US equity market was in a good mood overall as data showed US jobless claims dropped to a fresh pandemic low. The S&P 500 and Dow Jones Industrial Index advanced 0.39% and 0.79% respectively, and the Nasdaq 100 index declined 0.06%. Industrials and Financials share led the gains in the S&P 500, while Utility stocks lagged. Equities were lifted by a report suggesting President Joe Biden will unveil a budget that would boost Federal spending to $6 trillion in 2022.
We are seeing some bizarre actions in the Reverse Repo market recently. Demand for the key Federal Reserve facility used to control short-term rates surged to the highest on record. According to Bloomberg, fifty participants on Thursday parked some $485.3 billion in the overnight reverse repurchase facility. The total amount already surpassed the previous record high of $474.6 billion from December 31st, 2015. The return of the Fed facility is close to 0%, but demand has been increasing as a flood of cash overwhelms the funding market and has left investors wondering what is happening to the system.
US Treasury Secretary Janet Yellen said high inflation will be here to stay until the end of the year. She noted the spiking inflation was caused by price changes driven by consumer-spending shifts related to the pandemic and supply-chain bottlenecks. While the Republicans blame Biden’s plan could accelerate prices, Yellen rejected the idea of long-term spending on infrastructure would spur inflation.
Cable jumped 0.62% on Thursday as policymaker from the BoE signals possible early rate hike. Gertjan Vliedhe, a member of BoE’s Monetary Policy Committee, is optimistic on UK’s economic recovery, saying “it would probably take until the first quarter of next year to have a clear view of the post-furlough unemployment and wage dynamics, so a risk in Bank Rate could be appropriate soon after, along a slightly steeper path than in my central case.” Although it is not an official statement from the central bank, nonetheless it is the third central banks pathing toward monetary normalization. With more central banks joining the taper party, it will be interesting to see where the Federal Reverse stands, the wait-and-see game is getting boring for investors.
USDJPY surged 0.63% as the Japanese government plans to extend lockdown to June 20th. Japanese Prime Minister Yoshihide Suga said he will decide on whether to extend a virus emergency in Tokyo and other major cities after consulting with experts on Friday. The emergency measure is placed is set to expire on May 31, but the infection cases resist backdown given there is little progress in Japan’s vaccine distribution. Time is running out for the Japanese government to keep virus cases under control, and they will be hosting the Summer Olympics in less than two months.
We are also seeing rising infections number in Australia. The Australian government announced a seven-day lockdown in Victoria, the second-largest state. There is a little trading reaction to the negative headline, Aussie is unfazed for the day.
GBPUSD (Daily Chart)
Cheers for the Cable bears did not last long as the price bounced on unexpected hawkish sentiment from one of BoE policymakers, climbed 0.42% to 1.4177. Though we are quite bullish on the Sterling, we thought the correction could be deeper into the 1.4 handles, but today’s disruptive move further solidifies the upward trend for Cable. There is a chance for a prominent break higher in the coming days, with the bulls look to take out the 1.42 hurdle. Further on the north, the nearest resistance sits at 1.437, next to 1.464.
Resistance: 1.42, 1.437, 1.464
Support: 1.4, 1.366
USDJPY (Daily Chart)
USDJPY was soaring back to 110 amid the extension of another emergency lockdown in Japan. We mentioned the rising infection cases in Japan could be weighing down on the Japanese Yen in the previous analysis. This is exactly what the market needs to move out of that tight trading range. By overcoming 109.7 resistance, the bulls are moving onto a yearly high of 111. The renewed lockdown could severely undermine the Japanese Yen given its threat to delay the Olympics game, and all the economical merits. MACD on the daily chart indicates a bullish trend.
USDCAD (Daily Chart)
USDCAD struggled to find demand as WTI crude oil futures look to close around 67, the highest price in three years. Sellers are showing no mercy for this pair, the price plunged upon touching SMA20 at 1.214 and completely wiped out yesterday’s gains. Support at 1.2024 will be under pressure once again, and it might just surrender itself amid recent strong selling bias. Further, on the downside, space will be wide open between 1.2024 and 1.1925, followed by support at 1.1812.