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US consumer’s expectation for inflation rose to 3.6% over the medium term,…

US consumer’s expectation for inflation rose to 3.6% over the medium term, according to the Federal Reserve Bank of New York survey

20210615
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Market Focus

US stocks market was mixed as investors were adjusting positions to Thursday’s Federal Reserve meeting. Tech shares were gaining traction, with the Nasdaq 100 up nearly 1%, they also helped the S&P 500 to close in the green. Meanwhile, Financials dropped as JPMorgan Chase CEO Jamie Dimon suggested Wall Street’s trading prosperity in the pandemic era may fade away.

US President Joe Biden entered his first international summit looking for a breakthrough on vaccine pledges for developing countries, and a unity action to counter China’s economic might. US officials said the G-7 group is now a united ally to fight against China on issues such as forced labor and human rights abuses and to stand up to an alternative to China’s Belt and Road plan to counter Chinese influence abroad.

US consumer’s expectation for inflation rose to 3.6% over the medium term, refreshed an eight-year high in May, according to the Federal Reserve Bank of New York survey. “Notably, medium-term inflation expectations have increased at a slower pace than short-term inflation expectations over the past few months, and the difference between one- and three-year-ahead median inflation expectations marks a series high,” officials from New York Fed said in a press release.

Main Pairs Movement

Gold plunged as much as 1.7% during the first day of the week. Money managers are paring their long positions in the futures market ahead of Thursday’s FOMC meeting. Judging from market reaction to last week’s CPI figures, investors seemed to believe the current inflation spike is temporary and will ease over the second half of 2021. Of course, the Fed will factor in market reaction when considering how they should play the script. With market participants are more in line with the central bank proposed transitory inflation theory, we are unlikely to see any big surprise on Thursday. That being said, the Fed would still be guiding the market to where they desired by giving out little hints in the FOMC statement or adjusting their portfolio holdings (small enough to not cause any ripples across stocks and bond market while sending a signal).

Cable is on the back against US greenback amid lockdown extensions, dipped 0.05%. British Prime Minister Boris Johnson announced on Monday that reopening will be postponed to July 19th. Though the negative headline is much expected, it still keeps the pressure on the Sterling compared to other G-7 currencies.

Technical Analysis

EURUSD (Daily Chart)

EURUSD exits from consolidation mode and enters a bearish trend. Price failed to reclaim 1.22 last week, we have seen five rejections from 1.22 before it turns south. The market is perhaps pricing in a more dovish ECB than its US counterpart given Christine Lagarde’s speech on EU’s forthcoming larger spending. We do not rule out potential price recoveries or sideway trading before Thursday’s FOMC meeting. If the Fed’s message is affirmative then the bears should not have too many troubles at taking out 1.21 horizontal support, which would open doors to 1.2 and 1.195.

Resistance: 1.22, 1.235

Support: 1.21, 1.204, 1.195

XAUUSD (Daily Chart)

XAUUSD finally made a decisive breakout, and it was in favor of the sellers this time. Price penetrated the 2-month ascending trendline, along with its DMA20 support line. However, it quickly bounced off upon touching the 38.2% Fibonacci level at $1846. Today’s move indicates bearish reversal, which makes sense when considering investors are gradually buying into the Fed’s rhetoric of transitory inflation. With the market expecting the Fed to maintain easy monetary policies and not initial the taper talk during June’s meeting or even during the whole summer, Gold is likely to suffer until another impetus shows up. On the downside, $1815 will be the next key level to watch for.

Resistance: 1894, 1959, 2000

Support: 1846, 1822, 1790

USDJPY (Daily Chart)

USDJPY is building on last Friday’s goodish rebound, climbed 0.35% on Monday. This pair is well fitted within its ascending channel and managed to regain 110 handles. Now there is a solid breakout to the upside, the buying bias will be here to stay until meeting the yearly high of 110.8. On a larger timeframe, USDJPY stills show a bullish trend after April’s pullback is proved to be temporary. Further in the north, stern resistance sits around 112 and 113.8.

Resistance: 110.8, 112, 113.8

Support: 108.7, 107.9, 106.7

20210615
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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

20210611
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Market Focus

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.

Technical Analysis

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

20210611
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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

20210610
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Market Focus

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.

Technical Analysis

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

20210610
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