The European Central Bank maintains the dovish position and the three key…
The European Central Bank maintains the dovish position and the three key interest rates remain unchanged
US stocks climbed to a record high as investors are shifting to believe Federal Reserve will maintain accommodative policies in upcoming months. The Nasdaq 100 Index gained more than 1%, while the Dow Jones Industrial Average index was up only 0.06%. S&P 500 closed 0.47% higher with Health Care shares led the gains, and Financials were underperforming.
Commerce ministers from China and the US agreed to push forward trade and investment links. While the two nations are slowly resuming official contact after Joe Biden took office, it is still unclear what the US plans to do with the so-called ‘Phase One’ deal signed last year. “It’s positive in the sense that both countries are stepping up economic and trade communication, but no game-changing decisions or announcements have come out yet, I won’t be overly excited,” commented Alvin Tan, head of Asia currency strategy at RBC Capital Markets LLC.
The Basel Committee on Banking Supervision is putting the strictest capital requirement for holding crypto assets on banks’ balance sheets. The panel proposed that a 1,250% risk weight be applied to a bank’s exposure, meaning banks need to hold a dollar in capital for each dollar worth of crypto-asset under the current 8% minimum capital requirement. The Committee is deeply concerned that the growth in these volatile assets could jeopardize global financial stability, thus the required capital will need to be sufficient to absorb a full write-off without exposing depositors and other senior creditors of the banks to a loss.
ECB kept the policy rate unchanged, and here are Bloomberg’s key takeaways from its policy statement:
Pandemic purchases will continue at a significantly higher pace than early this year.
New economic forecasts still put inflation in 2023 at 1.4%, well below the ECB’s goal.
There was a debate on the pace of purchase and some divergent views in the Governing Council.
Main Pairs Movement
EURUSD was on the back foot against the dollar greenback despite the dollar negative mood. The Euro weakness could come from the ECB’s announcement of larger monetary spending. Meanwhile, US CPI (MoM) in May climbed 0.6%, the second-largest advance in more than a decade. The inflation gauge showed steady growth in the costs of used vehicles, houses, airfares, and apparel. According to the Labor Department, the rapid rise in used car prices accounts for 1/3 of the total monthly advance in CPI. The Core CPI which excludes volatile food and energy rose 3.8% on a year-over-year basis, the highest number since 1992. Better-than-expected inflation should press Federal Reserve to start tapering sooner, which bolsters the US dollar. But since we saw quite the opposite reaction in the market, it rather implies investors are buying into Fed’s transitory inflation narrative and dollar bearish bias could resume from here.
Cable temporarily put behind some of its concerns and ride with dollar weakness gained 0.4% on Thursday. Aside from the EU’s disagreement over the implementation of the Northern Irish protocol, UK is also facing a possible delay in its reopening. The Delta variant is finding its way to spread around the unvaccinated, the highly anticipated ‘Freedom Day’ will likely be postponed from June 21st to early July.
NZDJPY (Daily Chart)
NZDJPY is still supported by a 78.6% Fibonacci level around 78.7. Most of the gains from the RBNZ hawkish shock have been erased by choppy trading sessions in the past two weeks. Price is retesting an upward trendline started from last November, and will likely cling to it given current uninspired market sentiment. A strong deviation to the upside is needed to keep the bullish bias alive. In the north, the nearest resistance sits around 80.1, next to 81.1.
Resistance: 80.1, 81.1, 82.2
Support: 78.7, 76.84, 75.5
USDCHF (Daily Chart)
USDCHF failed to extend beyond 0.899 as SMA20 remains to be a solid cap on this pair. There was a false breakout on SMA20 and it went straight to contest soft resistance at 0.904, but upward momentum quickly faded amid a lack of follow-up demand. With the bears are back in the driver’s seat, USDCHF looks to close the day with a lower-low, which could provide an exit to the recent consolidation phase. To the south, the immediate support lies around 0.885, followed by a six-years low of 0.878.
Resistance: 0.904, 0.908, 0.916
Support: 0.885, 0.878
XAUUSD (Daily Chart)
Gold briefly touched $1870 after the US CPI release, then quickly reversed back above $1890. We witnessed yet another strong defense from gold buyers, price did not even have a chance to pass the ascending trendline. Worth mentioning SMA20 is still a valid dynamic support line for the yellow metal. However, we are somewhat cautious on the direction of Gold in the near term given today’s positive correlated move in stocks and gold. Investors should be prudent to wait for a clear breakout, which could be provided by next week’s FOMC meeting.
Resistance: 1922, 1956, 2000
Support: 1870, 1890, 1847
China’s PPI surged to 9% in May, the highest level since 2008
China’s PPI surged to 9% in May, the highest level since 2008
US equity market was mixed as investors brace for Thursday’s inflation report from the US. The S&P 500 and Dow Jones Industrial Average Index lost 0.18% and 0.44% respectively, while the tech-heavy Nasdaq up a little 0.03%. Industrials and Financials shares were dragging the S&P 500, erasing all the gains from tech shares. “Even if inflation comes out a little higher than Street expectations, the Fed isn’t going to change its path. There’s a lot of wait-and-see going on and just thinking it would take a lot to surprise markets,” said Esty Dwek from Natixis Investment Managers. We are already seeing some moves in the bond market, with the 10-year US Treasury yield declined as much as 6.3 basis points to 1.471%.
China’s PPI surged to 9% in May, the highest level since 2008. Soaring costs of imported commodities were driving the factory-gate inflation. However, consumer inflation only increased 1.3% on a year-over-year basis, missed a forecast of 1.6%. Companies are reluctant to pass the expensive input prices to their consumers due to intense competition amid a reopening. The situation will be eased as the Chinese government launched a campaign to curb commodity prices by cracking down on financial market speculation on commodities as well as hoarding.
SEC Chairman Gary Gensler is calling for a broad-based review of the rules that underpin trading in the US equity market. Gensler said he asked the agency’s staff to examine issues related to stock trading including the so-called best execution requirement. Market trading rules have come under scrutiny amid wild swings in meme stocks such as GameStop Corp. and AME Entertainment Holding Inc.
Main Pairs Movement
After several twists and turns, the dollar index again stepped up to the 90.00 level, but majors seemed little changed from the previous days. Before the highly expected US CPI data and the European Central Bank (ECB) monetary policy statement takes place, there are some interesting figures to look at. US Treasury yield reached its record low since March, while stocks barely moved.
The euro pair peaked at 1.2218, ended the day with little gains at around 1.2177. Europeans are likely to maintain their interest rate and their cautious approach to monetary policy. It is unlikely that ECB will mention tapering at this early stage of the economic recovery.
GBPUSD fell 0.27% yesterday, traded close to the 1.4100 level. The pair now faces headwinds from the renewed covid concerns. “There is a risk of a substantial third wave – we cannot be definitive about the scale of that, it could be substantially lower than the second wave, or it could be of the same order of magnitude”., UK epidemiologist Neil Ferguson said in his recent interview. The currently dominant Delta variant of COVID-19 is believed to be 60% more transmissible than the original one. The UK reported over 7,500 new cases in the past 24 hours, a record high since February.
USDCAD (Daily Chart)
USDCAD is still trapped between the 1.20 to 1.215 interval, but recently things got slightly different. Regardless of the climbing oil price and slumping Treasury yield, Loonie has been traded higher for three consecutive days, mostly due to the market’s consensus that the upcoming US CPI data will be reported higher than last month and forced Fed to reconsider tapering. Apart from that, the trading volume of the pair shrink to around 100k since last week, combined with an optimistic MACD histogram, also implies the investor’s positive attitude toward Fed’s future policies.
Resistance: 1.215, 1.225, 1.237
Support: 1.20, 1.192
EURSEK (Daily Chart)
EURSEK has fallen under a downward trajectory since the beginning of April. After the plummet on June 4th resulted from disappointing Europe Retail Sales data, the pair is now traded well below its SMA20, and the downside traction toward the 10.00 level will be reinforced if European Central Bank (ECB) decides to continue stimulus payments in their Monetary Policy Statement. The technical indicators seem to move in tandem with the fundamentals. The MACD histogram appears negative, while the RSI indicator hovered beneath 50.
Resistance: 10.10, 10.20, 10.30
Support: 10.00, 9.875, 9.75
GBPJPY (4-Hour Chart & Daily Chart)
The GBPJPY cross plunged 85 pips yesterday. The heavy selling pressure came from the UK’s failure to reach an agreement with the EU in the post-Brexit talks. Moreover, the spread of the Delta variant of coronavirus arose speculations that British policymakers may postpone lockdown lift on June 21, further driving the pair down. GBPJPY breached its 20-day SMA earlier today, the daily MACD histogram turned negative earlier this week, but the daily RSI indicator remains in the bullish territory. The mixed technicals imply that the buying power is still resilient, given the underlying uncertainties from the upcoming Tokyo Olympics.
Resistance: 155.30, 156.70
Support: 154.48 153.88
The Internal Revenue Service (IRS) asks Congress to authorize data collection on…
The Internal Revenue Service (IRS) asks Congress to authorize data collection on cryptocurrency transactions valued over $10,000
US equity market was quiet on Tuesday as investors are waiting for the big CPI release on Thursday. The three big-equity indices moved less than 0.1% at the end of the day. Meanwhile, the 10-year Treasury yield fell to the lowest in a month, trading at 1.536%.
The economist who helped to shape Federal Reserve’s long-run inflation expectations says the central bank needs to get its hands on cutting back its massive bond-purchase program. Brian Sack, former head of Fed Board of Governors two decades ago, says the so-called 5Y 5Y forward breakeven inflation rate climbed to a level where further increases would be problematics for the central bank. The mentioned rate reached a seven-year high last month of 2.55%, which implies market participants expect inflation to be 2.55% in the next 5 years on average. Debates over inflation are heating up with economists like Lawrence Summers warns Biden’s infrastructure plan will overheat the US economy, but Treasury Secretary Janet Yellen suggests the package wouldn’t be enough to cause an inflation overshoot.
The US is easing its travel advisories on many nations, including Canada, France, and Germany. The CDC lowered 61 countries from a ‘level 4’ discouraged all travel to a ‘level 3’ recommending travel under full vaccination, and 50 countries and territories from ‘level 2’ to ‘level 1’.
The Internal Revenue Service (IRS) asks Congress to authorize data collection on cryptocurrency transactions valued over $10,000. IRS’s Chief Charles Rettig estimates around $1 trillion tax generated in crypto space escapes from IRS each year. Perhaps a much urgent need for the data probing power is to crack down illicit usage of these digital currencies, which have been demanded increasingly by perpetrators of ransomware attacks on corporate computer networks.
Main Pairs Movement
Moves in the forex space were dollar-driven, with the dollar up and other currencies down. Volatility is extremely depressed as traders await for the Federal Reserve to throw something new at the market, until then, most pairs will stay in a tight range.
Yen is the worst performer among the G-7 group so far this year. It depreciated 6% against the US dollar, 6.5% against Aussie, 7% against Kiwi, and 11.3% against the Canadian dollar. With developed economies racing to eliminate COVID-19, Japan is lagging significantly behind. ‘Only 2.8% of the population has received at least one vaccine dose, and just 1% have had both shots of vaccine,’ according to Forbes. The Japanese government is having a hard time carrying out its inoculation plan due to wide distrust of immunizations, which have been rooted within the country for decades. That being said, we will not be surprised to see a further extension of emergency lockdowns and a postpone to the summer Olympic game. As the domestic recession lingers, Japanese investors are set to expand their search for yields abroad, and companies seek expansions in merger and acquisition overseas. These money outflows could further weigh down on the Japanese Yen.
EURUSD (Daily Chart)
EURUSD broke a two-month ascending trendline from downward, and the move was triggered by upbeat ADP data released last Thursday. The fact that the miss in NFP itself did not put the Euro back above the trendline showed traders are perhaps leaning towards a dollar favorable environment in the coming weeks. As of current, the price is capped by 23.6% Fibonacci level at 1.22, which belongs to a broader consolidation range between 1.225 and 1.217. We expect trading to be sideways until Thursday’s US CPI tells otherwise.
Resistance: 1.22, 1.235, 1.246
Support: 1.21, 1.203
EURCHF (Daily Chart)
EURCHF is well placed within a downward tunnel since March. After rejected by the big 1.1 hurdles, the price now looks to contest another round number of 1.09, which marks the 28.2% Fibonacci level. We saw this pair had a decent W-formation but failed to extend above 1.1, which prompted sell orders to pile in and validated a bullish reversal was immaterial. Bears should still be dominant in the medium term. Further on the downside, EURCHF could hit the lower bound of a descending tunnel if 1.1 is breached.
Resistance: 1.1, 1.112
Support: 1.09, 1.074, 1.067
AUDNZD (Daily Chart)
AUDNZD recovered most of its loss from the previous RBNZ’s hawkish shock. The antipodean pair managed to regain 1.072 on Tuesday. We thought defense at 1.072 could be stronger given the confluence of SMA20 and a horizontal resistance line. That being said, it is not far away from a previous trendline, which now could act as a dynamic resistance. We are sticking with our bearish view on this pair given a relatively more hawkish stance from RBNZ and better economic prospect in New Zealand. The jobless rate in New Zealand was 4.7% compared to 5.5% in Australia.
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