Currency and Stock Markets. Daily Insights

[stoch]

Euro rises against dollar, technical chart signals new rally



On the US and European stock markets, there is a lull, with US index futures trading near Monday's opening levels, and European indices slightly weaker. The dollar has gone on the defensive, indicating a search for yield in the market. Moderate selling pressure has resumed in commodity markets, with oil prices falling. The yields on US Treasuries and German bonds, which stabilized last Friday, are fluctuating in a narrow range on Monday.

The euro has gained quite well today compared to other major currencies, almost 0.3%, and it seems that the 1.10 level will play a role as a foundation for a new rally. This is indicated by the technical picture of the dollar index. On the chart below, it can be seen that, after forming a double bottom at the level of 100.75, the price bounced back very uncertainly, pulling away a short distance from the level. This suggests that buyers did not particularly resist, which in turn may allow sellers to build up pressure more confidently. Buyers may therefore appear near the level of 100, where there will also be a short-term support level along the trend line:

The fundamental component of dollar expectations also points to the risk of a weaker dollar in the medium term. The Fed is leaning towards raising rates one last time and then announcing a "pause" (smoothly transitioning to a signal of the end of tightening and a discussion of when to start lowering interest rates). The inflationary challenge for the ECB is more serious, so it may not be limited to just one rate hike this year. If you look at the difference in short-term market rates between the US and Germany (which largely explains the EURUSD exchange rate), the indicator clearly leans towards lower levels and a potential turning point is seen at a spread of 1%:

If such a scenario is realized, the euro will obviously be more expensive relative to the dollar.

The news calendar today is quite boring. The business climate index in Germany from the IFO agency rose for the seventh month in a row, from 93.2 to 93.6 points. The change, while modest, was positive, and the absence of negative news was enough to boost euro buyers. Expectations of German firms improved once again, but remain below the historical average. The assessment of current conditions decreased.

Overall, the report indicated that the decreasing gas prices and the resuming expansion of China's economy, which is a trading partner with Germany, have positively affected the country's business climate. However, there is no talk of a strong expansion of the economy.
From a fundamental events perspective, this week will be interesting on Thursday when data on US GDP for the first quarter of this year will be released, and on Friday when the second most important consumer inflation indicator in the US (Core PCE) for March, Eurozone GDP for the first quarter, as well as the inflation report in Germany will be released.




Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

 

[stoch]

Dollar rebounds but risk of a fresh slide persists

US and European stock indices are on the slippery slope, the Dollar index found enough buyers to rebound from 101 level after the dip on Monday. The selling catalyst was disappointing report from the Dallas Fed regarding activity in US manufacturing sector. The corresponding index dropped to -23.4 points missing the forecast of -14.6 points. This is the lowest reading since July 2022:

Investors apparently opted to reduce risk exposure ahead of earnings releases of major US companies this week, such as GOOG, META, AMZN and MSFT.


Comments of the ECB representative Schnabel supported European currency. According the official, it is still possible that the ECB will raise rates by 50 basis points next week.


US Treasury yields are gradually drifting lower, as the scenario of a significant slowdown in US growth in the second quarter (which the Fed also warned about) becomes more likely. The incoming data speaks in favor of these concerns. Of the latter - retail sales and the Dallas Fed index, which turned out to be significantly weaker than expectations.


Investors' attention today will be riveted to the data on consumer confidence from the Conference Board, as well as the index of activity in the manufacturing sector from the Richmond Fed. Risks on both indicators are shifted towards weaker prints, which may further constrain the activity of buyers in the US stock market and increase pressure on the Fed to provide the markets with a more friendly forecast for policy path at the upcoming meeting. Some interest may cause data on the real estate market in the US, in particular the price index from Case-Schiller. It is well known that consumer inflation, with a lag of several months, reacts to changes in housing prices (through changes in housing rental rates, from which, among other things, consumer inflation is calculated):

As for the Fed meeting next week, the main question is what the Fed will do after the May rate hike (which seems to be beyond doubt). And while future policy is once again heavily dependent on incoming economic data, shocks to the banking sector are back on the radar, with First Republic Bank reporting a larger-than-expected deposit outflow. The news pulled the US bank stock index down after five days of rally:

Tomorrow there is a risk of a fresh sell-off of the dollar after release of data on orders for durable goods in the US. After a 1% decline, a 0.7% rebound is expected, the market may not be prepared for a weak print and may shift Fed expectations towards a more dovish one in cases of a downbeat print.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.


High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

 

[stoch]

US GDP Falls Short of Expectations and Inflation Rises: A Closer Look at the Numbers


The risk appetite in global markets came under pressure while safe-haven demand has increased after US GDP and inflation data on Friday. The US GDP for the first quarter posted a big "bearish" surprise, rising by only 1.1% compared to the forecast of 1.9%. Looking at GDP separately for the four main components (consumption, investment, government purchases, and net exports), it is evident that it was the investment component that dragged down the headline reading while consumption and government purchases maintained a good positive momentum:

In annual terms, consumption grew by 3.7%, with a strong jump in January when unusually warm weather stimulated early activity rebound after December. Government purchases increased by 4.7% in annual terms, and net exports added 0.11% to the annual GDP growth rate.

Nevertheless, the weakness of the main indicator was hidden in downside momentum of investments (21% of GDP). It consists of three main components: investments in fixed assets, firm inventories, and households' residential investments. While firm investments in fixed assets grew by 0.7% (quite weakly), investments in housing decreased by 4.2%. In quarterly terms, this indicator has been decreasing for 8 consecutive quarters due to pressure from mortgage rates combined with sticky high housing prices that accelerated during the period of low rates after the pandemic. Firms also reduced their inventories in the first quarter (which is considered negative investment), which took away 2.26 percentage points from the GDP growth rate.

As for inflation, the core GDP deflator (one of the inflation metrics) increased by 4.9% on an annual basis, up from 4.4% in the previous quarter and above the consensus of 4.7%. Along with disappointment over the GDP data, the market was forced to reprice the risks of the Federal Reserve's monetary policy tightening in light of hawkish inflation data today. The rise in Core PCE exceeded expectations - 4.6% versus the forecasted 4.5%. The February figure was revised upward to 4.7%. Monthly inflation was in line with expectations at 0.3%.

In the next quarter, consumption is likely to make a less significant contribution to GDP, given recent consumer trends (decline in retail sales). Weak investments suggest a reduction in corporate optimism about the short-term prospects of the US economy. CEO surveys of US companies and the NFIB small business index indicate preparations for a downturn and recession, which will further depress hiring and investment in capital goods.

The consensus for Q2 GDP growth is shifting closer to 0, and the actions of the Fed, which is forced to fight inflation, will likely bring the onset of a recession in the US economy closer. Also, we cannot underestimate the possibility of new banking shocks, which could lead to a sharp tightening of credit conditions and further hit economic activity.

The dollar received a boost today due to increased demand for the US currency as a safe haven asset. Looking at the EURUSD pair, it can be seen that the price is consolidating around the lower boundary of the uptrend channel, which can be seen as a signal that the uptrend may be petering out and closer to the Fed meeting, there may be a break downward:

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

 

[stoch]

FOMC Indicates Possible Pause in Interest Rate Hikes, ECB Raises Rates Amid Inflation Concerns


The FOMC meeting on Wednesday indicated that the Fed is very close to announce a pause and the range-bound response in Treasury yields suggests that there was no significant shift in rate expectations:

FOMC members voted unanimously to raise interest rate by 25 basis points, bringing the federal funds rate to 5-5.25% range. Consensus before and after yesterday's meeting was for a pause in further rate hikes. To truly embody caution in line with FOMC expectations, the accompanying statement emphasized a "data-dependent approach," with attention to incoming economic data and credit availability (lending standards and market interest rates). There will also be greater focus on policy lags.

At the press conference, Powell tried to calm the markets by stating that the banking sector is gradually recovering from the shock and things are overall improving, even despite the defaults of SVB and FRC. The head of the Federal Reserve also stated that stress in the banking system and the resulting rise in borrowing costs and reduction in loan supply (increased bank requirements for borrowers) should put pressure on economic activity, hiring rates, and inflation. In my opinion, this aspect of policy is very important because a rate adjustment by the Federal Reserve will only work if banks want and are willing to take risks (increase lending).

Next week, there will be a survey of U.S. banks on lending rates (Senior Loan Officer Survey), which will shed light on how much bank lending activity may have shrunk due to increased uncertainty. This variable is a leading indicator of changes in the unemployment rate. The graph below shows two curves: the share of banks tightening requirements for borrowers and the change in unemployment over the past 12 months. It can be seen that the unemployment rate responds with some lag to banks' tendency to seek yield, i.e., issue loans.

If the Federal Reserve leaves rates unchanged at the next meeting, given that historically, the period between the last rate hike and the first rate cut has averaged about 6 months, market participants, may start to expect a rate cut in November-December. The yield curve implies a 75-100 basis point policy easing next year. It should be reminded that according to the latest economic forecasts of the Federal Reserve, a soft recession is expected at the end of the year, i.e., two quarters of negative GDP growth in a row.

The European Central Bank also raised its rate by 25 basis points today and did not rule out further increases this year. The ECB expects high inflation to persist for some time. Nevertheless, the phrase "future decisions will provide a sufficiently restrictive policy" indicates that the ECB is also close to a pause. In the EURUSD pair, a bearish impulse appeared after the regulator's meeting, and sellers are likely planning to retest the lower bound of upward trend channel before the rally can resume:

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

 

[stoch]

Inflation Report Boosts Dollar, Fed's Pause Looms: Market Insights


The inflation report gave the dollar a little boost, causing it to gain almost half a percent against the euro and Swiss franc on Thursday. Commodity currencies took a hit alongside the commodity market, with the Australian dollar dropping by 0.7% and the New Zealand dollar by 0.4%. Despite an overall decrease in consumer inflation in the US during April, core inflation remained steady at 5.5%. The dollar gains ground without the help from equity market corrections and with the solid likelihood of the Fed taking a break in June (chances are now almost 100%), suggesting that the factors driving its performance lie in worsening growth prospects outside the US.

Yesterday's inflation report showed a drop in consumer inflation overall, but core inflation remained stable. However, a significant sign of decreasing inflation in the upcoming months was the consistent weakening of shelter inflation:

This component carries significant weight in the Consumer Price Index (CPI) and is one of the most influential factors (as rental prices follow housing prices, and contract terms lead to price stickiness). Additionally, it affects future inflation through inflation expectations. This isn't surprising considering that a considerable portion of consumer spending goes toward rent and housing maintenance.

Treasury yields slip reflecting the market's growing confidence that the Fed will announce a pause in June:

The Producer Price Index (PPI) didn't meet expectations, with a monthly price increase of 0.2% compared to a forecast of 0.3%. This further indicates weakening consumer inflation since businesses will have fewer incentives to raise prices.

Today, the Bank of England raised interest rates by 25 basis points and stated that further increases are possible if inflation doesn't respond to policy changes. The central bank revised its economic growth forecast to higher values, and the "boost in optimism" is the strongest since 1997. Market participants suspect that the central bank won't stop and will raise rates up to 5%. Looking at the technical chart for GBPUSD, the price has approached a crucial bearish line. If it breaks through and consolidates above this line successfully, it could easily gain bullish momentum. The presence of a hawkish central bank, as revealed in today's meeting, serves as a foundation of bullish Pound outlook:

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

 

[stoch]

Mixed US inflation data add odds to potential dollar reversal


After reaching a maximum level since the beginning of April last week, the dollar retraced on Monday, previously breaking upward from below a bearish channel that began in October 2022. An interesting idea now emerges of a bullish breakout as an early signal for the dollar reversal:

For EURUSD, a buy signal emerged, at least in anticipation of a short-term upward retracement: the price made a retest of the general ascending trendline, which should generate some bullish pressure. However, the rally of EURUSD since October 2022 is at stake:

Sellers are unlikely to give up so easily, and the price is likely to return to test levels below the trendline. Within this assumption, shorting the pair from 1.09 can be considered.

The US inflation report last week left a mixed impression. While overall inflation was below expectations, the more important core inflation from the Fed's perspective decreased reluctantly in line with expectations (5.5%). The US unemployment report two weeks ago had an inflationary bias (acceleration in wage growth, decrease in unemployment). The University of Michigan Consumer Sentiment Index released last Friday was significantly below expectations (57.7 points against an expected 63 points), prompting a rise in the dollar index from 102.20 to 102.60. Market participants seemed to increase demand for the dollar as a safe haven asset, as weak consumer sentiment increased recession risks.

Two potential factors for a dollar rally this week are Powell's speech on Thursday and a sudden surge in volatility in the stock markets (VIX index near lows since the beginning of 2022). Although the FOMC meeting is still a few weeks away in June, markets are pricing in a high probability of a pause, which poses risks of a correction in case of hawkish data or corresponding Powell's comments. If expectations for interest rates correct, the dollar should strengthen. This week, investors may also pay attention to the final GDP and inflation estimates for the Eurozone for the first quarter and April, as well as the inflation report in Japan, which will be released on Thursday.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

 

[stoch]

Mixed Economic Signals: Eurozone GDP in Line with Expectations, Weakened Sentiment, and Potential Dollar Surge


Second estimate of Eurozone GDP for the first quarter came in line with expectations, showing a modest quarterly growth of just 0.1% and a YoY output gain of 1.3%. However, the ZEW Economic Sentiment Index for the Eurozone and Germany fell more than anticipated, indicating worsened sentiment. With EURUSD nearing 1.09, buyers remain cautious as potential surprises loom ahead, including Powell's upcoming speech this week.

Despite lingering concerns over the US banking sector shocks, stock markets are holding up well, with the expected volatility index of the S&P 500 (VIX) near its lowest levels in two years. Market nervousness is also fueled by political games surrounding the issue of raising the US debt ceiling.

Today's focus lies on the US retail sales report and speeches by top Federal Reserve officials, Williams and Bostic. After a 0.6% decline in March, a rebound of 0.8% in total retail sales and 0.4% in retail sales excluding automobiles is expected. The Federal Reserve has emphasized its data dependence in deciding future rate actions, and with low chances of rate hikes (10-20%), strong retail sales data could shift the risks towards an increase in the dollar and bond yields.

Disappointing data from the Chinese economy, including retail sales, investment in fixed assets, and industrial production, came in below forecasts:

Demand for safe-haven assets increased following the release of the Chinese data, leading to a decline in yields of major world government bonds:

Considering that the VIX index is near the lower end of its historical range, the probability of a potential upward spike is growing, wherein stock indices would climb, and the role of the dollar as a safe-haven asset would come to the forefront once again.

Commodity markets also weakened after the Chinese data. Oil prices dropped by approximately a dollar, while commodity currencies such as the AUD, NZD, and CAD are trading near opening levels or on the defensive. Looking at the NZDUSD pair, a rising triangle pattern can be observed on the daily timeframe, indicating a slight bullish bias. The nearest resistance levels are at 0.64 and 0.655, while support is found in the 0.613-0.615 zone. It is expected that the price will continue to move within the triangle and, after a possible retest of 0.615, aim for 0.64:

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

 

[stoch]

Dollar Index Surges to Highest Level in Months, US Equities Rally


The dollar index has risen to its highest level since the end of March, the rally yesterday was accompanied by a pickup in US equity market and bond rout (a signal that the Fed may be again behind the curve). Major US stock indices closed in positive territory, US futures extend the rise today, with the S&P 500 consolidating near 4200 points before a potential breakout. Interestingly, gold has left the $2000+ zone, trading near $1970 per ounce on Thursday. This is likely due to the increase in risk-free rates in the US, which represent opportunity costs for the yellow metal. When the real interest rate rises, the missed opportunity cost of investing in gold also increases, as gold is known to offer zero yield. The yield on the 2-year Treasury bond has surged to 4.16%, and the yield on the 10-year bond has reached 3.59%:

As seen in the chart above, yields are currently at their highest level since mid-April and are essentially reaching the resistance levels from early March (4.2% for the 2-year bond and 3.6% for the 10-year bond). Interestingly, within just one week, the bond market has apparently priced in another 25-basis-point rate hike by the Federal Reserve in June. Overall, it becomes clear where the dollar is gaining strength: higher expected interest rates in the US (relative to other countries) are stimulating capital inflows into US bonds.

The EURUSD pair, after bouncing back to the 1.09 level as expected, has retested the general ascending trendline. The price is likely to attempt to test the 1.08 level and seek support in the 1.07-1.08 area:

A similar situation is observed in the GBPUSD pair: the price has bounced off the key resistance line and may return to the upper bound of the short-term ascending channel, which will now act as support (1.235):

Tomorrow, Powell's speech is due, and judging by the bond market's near-term performance, the comments from the central bank's head will likely indicate a hawkish stance. However, the bar for surprising the market should be set high, as expectations for June decision have already been significantly revised.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

 

[stoch]

Treasury Yields Rally And Recession Fears Abate. No Fed Pause in June?


The rally in Treasury yields is encountering minimal resistance, and mid-March levels have already been reached:

Recently, comments from top Federal Reserve (Fed) officials arrived with unusually unambiguous positions. The emphasis was on "no signs of significant decline" in certain service sectors (Jefferson) or that “a year is not long enough to feel the full effect of interest rate hikes so far” (Jefferson), that the fight against inflation remaining a "critical priority" (Logan), and that "data doesn’t yet show that pause in June is appropriate" (Logan). In less than a week, the market revised the odds of a June pause from 98% to 58%:

It should be noted that central bank officials rarely express their position on future monetary decisions clearly for two reasons: firstly, the market would immediately incorporate it into prices, rendering the future decision ineffective, and secondly, due to inherent future uncertainty, it is desirable to leave room for maneuver. The tone of the above comments, in my view, clearly indicates that officials are preparing the markets for a rate hike in June.

Even the centrist Powell needs to adjust his position; the market expects additional hawkish surprises in today's speech by the head of the Fed. Bowman and Williams, two other Fed officials, will also make verbal interventions today.

Market optimism was supported by data on the US labor market and the manufacturing sector: initial jobless claims interrupted their rising streak and decreased from 264K to 242K in the week ending May 13 (forecast was 254K). Continuing claims also declined, decreasing from 1.807 million to 1.799 million (forecast was 1.818 million). The Philadelphia Fed's Manufacturing Activity Index, an indicator with moderate significance for the market, also surprised on the upside. The overall index rose from -31.3 to -10.4 points (forecast was -19.8 points). The leading contributor to the positive change was the sub-index of new orders, which rose from -22.7 to -8.9 points (forecast was -25.7 points).

Increasing yields, strengthening dollar, and the surprisingly "carefree" position of investors in stocks (VIX near multi-year lows, another sharp decline yesterday) are observed in the absence of any significant news on the macroeconomic front, changes in fiscal policy, etc. The statements from Fed officials arrived slightly later, only this week when the market had already priced in most of the Treasury yield rally. In my opinion, the key to understanding what is happening in the market lies in the April NFP report. Wage growth turned out to be significantly higher than expected (0.5% vs. 0.3% forecast), and unemployment dropped to an extremely low 3.4%. Incoming data, judging by the market's reaction and the comments from central bank officials, should soon indicate an acceleration in inflation. However, this should already be priced in and have a minimal effect.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

 

[stoch]

Powell disappoints market hawks, dollar braces for Fed Minutes surprise


Risk-free rates in the US have decreased by 5-10 basis points, and gold prices have risen after Powell's speech on Friday. The head of the central bank avoided the hawkish "chorus" of other top Fed managers and chose a more cautious tone:

Key highlights from Powell's speech:

- Financial markets have been trying to price in a slightly different (i.e., more hawkish) trajectory of the central bank's interest rate for some time.
- Incoming data confirms the FOMC's position that it will take some time to reduce inflation.
- There is still time to monitor the incoming data.
- There is no consensus on whether the policy tightening conducted so far is sufficient.
- Credit market shocks may limit the scope for policy tightening.

Compared to the statements of other officials last week, Powell's comments are much less definitive and seem like an attempt to restrain the rapid reassessment of the chances of a June hike while not completely ruling out tightening in June.

European currencies have moderately risen against the dollar, and the yen is consolidating near a multi-month resistance level (138 yen per dollar). Analyzing the technical chart of EURUSD, we can generally speak of an equilibrium: the price broke the bullish trendline, thus delaying the euro's rally against the dollar this year, which was widely advertised in April. However, upon reaching horizontal support at 1.08, it found sufficient buyers, while sellers tempered their enthusiasm after Powell's speech:

This week, there are two potential catalysts for a potential bearish breakthrough: the Fed minutes (Wednesday) and Core PCE on Friday. The inflation forecast is 4.6% YoY, but it should be noted that the market has underestimated inflation as measured by Core PCE in recent months. Even in the case of a downward movement, strong support should emerge near 1.07 with the formation of a double bottom. The rationale is simple: the ECB has no intention of backing down on rate hikes. Earlier last week, one of the ECB officials admitted that a strong tourist season may boost inflation.

The technical chart for USDJPY resembles a true resistance breakout: the price above 138 met some bearish pressure in anticipation of a rebound, but the movement quickly run out of steam and draw buying interest:

With the scheduled reports for this week, the risk is increasing that the price will move towards the 140 area, where profit-taking bearish momentum emerge, and a correction will ensue.


Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.