Daily Forex News By XtreamForex

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Gold Price Forecast: XAU/USD could rebound to $2,005 if 50 DMA support holds
Gold price is replicating the moves seen in Wednesday’s Asian trading, making headways for a minor recovery toward $2,000 early Thursday. The retreat in the United States Dollar (USD) and the US Treasury bond yields supports Gold price.

US Dollar steadies as US debt ceiling optimism wanes, Gold price bounces
The US Dollar is preserving a part of the previous day’s gains, although on the defensive so far this Thursday. The pullback in the US Treasury yields across the curve is capping the US Dollar upside, which is somewhat helping Gold price stay afloat. Despite the gains in the Asian indices, investors remain cautious, reflective of a minor drop in the US S&P 500 futures. Markets continue to weigh the prospects of a United States default even though the recent progress on the US debt ceiling talks

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EUR/USD Trying to Extend Bottoming Out
U.S. Treasuries and German bunds parted ways Friday after a combined 10 basis point rise the day before. U.S. yields still rose between 1.3and 4.8 basis points, with the belly underperforming. They easily overcame a setback in the early hours of U.S. trading when Fed Chairman Powell said credit stress could limit the need for new rate hikes. That threw a spotlight on a growing split in the FOMC. Several other Fed governors last week were far less convinced by the idea of such a pause. This also contrasts with the ECB chairman, who on Sunday called for more rate hikes: “We are not done, we are not taking a pause, based on the information I have today.” German interest rates entered the weekend down 0.5to 2.9 basis points. The chart data presented too much of a challenge for the 10-year bond (resistance 2.5%). This was also true for equities.

The S&P500 tested the February high – before the SVB collapse – but could not overcome it. European stocks closed in the green nonetheless, with the EuroStoxx50 making an attempt to reach the important resistance at 4415. This is the post-pandemic recovery and multi-year high from November 2021. The dollar took a breather after its earlier rise. EUR/USD recovered from a low of 1.076 to 1.0805. The DXY (trade-weighted dollar) eased from the highest level since mid-March (103.58) to 103.2. Sterling consolidated near the highest level since December last year. EUR/GBP settled in the upper range of 0.86.

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Fed’s 2 Biggest Hawks Yesterday Coloured Trading
The Fed’s two biggest hawks yesterday coloured trading which until then turned out to be non-directional. Kashkari from the Minneapolis Fed said it’s a close call between a pause and a hike in June, adding that the former wouldn’t mean tightening is over per se. St. Louis Fed president Bullard called US recession worries overstated and expects some 50 bps more rate hikes sooner rather than later this year.

SF’s Daly and Atlanta’s Bostic argued for caution but their comments were largely dismissed. US yields went from losing almost 5 bps to similar-sized gains at the front end of the curve. Longer tenors also added between 3.8-4.2 bps. German yields followed suit, adding 3.1-5.2 bps with the front underperforming. ECB’s Villeroy warned about persistent underlying price pressures. Especially services inflation needs to be monitored as it is likely to become the dominant inflation source. Peripheral spreads narrowed with Greece hugely outperforming (-17 bps, to the lowest since Nov 2021) following incumbent PM Mitsotakis’s election victory last Sunday.

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RBNZ Monetary Policy Statement May 2023

The RBNZ tightened by 25 points to 5.5 percent and expressed confidence that this will be sufficient to bring inflation back to target. We continue to see risks that the large migration surge will ultimately require more action after July.

RBNZ Monetary Policy Statement, May 2023

The RBNZ increased the OCR as expected to 5.5 percent.

However, the big surprise was in the forward profile, in which the RBNZ strongly suggests that it is on hold from here until at least mid-2024. We see some upside risks to the RBNZ’s view, but for now see the RBNZ on hold in July, with some potential of a 25 point rise in the OCR in August.

Migration pressures are acknowledged, but the RBNZ takes a sanguine view on their impact on capacity pressures. The RBNZ’s net migration estimates are higher and imply a net 75,000 net inflow in the year to December. This is only slightly lower than Westpac’s equivalent forecast of a net 83,000 inflow (on a working-age population basis). Despite the upgrade, the RBNZ’s view is that this adds significantly to supply as well as demand. Migration is seen as having some supportive impact on house prices but by not as much as we have taken in our recent Economic Overview.

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Fed Minutes Depict Uncertainty Surrounding Future Rate Hikes
The minutes from the May 2-3 Federal Open Market Committee (FOMC) meeting reiterated that curtailing inflation remains the principal objective of the Fed.

On the current state of the economy, the Committee members noted that “economic activity had expanded at a modest pace in the first quarter. Nonetheless, job gains had been robust in recent months, and the unemployment rate had remained low. Inflation remained elevated. Participants agreed that the U.S. banking system was sound and resilient.”

When discussing credit conditions, participants noted that, “stress in the banking sector would, in coming quarters, likely induce banks to tighten lending standards by more than they would have in response to higher interest rates alone.” Participants noted however, that the economic impact was uncertain at this time.

On the future path of monetary policy, committee members stated that “in light of the lagged effects of cumulative tightening in monetary policy and the potential effects on the economy of a further tightening in credit conditions, the extent to which additional increases in the target range may be appropriate after this meeting had become less certain.” Several participants noted however, that if the economy progressed in line with their current projections, future rate hikes may not be warranted.

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US PCE Deflators and Durable Goods Orders Scheduled

UK bonds crashed for a second day straight with yields adding 10.6-19.2 bps across the curve. UK money markets discount an additional 100 bps tightening by December following the big upside CPI surprise Wednesday morning. Sterling initially revisited YtD highs but unable to force a break higher, technical return action kicked in. EUR/GBP eventually closed narrowly above 0.87. Bonds in the US and Germany slid as well with huge underperformance of the former. US yields ripped between 0.9 (30-y) and 15.6 (2-y) bps higher. Second-tier but above-consensus data including weekly jobless claims spurred the move with recessionary along with financial stability concerns easing. Markets even fully priced in a July rate hike. Optimism about US negotiators reaching a debt ceiling deal also helped sentiment. A two-year suspension in return for spending cuts is on the table. German yields followed from a distance. Changes varied from +3.7 to 6.2 bps with the belly underperforming the wings and the 10-y yield testing the 2.53% resistance area. ECB’s Nagel, Knot and Villeroy hit the wires on a hawkish note. The US dollar performed strongly, even as Wall Street posted gains up to 1.7% (Nasdaq, Nvidia-sparked rally). EUR/USD closed around important support of 1.0727. The trade-weighted index took a look beyond 104.089 resistance to close at 104.25 – the highest since mid-March. USD/JPY ventured north of 140 for the first time since November last year.

The Asian session this morning is a quiet one. Aside from Tokyo CPI (see below) there’s little news. Speaker of the House McCarthy vowed to continue working until a debt ceiling deal is reached. We wouldn’t be surprised if they’d strike one during the weekend. In the run-up, we still have US PCE deflators and durable goods orders scheduled for release today. The former are the Fed’s preferred inflation gauge and seen accelerating from 4.2% to 4.3% on a 0.3% m/m pace for the headline. Core PCE should come in at an unchanged 4.6% (0.3% m/m). An outcome in line with expectations probably is enough to sustain the current bond yield trend, be it on a less blistering pace. The technical charts offer help as well with the US 2-y and 10-y yield surpassing 4.50% and 3.80% levels respectively. A weekly close above that level would be a major plus. This also goes for the DXY dollar closing above 104.089 level and EUR/USD sub 1.0727. Both levels are being tested as we write. UK April retail sales this morning surprised to the upside, with the core gauge double the 0.4% that was expected. It comes with a downward revision of the March figure though. EUR/GBP in a first reaction barely budges. The 0.87 big figure for the time being survives.

The Reserve Bank of South Africa yesterday raised its policy rate by 50 bps to 8.25%. This was expected by the majority of analysts. The Bank slightly upwardly revised its growth forecast for this year from 0.2% to 0.3%. Expected growth for 2024 and 2025 was left unchanged at 1.0% and 1.1% respectively. Forecasts for 2023 and 2024 inflation were raised to 6.2% (from 6.0) and 5.1% (from 4.9%). The SARB targets an inflation between 3-6%. Risks to the inflation outlook still are assessed as being to the upside. At the current repurchase rate level, policy is labelled as being restrictive, consistent with elevated inflation and risks. The Bank also sees a growing external financing need with the current account deficit expected to rise from 2.5% this year to 3.6% in 2025. SARB Governor Kganyago mentioned the risk that globally tighter financial conditions are raising the risk profiles of countries needing foreign capital. In this respect, the rand weakened sharply further yesterday reaching a record low against the dollar near USD/ZAR 19.84.

Inflation excluding fresh food in the Tokyo area in May slowed more than expected from 3.5% on April to 3.2%. At the same time, the core measure excluding food and energy unexpectedly rose from 3.8% to 3.9%, the highest level in more than 40 years. The Tokyo data are seen as a good precursor for the national data. The data suggest that inflation still might hold above the BoJ 2.0% inflation target for quite some time, fueling the debate whether the Bank should gradually tweak its ultra-easy policy.

 

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Forex and Cryptocurrency Forecast
EUR/USD: Dollar Awaits U.S. Bankruptcy
The dollar has been rising since May 4. Last week, on May 26, the DXY Index reached 104.34. It hasn’t been this high since mid-March 2023. What is driving the U.S. currency up and, consequently, pushing the EUR/USD pair down? According to analysts at Commerzbank, “the absolute calmness in the options market suggests that the driving force behind the EUR/USD exchange rate is monetary policy considerations rather than ongoing U.S. debt ceiling negotiations.” It is worth noting that the probability of a rate hike at the June 14 FOMC (Federal Open Market Committee) meeting increased throughout May. At the beginning of the month, the likelihood of a rate increase was close to 0%, but by the end of the month, it reached 50%. It turns out that the U.S. economy is holding up very well compared to other economies, and the deterioration in lending has not been as severe or rapid as initially feared.

Of course, 50% is far from 100%. Moreover, the FOMC published the minutes of its latest meeting on Wednesday, May 24, and the key phrase regarding the possibility of additional tightening of monetary policy was absent. The document also revealed divergent opinions among committee members regarding further rate hikes. However, despite this, the flight to safety in anticipation of a potential U.S. default continued to support the dollar.

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One Step Closer to Debt Ceiling Deal – And a Fed Hike
The holiday shortened trading week starts tense but on an optimistic note as US President Joe Biden and House Speaker Kevin McCarthy finally reached an agreement to raise the debt ceiling. The deal must get approval in a congressional vote on Wednesday.

US Treasury Secretary Janet Yellen warned that the Treasury will be running out of money in about a week, by June 5th.

Presently, it feels like investors are confident that the US debt ceiling will be raised. The kneejerk reaction to a debt ceiling deal will be positive but gains could remain short-lived as most of the deal is already priced in, and the end of the det ceiling crisis means that the US treasury will issue $1 trillion debt to service its existing debt, pay its bills and start refilling the Treasury’s General Account, which fell to below $50billion last week, whereas the balance should be normally around $500bn. This means that the US Treasury will be sucking around half a trillion dollars from the market very shortly. We don’t know at what speed at which the market liquidity will drain, but we know that it will drain.

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What if Russia Didn’t Follow OPEC’s Output Cuts?
The US 2-year yield fell sharply, while the S&P500 ended flat after hitting a fresh high since last summer on optimism that the US will finally agree to raise the debt ceiling.

The House will vote today to decide whether the debt limit bill gets approved at time to get a Senate approval by next Monday deadline.

The deal between Biden and McCarthy freezes discretionary spending for the next two years, which excludes weighty plans like Medicare or social care, and will only have a minor impact on around $20 trillion budget deficit projected for the next decade. Frozen spending means a spending cut in real terms as long as inflation remains high. The higher the inflation, the higher the spending cut in real terms.

But the problem is that at least 20 conservative Republicans of the House rejected Kevin McCarthy’s compromise on debt ceiling, saying that spending cuts are not enough. One hardcore Republican, Dan Bishop of North Carolina, threatened to vote to oust McCarthy because he ‘capitulated’ to Democrats. Democrats, on the other hand, are not fully happy either as they don’t want to freeze or to cut spending.

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US and Taiwan Set to Sign the First Deal Under a New Trade Talks Framework

Core bonds enjoyed another solid bid yesterday, further unwinding ‘hawkish sentiment’ that reigned since mid-May. Chinese inspired risk-off and softer than expected national CPI data from Germany (HICP 6.3% Y/Y from 7.6%) and France (6.0% from 6.9M%) supported the move. Italian inflation (8.1% from 8.7%, but 7.5% expected) didn’t suffice for bond investors to change tactics.

That said, German/European yields already reached intra-day lows early in the session, settling in a sideways pattern later. In the end, German yields lost between 3.8 bps (30-y) and 7.8 bps (5-y). US yields joined the broad bond market rebound, but the intraday pattern was a bit more choppy. Eco data were mixed with an awful Chicago PMI (40.4 from 48.6) and an unexpected rise in US April job openings (10 103k vs 9400k expected).

While seen as important input for the Fed, JOLTS didn’t stop the decline in yields. Fed speak was at least partially to blame. Fed’s Harker and Jefferson both supported the idea of a Fed pause/skip in the rate hike cycle to assess incoming data before deciding about the extent of further policy firming. Market expectations on a June Fed hike dropped below 50%. US yields declined between 5.2 bps (5-y) and 2.9 bps (30-y).

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EUR/USD: Planning for Friday’s NFP Volatility
EUR/USD started June with a 100-pip rally after a volatile end to May.

Given the selloff we saw last month, a retracement in early June was to be expected, although I did think a 1.0600 retest might come first.

So what should we watch ahead of Friday’s non-farm payroll (NFP)?

The first level I’m watching is 1.0760, as the euro didn’t give us a convincing break on Thursday, leaving it intact as resistance.

We saw something similar from the US Dollar Index (DXY) in relation to the 103.50 yearly open I’ve discussed at length.

So as of now, the dollar is still above critical support, and the EURUSD is below resistance.

But instead of expecting a reversal immediately from these levels, Friday’s NFP volatility could produce a few long wicks to trade next week.

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XAU/USD bears approach $1,930 support on upbeat US Dollar
Gold Price (XAU/USD) stays on the bear’s radar for the second consecutive day as the precious metal renews intraday low near $1,945, extending the post-NFP losses amid to early Monday amid firmer US Dollar and the Treasury bond yields.

That said, the US Dollar Index (DXY) prints mild gains around 104.12 as it keeps the previous day’s recovery from a one-week low amid Monday’s sluggish Asian session. In doing so, the greenback’s gauge versus the six major currencies cheers the market’s fears of higher Federal Reserve (Fed) rates and the US-China tension, not to forget the fresh war headlines surrounding Russia and Ukraine.

Apart from that, an increase in the odds supporting June’s 0.25% Fed rate hike and a reduction in the market’s bets of a Fed rate cut in 2023 also seem to favor the US Dollar and yields, which in turn exerts downside pressure on the Gold price amid a sluggish start to the week. It’s worth noting that Friday’s Nonfarm Payrolls (NFP) surprised markets with a strong outcome and renewed hawkish concerns about the US central bank. That said, the US-China tension about Taiwan joins the headlines suggesting a heavy battle between Russia and Ukraine also weighs on the sentiment and allows the DXY to remain firmer, which in turn favors the Gold sellers.

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GBP/USD struggles to surpass 1.2450, upside seems favored despite hawkish Fed bets improve
The GBP/USD pair has witnessed delicate barricades after climbing to near 1.2450 in the early European session. The Cable is expected to remain on tenterhooks as the USD Dollar Index (DXY) has attempted a recovery after dropping to near 103.81. More downside for the US Dollar Index (DXY) seems solid as the United States economy is moving towards recession.

S&P500 futures have taken nominal gains in the European session, portraying a mild recovery in the risk appetite of the market participants. US equities witnessed some selling pressure on Monday after the United States Institute of Supply Management (ISM) agency reported weaker-than-anticipated Services PMI data. The demand for US government bonds has retreated. The 10-year US Treasury yields have jumped to near 3.71%.

On Tuesday, US ISM Services PMI managed to dodge the 50.0 threshold that bifurcates expansion from the contraction phase. The Service PMI for May landed lower at 50.3 than the expectation of 51.5. This indicates that the economic indicator has hardly defended the contraction phase and expansion in service activity was extremely mild.

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Weak Chinese Trade Data Add to Growth Worries

German Bunds outperformed US Treasuries during European trading hours following an unexpectedly strong decrease of inflation expectations in the ECB’s April Consumer Expectations Survey. The divergence between the two became even larger as US Treasuries started underperforming (especially at the front end the curve) during the US session. The move started after the US Treasury announced plans to boost the size of its coming bills sales: $60bn for the 4-week tenor (+$25bn), $50bn for the 8-week tenor (+$35bn) and $46bn for the 17-week auction (+$2bn).

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Dow Jones Versus the Nasdaq 100 Amid Rising Government Bond Yields
The blue-chip-oriented Dow Jones gained cautiously on Wednesday while the tech-heavy Nasdaq 100 sank 1.75% in the worst single-day drop since April 25th. In fact, the Nasdaq/Dow ratio plunged 2.02%, marking the worst 24-hour period since October 27th, which was over 7 months ago. What explains this divergent dynamic and is it a concern for sentiment going forward?

Tech’s underperformance coincided with a strong day for developed countries’ 10-year government bond yields. An average of key nations (such as the United States, Canada, and Australia) soared 3.78% on Wednesday. That was the best single-day gain since December 20th. As we were reminded last year, growth-oriented companies face increasingly difficult challenges in a rising rate climate.

The surge in government bond yields follows two key events that are related: unexpected interest rate hikes from the Reserve Bank of Australia and Bank of Canada. The former was earlier this week while the latter occurred over the past 24 hours. These events served as not just a reminder that the fight against inflation is not done, but that other major central banks, such as the Fed, could yet follow.

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USD/CAD at Risk on Hawkish BoC but Fed May Be a Spoiler

The Canadian dollar has appreciated sharply against the U.S. dollar since late May. The chart below shows how USD/CAD has fallen more than 2.0% over the past two weeks, with the pair now trading near C$1.3350 and steadily approaching its 2023 lows.

Bank of Canada’s surprising decision to raise interest rates at its June meeting after pausing its hiking campaign in January has reinforced recent FX dynamics, acting as another positive driver for the Loonie.

BoC’s aggressive stance could continue to put downward pressure on USD/CAD in the near term, especially if traders boost bets on further tightening in response to the central bank’s view that “monetary policy is not sufficiently restrictive” to bring inflation down to the 2.0% target.

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EUR/USD flat-lines around mid-1.0700s, traders await US CPI and FOMC decision this week

The EUR/USD pair recovers a few pips from the Asian session low and for now, seems to have stalled its retracement slide from over a two-week high touched on Friday. Spot prices currently trade just below mid-1.0700s, nearly unchanged for the day, as traders seem reluctant to place aggressive bets on the first day of a crucial week.

The latest US consumer inflation figures are due for release on Tuesday and will be followed by the highly anticipated FOMC monetary policy decision on Wednesday. The key data/event will provide more cues on the Federal Reserve’s near-term policy outlook, which, in turn, will determine the next leg of a directional move for the US Dollar (USD) and provide some meaningful impetus to the EUR/USD pair.

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US May CPI Inflation The Main Dish Today
US stock markets retained positive momentum yesterday with the three main indices rising by 0.55% (Dow) to 1.5% (Nasdaq). The S&P 500 rose by almost 1%, closing above the August 2022 top. Tech bell weather Nasdaq cleared that same technical hurdle earlier this month. Stock markets embrace the Fed’s “skip” idea while data simultaneously suggest that the economy and labour market aren’t cooling as rapidly as feared.

The latest NY Fed Survey of Consumer Expectations yesterday provided evidence for both Team Skip and Team Hike within the Fed. Inflation expectations declined at the short term horizon to their lowest level in two years (1y; 4.4% to 4.1%), while they increased slightly at the medium- (3y; 2.9% to 3%) and longer-term (5y; 2.6% to 2.7%) horizons. Labor market expectations were mixed as well with expected earnings growth declining (2.8% from 3%), and unemployment expectations and perceived job loss risk improving. Households’ perceptions and expectations for credit conditions and their own financial situations all deteriorated slightly.

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XAU/USD defends 100-day SMA ahead of the crucial FOMC decision
Gold price once again attracts some buyers near the 100-day Simple Moving Average (SMA) on Wednesday and recovers a part of the previous day’s slide to the weekly low. The XAU/USD sticks to its modest intraday gains heading into the European session and currently trades just above the $1,945 level, though remains well within a familiar range held over the past three weeks or so.

Federal Reserve’s rate-hike pause expectations lend support to Gold price

Soft consumer inflation figures released from the United States on Tuesday reaffirmed market bets for an imminent pause in the Federal Reserve’s (Fed) rate-hiking cycle, which, in turn, is seen lending some support to the Gold price. In fact, the US Labor Department reported that inflation, as measured by Consumer Price Index (CPI) barely rose in May and the year-on-year rate decelerated to the slowest pace since March 2021. The annual inflation print of 4.0%, meanwhile, is still twice the Fed’s 2% target and kept hopes alive for further policy tightening by the Fed.

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Dollar surges after Fed signals more rate hikes ahead
The U.S. dollar rallied in early European trade Thursday, boosted by the Federal Reserve’s hawkish projection of more tightening this year, while the euro weakened ahead of the latest European Central Bank policy meeting.

At 02:05 ET (06:05 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.3% higher to 102.835, recovering from the previous session’s four-week low.

The U.S. currency bounced after recent losses following the conclusion of the latest policy-setting meeting of the Federal Reserve on Wednesday, with the central bank deciding to pause its year-long policy tightening cycle, as widely expected.

However, the Fed also signaled in new economic projections that rates will likely rise by another half of a percentage point, i.e. two more hikes of 25 basis points, by the end of this year.

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