields are down 7 bps to 3.29%. That comes despite European bond yields continuing to track higher, with 10-year BTP yields up another 4 bps to 4.14% on the day.

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

European indices have turned lower and US futures are now barely staying afloat as risk appetite is sapped in European morning trade. That is seeing dollar bids return and after some slight losses earlier, the dollar is now trading higher against the pound, loonie, aussie and kiwi.

Cable has seen a dip towards 1.2100 for the first time since May 2020:

As mentioned earlier here, the dollar’s earlier drop doesn’t hold much technical significance and owes more to the market seeking a bit of a breather. But as risk starts to show some nervousness again, it’s easy pickings for the greenback.

GBP/USD continues to look poised for a run towards 1.2000, all things considered.

Elsewhere, EUR/USD has also fallen from 1.0485 to 1.0435 at the moment while the yen is a notable beneficiary with bond yields (at the longer end of the curve at least) retreating on the session so far. USD/JPY is down 0.2% to 134.15 as the push and pull continues just below the 135.00 handle.

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

Headlines:

• Stocks continue to come under pressure on the session
• The crypto collapse continues to rumble
• 10-year Treasury yields at their highest since 2018 as bond selloff deepens
• 10-year JGB yields holding above BOJ’s implied cap in late Tokyo session
• Italian 10-year yields hit 4% for the first time since 2014
• ECB’s Simkus says not worried by surge in Italian bond yields
• Dollar in firm control as market jitters reverberate
• AUD/USD poised for a run at the May lows as risk jitters escalate
• Cable poised to revisit the year’s lows as UK leads the recession race
• UK April monthly GDP -0.3% vs +0.1% m/m expected
• USD/JPY: Up, up, and away
• BOJ’s Kuroda: Recent sharp fall in the yen is undesirable

Markets:

• USD leads, AUD lags on the day
• European equities lower; S&P 500 futures down 2.3%
• US 10-year yields up 9.6 bps to 3.25%
• Gold down 0.8% to $1,855.53
• WTI crude down 1.5% to $118.82
• Bitcoin down 13% to $23,608

The market is carrying over the selloff from last week through to this week, as the rout spread across all asset classes with the dollar being the major beneficiary.

Equities held lower before the selling intensified in European morning trade and alongside another rout in Italian bonds, it is making for rather dour sentiment on the session. The implosion in cryptocurrencies since the weekend also didn’t really help the mood.

USD/JPY initially ran higher to 135.00 but has since fallen back a bit despite the surge in yields, owing to some counter-flows on risk aversion. The pair now keeps around 134.30-40 levels on the day.

Elsewhere, it has been one-way traffic for the dollar as it covers back the retracement in mid-May. That applies to the euro, which is now down 0.6% to 1.0455 on the day and the pound as well which has fallen past 1.2200 and is down over 1%.

Amid the sour risk mood, the aussie and kiwi are leading losses with the former falling past 0.7000 for the first time in four weeks and the latter slipping past 0.6300 – also the first time in four weeks.

It’s a bloodbath out there as everything is getting crushed, including commodities.

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

The bond selloff deepens in Europe and that won’t lend much help to overall market sentiment to start the new week. This is all the ECB’s doing as mentioned last week here.

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

As mentioned earlier, a retest of the year’s lows is on the cards for cable and we could get it as soon as today with the way things are going. The technicals are siding overwhelmingly with the dollar right now as the retracement bounce in cable fades. The same can be said for most other major currencies against the greenback as well.

GBP/USD is now down 120 pips today to 1.2190 but it isn’t the only dollar pair down over 1% on the day. The aussie and the kiwi are facing similar losses with AUD/USD down to 0.6965 and NZD/USD down to 0.6295 on the day.

It’s a bloodbath out there.

• USD/JPY: Up, up, and away
• Cable poised to revisit the year’s lows as UK leads the recession race
• Dollar in firm control as market jitters reverberate
• AUD/USD poised for a run at the May lows as risk jitters escalate

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

EXPECTED
MARKET-MOVING EVENTS:

 

Wednesday: FOMC Rate
Decision

 

Given that
the “peak inflation” narrative has been put aside on Friday as the US CPI data
showed inflationary pressures still rampant and the higher rate in long-term
inflation expectations in the UoM Survey spooked the markets even more, I
expect the markets to maintain a risk-off sentiment into the FOMC event on
Wednesday and keep with the run on the US Dollar.

 

The UK GDP
on Monday and the UK employment numbers on Tuesday won’t matter too much as the
market will just keep on buying the USD into the FOMC. Same story for the
German ZEW survey on Tuesday. I see these data as irrelevant as the market will
just focus on positioning for the FOMC on Wednesday.

 

On Wednesday
the FOMC is expected to hike by 50 bps bringing the rate to 1.25-1.50%. After
the inflation data on Friday though the market started to price in a 75 bps
chance and we saw such calls coming from Barclays and other economists like
Summers. Further out the Fed is expected to hike by 50 bps at the July,
September and October meeting and then going back to 25 bps pace from December
onwards bringing the rate to 3.00-3.25% by year-end.

 

We will also
get the Summary of Economic Projections (SEP) which should show a lower
revision in growth rate, a higher revision in inflation rate and probably a
higher revision in unemployment rate. The “dot plot”, which shows the forecast
of year-end interest rates by the FOMC participants, will be lifted from the
old projections of 1.75-2.00% we saw in March. Most probably they will reflect
market expectations of 3.00-3.25%.

 

Last year in
June the Fed surprised with a more hawkish than expected meeting and I feel
like this one will be another. So, the pattern we saw lately, that is sell into
FOMC, buy the fact and then sell again, may be broken this time and lead to
just a sell-off into and out of the event. I really can’t see the Fed keeping
the status quo and certainly not hinting at any pause or whatsoever like the
infamous comments from Fed’s Bostic. At this point a recession is inevitable
and the only way out of this inflationary mess as the ex-Fed President Paul
Volcker taught us. In the major currencies space the clear winner will be the
USD.

 

On Thursday
we will have SNB and BoE Rate Decisions and on Friday it will be time for the
BoJ. The SNB is expected to hold interest rates unchanged and strike a hawkish
tone amid rising inflationary pressures in Switzerland. The BoE is expected to
hike by 25 bps and keep a hawkish tone signalling further hikes ahead. The BoJ,
on the other hand, is expected to keep its dovish tone as inflation in Japan is
not as high as in the other developed countries and since they’ve been trying
to get some inflation for several years, it doesn’t look like some overshoot
from their 2% target is going to force their hands.

 

As
previously noted, the Fed this week will be the major event and eclipse
everything else. So, buckle up and prepare, because painful times lie ahead…

 

This article
was written by Giuseppe Dellamotta.

 

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

The market continues to cower in fear as we get into the new week, not helped whatsoever by the ECB failing to calm the selloff in European bond markets as well as the high US inflation print at the end of last week.

The deterioration in the risk mood is continuing to today with a selloff being observed across all asset classes. Stocks, bonds, commodities, and cryptos as well (since the weekend).

The aussie is set to finish down for a fourth straight day but today’s loss is a painful one to take. It will be a crack below 0.7000 again and the double-top pattern around 0.7265-70 will only exacerbate the decline when you go with the technicals.

There isn’t much standing in the way of a push back towards the May lows at 0.6829 next. The other key technical support to watch will be a trendline support seen from the August and December lows (white line) but that doesn’t kick in until below 0.6800.

As sentiment continues to keep on the defensive ahead of the Fed, the aussie is likely to stay under pressure for the time being.

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