Daily Analysis

[Zforex]

Title: Investor Sentiment Shifts Amidst Trade Worries, Debt Ceiling Talks, and Yield Fluctuations"​

In Asia, the Topix index reversed gains and halted its seven-day winning streak as semiconductor-related stocks declined due to Japan's upcoming tighter export controls. Concerns are also arising over China's sluggish post-pandemic recovery, which is negatively impacting key commodity prices like iron ore and copper, leading to recent declines.

European equity markets are expected to open with limited activity as investors cautiously await updates on the US debt ceiling negotiations. Treasury Secretary Janet Yellen has reiterated the risk of a debt default by June 1. Investors will closely monitor the preliminary purchasing managers' index (PMI) figures for May, which serve as crucial indicators for sentiment in both the manufacturing and services industries. Positive PMI surveys in April helped boost sentiment, and another optimistic view of the services sector is anticipated to compensate for lackluster manufacturing.

The discussions between President Joe Biden and House Speaker Kevin McCarthy regarding the US government's debt ceiling ended without an agreement. With less than two weeks remaining before a potential default, talks will continue.

Regarding the Federal Reserve's rate path, investors are paying attention. St. Louis Fed President James Bullard envisions two more rate hikes this year, while Minneapolis Fed President Neel Kashkari suggests that if the central bank pauses next month, it should signal that tightening measures are not yet complete.

Investors have increased the premium they require to hold US paper that carries higher risk. The cost of insuring the country's sovereign debt against default using derivatives has also risen. Yields on two-year Treasuries, which are sensitive to policy changes, saw a two basis point increase to 4.33% following a rise in short-term rates on Monday. Meanwhile, ten-year yields remained steady at 3.72%.



EUR USD

Investors closely watched the face-to-face negotiations between US President Joe Biden and House Speaker Kevin McCarthy on raising the US debt ceiling. Unfortunately, the two-hour meeting concluded without reaching an agreement. President Biden criticized Republicans for their reluctance to impose additional taxes on the wealthy, while Democrats are considering spending cuts. McCarthy proposed an 8% reduction in overall spending for the CY2024 budget and urged Democrats to return to the CY2022 budget plan to avoid further budget deficits.

US Treasury Secretary Janet Yellen continues to emphasize the looming risk of a default, stressing the urgency to address obligated payments before the June 1 deadline.

Fed Bank President Neel Kashkari expressed his support for keeping interest rates steady in June, highlighting the potential for ongoing challenges despite signs of improvement in the banking sector.

In contrast, St. Louis Fed Bank President James Bullard emphasized the Fed's commitment to combating inflation amidst a robust labor market. He suggested that the policy rate may need to increase by 50 basis points (bps) this year.

European Central Bank (ECB) President Christine Lagarde has previously cautioned that multiple interest rate hikes are necessary to address persistent inflationary pressures.

The EURUSD pair is once again showing downward momentum, retracing towards the previous support level of 1.0760. At the same time, the DXY (US Dollar Index) is steadily rising and approaching a significant confluence point at 103.60. Upon analyzing the daily chart, it is evident that the price found temporary support at the lower parallel of the bullish channel. However, there is continued pressure on the EUR, increasing the likelihood of a potential breakout.

GBPUSD

Inflation in the United Kingdom remains in double digits, with high food inflation and labor shortage due to early retirement being the main contributors. Bank of England Governor Andrew Bailey has admitted that they underestimated the strength and persistence of inflation. The UK Finance Minister Jeremy Hunt promised to reduce the tax burden on households, aiming to boost retail demand, but this move could potentially undermine UK Prime Minister Rishi Sunak's pledge to halve inflation pressures by the end of 2023. A recent survey by the UK Office for National Statistics revealed that 18% of UK firms intend to pass on the impact of higher input prices and expensive employment costs to end-consumers. The percentage is lower compared to the previous survey, which recorded 23% of firms planning to do so

Investors are awaiting the release of the United Kingdom’s Consumer Price Index (CPI) data. As per the preliminary report, the headline UK Consumer Price Index is seen at 8.3%, significantly lower than the prior release of 10.1% annually. Monthly headline CPI has shown a steady growth at 0.8%. Core CPI that excludes the impact of oil and food prices is expected to remain stable at 6.2%.

Going forward, the speech from BoE Andrew Bailey will remain in action. The speech from BoE’s Bailey is expected to provide the interest rate guidance for the monetary policy scheduled for June.

From a technical standpoint, the GBP/USD currency pair has reached a significant support level and preparing for a breakout down getting out of the bullish channel on the daily chart, if this support level is broken, it could lead to a decline towards 1.2350, confirming a new bearish trend and exerting additional pressure on the pair.

​

USDJPY

The US Dollar (USD) is holding steady below a two-month high and is expected to continue hiking interest rates, which should benefit the USD/JPY pair.

A number of influential FOMC members reaffirmed market bets that the US central bank will keep interest rates higher for longer. This, along with hopes that US politicians can come together on a debt ceiling deal, keeps the US Treasury bond yields elevated and continues to benefit the Greenback. The resultant widening of the US-Japan rate differential, along with a more dovish stance adopted by the Bank of Japan (BoJ), undermine the Japanese Yen (JPY) and support prospects for the emergence of some dip-buying around the USD/JPY pair. The supportive fundamental backdrop suggests that the path of least resistance for the USD/JPY pair is to the upside. The US economic docket features New Home Sales data and the Richmond Manufacturing Index, which, along with the US bond yields and the US debt ceiling talks, should influence the USD price dynamics and provide some impetus to the pair. Any subsequent downtick is more likely to get bought into and remain limited ahead of Tuesday's release of the flash US PMI prints, due later during the early North American session.

From a technical analysis standpoint, when looking at the 1-day chart, the currency pair has consistently respected the strong resistance level of 138.70 in the last four instances. If the pair successfully breaks above this level, it is expected to move towards the next resistance level at 142.2. However, if a correction occurs, the next support level is likely to be around 136.00. Given that the pair has experienced six consecutive days of gains, a correction appears probable in the near term.

​

AXUUSD
Risk sentiment remained weak as the critical debt-ceiling meeting between US President Joe Biden and House Speaker Kevin McCarthy on Monday ended without any conclusion. This lifted the safe-haven demand for the US Dollar and snapped the gold price's Friday turnaround, causing it to slip at the start of the week.

The US Dollar received a further boost from hawkish commentaries by regional Federal Reserve policymakers, reviving expectations that the Fed is likely to keep rates higher for longer. The Fedspeak helped the Greenback recover from Federal Reserve Chair Jerome Powell’s dovish speech-led decline.

On Tuesday, markets were hopeful of a potential debt-ceiling deal sooner rather than later after, yet another round of Biden-McCarthy meetings ended in productive talks but no deal. Both leaders were optimistic about progress toward a deal. The US economic docket features New Home Sales data and the Richmond Manufacturing Index, which, along with the US bond yields and the US debt ceiling talks, should influence the USD price dynamics and provide some impetus to the pair.

From a technical analysis standpoint, gold underwent a correction after reaching the level of 1951, and it has encountered resistance around the 1983 level. The selloff as expected is resuming, and the next support level to monitor is around the 100-day Moving Average (MA) and the downward parallel of the bullish trend line, which is approximately in 1935.

DAX40
European shares fell on Tuesday due to the lacklustre results of Swiss wealth manager Julius Baer. This impacted the cyclical sectors, causing a retreat in cyclicals. Furthermore, investors were awaiting the release of the European and British Purchasing Managers' Index (PMI) surveys for May to get signals on the path of interest rates. The release of these surveys was eagerly anticipated by investors. Simultaneously, market participants were keeping a close eye on the progress of the US debt ceiling negotiations. Treasury Secretary Janet Yellen reiterated concerns that the United States could potentially face a debt default by June 1, adding to the overall market apprehension.

The DAX index is maintaining its upward momentum, affirming the positive shift in sentiment observed in recent weeks. The key level to watch is 16290, which holds historical significance dating back to November. A successful breakthrough of this level could pave the way for new all-time highs for the index, presenting an exciting opportunity for further gains.

 

[Zforex]

​

" "Global Markets Tumble as Geopolitical Concerns and Debt Ceiling Impasse Weigh on Investor Sentiment"​

The MSCI Asia Pacific Index is on track to close at its lowest level in a week, following losses in the S&P 500 and Nasdaq 100 on Tuesday. Concerns over geopolitics and economic growth are weighing on mainland China shares, which are close to erasing their gains for the year.

In a surprise move, the Reserve Bank of New Zealand raised interest rates by a quarter-percentage point but indicated that no further tightening would be necessary to control inflation. The Official Cash Rate was raised to 5.5% from 5.25%, and the central bank's forecasts suggest that the rate has peaked and cuts may begin in the third quarter of 2024.

European equity markets are expected to open significantly lower on Wednesday, extending the losses from the previous session. Uncertainty surrounding the debt ceiling negotiations in Washington is dampening investor sentiment. The upcoming Germany Ifo survey of current business conditions will provide further insights into the economy, following positive PMI data indicating growth in German business activity driven by the services sector. ECB President Christine Lagarde made opening remarks at a celebration marking the central bank's 25th anniversary. She has emphasized the need to combat inflation, a sentiment supported by the Bundesbank president and the head of Deutsche Bank.

In the UK, consumer price inflation dropped to 8.7% year-on-year in April 2023, the lowest since March 2022, primarily due to a slowdown in electricity and gas prices. However, the inflation rate exceeded market expectations and remained well above the Bank of England's target of 2.0%.

In the United States, investors will be closely analyzing the minutes of this month's meeting to gauge the level of support for the decision to soften guidance on future interest rate hikes, which will provide insights into the likelihood of a hike in June.


EURUSD
nvestors' concerns about a potential US default are growing as negotiations on the debt limit show no signs of progress. US House Speaker Kevin McCarthy's comments indicate a lack of agreement between Republicans and the White House. The absence of fresh commentary from President Joe Biden is adding to market anxiety, with Treasury Secretary Janet Yellen warning of dire consequences if funds run out by June 1. Investors are eagerly awaiting the release of the Federal Open Market Committee (FOMC) minutes for insights into the recent interest rate hike and future guidance.

The Euro saw mixed results with manufacturing contracting and services showing improvement. Attention is now focused on European Central Bank President Christine Lagarde's upcoming speech, where she is expected to address June's monetary policy and the need for interest rate hikes to combat Eurozone inflation.

The EURUSD pair is potentially forming a double bottom pattern, indicating a potential reversal, with the 1.0760 support level being a key factor. The next resistance levels to watch are at 1.0830 and 1.0850, particularly the upper parallel of the bearish channel. A closer look at the daily chart reveals that the price has temporarily found support at the lower parallel of the bullish channel. Nevertheless, there is still ongoing downward pressure on the EUR.

Res Level 3	Res Level 2	Res Level 1	Sup level 1	Sup level 2	Sup level 3
1.0900	1.0850	1.0830	1.0760	1.0700	1.0650

GBPUSD

In April, the UK's inflation, as measured by the Consumer Price Index (CPI), increased by 8.7% YoY. This is a decrease from the previous month's rate of 10.1% and slightly below the forecasted rate of 8.2%. The recent surge in the Cable pair's value can be attributed to the US Dollar's decline ahead of important data/events and concerns about a potential US default.The robust inflation figures provide support for the recent hawkish stance of Bank of England (BoE) officials, including Governor Andrew Bailey, as expressed in the BoE Monetary Policy Hearings held the day before.

However, the Cable pair buyers face challenges due to the latest US data and the Federal Reserve's hawkish stance. Nevertheless, the likelihood of a 0.25% rate hike in the upcoming June Fed meeting has recently increased, contributing to the relative strength of the US Dollar.

Investors will closely monitor speeches by BoE Governor Andrew Bailey and the Minutes of the latest Federal Open Market Committee (FOMC) Monetary Policy Meeting to gain further insights into the future decisions of these central banks.

From a technical perspective, the GBP/USD currency pair is currently exhibiting price consolidation around 1.2370, similar to other major currency pairs. Additionally, both the DXY index and other major currency pairs suggest that the US Dollar may experience a correction in the near future.

Resi Level 3	Resi Level 2	Resi Level 1	Suppo level 1	Suppo level 2	Suppo level 3
1.2750	1.2650	1.2550	1.2400	1.2350	1.2300

USDJPY

A further rise in the US bond yields, meanwhile, widens the US-Japan rate differential and drives flow away from the Japanese Yen (JPY). Apart from this, a more dovish stance adopted by the Bank of Japan (BoJ) undermines the JPY and adds credence to the near-term positive outlook for the USD/JPY pair. That said, a softer risk tone - amid worries about slowing global economic growth - lends some support to the safe-haven JPY and keeps a lid on any further gains for the USD/JPY pair.

The recent breakout through the very important 200-day Simple Moving Average (SMA) and a subsequent move beyond the previous YTD peak favor bullish traders. When looking at the 1-day chart, the currency pair has consistently respected the strong resistance level of 138.70 in the last four instances. If the pair successfully breaks above this level, it is expected to move towards the next resistance level at 142.2. However, if a correction occurs, the next support level is likely to be around 136.00. Given that the pair has experienced six consecutive days of gains, a correction appears probable in the near term.

Resi Level 3	Resi Level 2	Resi Level 1	Suppo level 1	Suppo level 2	Suppo level 3
140.00	139.50	138.70	137.70	136.50	135.50

XAUUSD
The recent hawkish comments from multiple Federal Reserve (Fed) officials have raised the possibility of additional interest rate hikes. This development has emerged as a significant obstacle for the non-yielding Gold price. Consequently, investors' attention will remain focused on the upcoming release of the Federal Open Market Committee (FOMC) meeting minutes today. They will closely scrutinize the minutes for any hints regarding the future path of interest rate hikes, as this will heavily influence the short-term dynamics of the US Dollar (USD) and provide fresh momentum for XAU/USD (Gold).

Negotiations between President Joe Biden's representatives and congressional Republicans failed to reach an agreement on Tuesday to raise the government's borrowing limit of $31.4 trillion. This situation has sparked fears of an unprecedented US debt default and dampened investor sentiment. Additionally, the looming risks of a recession may further discourage bearish speculations on XAU/USD from being excessively aggressive.

Taking a technical analysis perspective, gold recently formed a double bottom pattern, pushing the price to reach the 1980 level. Whether we witness a potential reversal or a continuation towards the selling zone will likely depend more on fundamental factors rather than technical indicators at the moment, as the price action appears to be awaiting the outcome of the anticipated meeting. It is crucial to monitor the next support level, which is around the 100-day Moving Average (MA) and the downward parallel of the bullish trend line, estimated to be around 1935. Additionally, a significant resistance point is expected near the confluence point around 2000.

Resi Level 3	Resi Level 2	Resi Level 1	Suppo level 1	Suppo level 2	Suppo level 3
2020	2000	1982	1973	1950	1937

On Wednesday, European stock markets experienced a new wave of selling pressure due to several factors. Firstly, the lack of progress in the U.S. debt ceiling negotiations contributed to market uncertainty. Republicans in the U.S. House of Representatives reported little headway in discussions with the White House, raising concerns of a potential default within nine days.

Additionally, the UK core inflation saw a notable increase, further dampening risk sentiment. Official figures revealed that British consumer price inflation decreased to 8.7% in April from March's 10.1%. Although it moved away from October's 41-year high of 11.1%, it still remained higher than expected. The Bank of England's next policy meeting is scheduled for June 22.

Investors are eagerly awaiting the release of the minutes from the Federal Reserve's recent policy meeting. These minutes could provide insight into the central bank's stance on pausing rate hikes, influencing market direction.

The DAX opens with a significant downward gap, indicating a bearish sentiment and an increase in risk-off behavior in the market at present. The current support levels to monitor are around 15800-15700.

Resi Level 3	Resi Level 2	Resi Level 1	Suppo level 1	Suppo level 2	Suppo level 3
16800	16400	16270	16000	15800	15600

 

[Zforex]

" Stock Declines, Nvidia Surges, and US Debt Ceiling Concerns Linger"​

Major stock indices in Japan, China, Australia, and South Korea experienced declines, reflecting the downbeat sentiment among global investors towards Chinese assets and the ongoing US debt-ceiling negotiations. Hong Kong's Hang Seng Index fell by 2%, on track for its worst weekly loss since March.

However, Taiwanese stocks defied the regional trend, boosted by a rally in Taiwan Semiconductor Manufacturing Co., a key supplier to Nvidia. Nvidia shares surged by approximately 25% in after-hours trading, driven by strong demand for their artificial intelligence processors, which is expected to contribute to revenue growth. This surge in Nvidia's stock implied an increase of around $200 billion in its market value.

European equity markets were poised for a positive opening on Thursday, following the upward movement of Nasdaq futures. The upbeat quarterly results and robust revenue guidance from Nvidia, driven by the demand for AI chips, influenced market sentiment. Additionally, investors were digesting German growth and consumer sentiment data. However, the German economy showed signs of contraction in the first quarter of 2023, entering a recession, according to data from the statistics office. The second estimate indicated a 0.3% decline in gross domestic product when adjusted for price and calendar effects.

Despite the negative outlook, Bostjan Vasle, a member of the European Central Bank's Governing Council, emphasized the need for the bank to raise borrowing costs further to achieve its inflation target in an interview with a Slovenian newspaper.

EURUSD​

On Thursday, the dollar reached a two-month high against a group of other currencies, as concerns grew regarding a potential catastrophic default by the United States. This came after the ratings agency Fitch placed the country's "AAA" debt ratings on negative watch. Paradoxically, the demand for safe-haven assets has led to the strengthening of the greenback, despite the looming deadline of June 1, referred to as the "X-date," when the Treasury has warned of its inability to fully meet its financial obligations.

According to data released by the statistics office, the German economy contracted in the first quarter of 2023 compared to the preceding three months, indicating that it has entered a recession. The second estimate reveals that gross domestic product (GDP) declined by 0.3% for the quarter, after adjusting for price and calendar effects.

The EURUSD pair experienced a significant downward breakout following fundamental factors that favored the safe-haven dollar and weaker economic data from Germany. The breach of the 1.07500 support level has now created an opportunity for further selling pressure, potentially driving the price towards the round number of 1.0700, and subsequently towards 1.0540. Upon closer analysis of the daily chart, a clear bearish momentum is evident, with the next notable support level expected to be around the 1.0550 area.

GBPUSD

Investors are currently giving primary attention to the US debt-ceiling concerns rather than the dovish signals for interest rate guidance found in the minutes of the Federal Open Market Committee (FOMC). The uncertainty surrounding interest rate hikes in the upcoming monetary policy meeting in June has increased due to the ongoing banking turmoil in the United States, as noted by several Federal Reserve (Fed) policymakers.

Raphael Bostic, the President of the Atlanta Federal Reserve (Fed), has recommended that the central bank adopt a data-driven approach for the June monetary policy meeting. He also expressed that the best-case scenario would not involve considering an interest rate cut until 2024.On Wednesday, inflationary pressures in the United Kingdom showed a mixed picture. Although the headline Consumer Price Index (CPI) softened, it remained significantly above consensus, while core inflation continued to rise. This situation may necessitate the Bank of England (BoE) announcing further interest rate adjustments in the future.However, the UK's Foreign Minister, Jeremy Hunt, expressed confidence that inflation would be halved by the end of the year. He suggested that tax cuts might only be introduced in an environment supportive of inflation.From a technical standpoint, the GBP/USD currency pair is currently positioned at the lower boundary of a downtrend channel at 1.2340. This is due to the prevailing strength of the Dollar, which indicates the likelihood of increased pressure on the pair. Furthermore, the breakout of the DXY index suggests that the Dollar's strength may persist for an extended period.

JPYUSD​

Bank of Japan (BoJ) Governor Kazuo Ueda recently commented that while they are starting to observe positive signs in the economy, there is still a considerable distance to achieving stable and sustainable inflation target levels. Ueda emphasized that the BoJ will maintain its accommodative monetary policy with patience.Meanwhile, US Treasury bond yields have strengthened, reaching their highest levels since mid-March. This has provided support for USD/JPY prices. Furthermore, concerns over a potential recession in Germany, following a downward revision in Q1 GDP, have fueled demand for the US Dollar, leading to higher bond yields.The minutes of the latest Federal Open Market Committee (FOMC) Meeting revealed divisions among policymakers regarding the recent 0.25% interest rate hike by the US central bank. This has cast doubt on market expectations for another rate increase in June, despite some hawkish comments from Atlanta Fed President Raphael Bostic and Federal Reserve Governor Christopher Waller.

The inability of US policymakers to reach an agreement on extending the debt ceiling, combined with the upcoming long weekend for the House Representatives, contrasts with optimistic views expressed by negotiators regarding progress in recent talks. Additionally, global rating agencies such as Fitch and Moody's have expressed caution about the US credit rating, and their concerns have been acknowledged by the US Treasury Department. These developments have fueled a flight to safety in the market, boosting the US Dollar and bond yields.

XAUUSD​

The inability of US policymakers to reach an agreement on extending the debt ceiling, combined with the upcoming long weekend for the House Representatives, has heightened concerns about a potential US default. Despite some progress being seen in the ongoing talks, global rating agencies such as Fitch and Moody's have become cautious about the credit rating status of the United States, and the US Treasury Department has acknowledged these concerns.

The minutes of the latest Federal Open Market Committee (FOMC) Meeting indicate a division among policymakers regarding the recent 0.25% rate hike implemented by the US central bank. This has cast doubt on market expectations for another rate increase in June. However, Atlanta Fed President Raphael Bostic emphasized that the challenging part of controlling inflation has just begun. Similarly, Federal Reserve Governor Christopher Waller mentioned his support for continuing rate hikes unless there is clear evidence of inflation moving towards the 2% target.

Taking a technical analysis perspective, gold formed a triple bottom pattern increasing the probability of a strong reversal toward the 2000 level after breaking the 1980 holding resistance level. It is crucial to monitor the next support level if a selloff happens around the the 100-day Moving Average (MA) in 1935 also representing the downward parallel of the bullish trend line. Additionally, a significant resistance point is expected near the confluence point around 2000.

DAX40​

European stocks stabilized on Thursday following a recent two-day selloff, which marked their worst performance since March. Investors found themselves weighing concerns over the U.S. debt ceiling standoff and a global economic slowdown against the positive outlook provided by strong corporate earnings. On Wednesday, credit rating agency Fitch placed the United States' credit rating on watch for a potential downgrade. Nevertheless, European chipmakers experienced gains after Nvidia Corp, the world's most valuable chipmaker, projected quarterly revenue that exceeded Wall Street estimates by over 50%.

In Germany, the economy contracted by 0.3% in the first quarter of 2023, revising the initial estimate of zero growth. This downward revision indicates a second consecutive quarter of economic decline, pushing Europe's largest economy into a state of recession.

The DAX continues its selloff, driven by the recent data release this morning, which has contributed to a bearish sentiment and an increase in risk-off behavior in the market. The current support levels to watch for are at 15650, followed by 15400.

 

[Zforex]

Mixed Market Sentiment and AI Rally: European Stocks, UK Retail Sales, and Chip Stocks Gain Amid Recession Concerns and Debt Ceiling Negotiations"​

Asia-Pacific markets were mixed as Wall Street saw a tech rally led by Nvidia and U.S. negotiators made progress on the debt ceiling deal. The Nikkei 225 in Japan rose by 0.92%, while the Topix gained 0.15%. Tokyo's core-core inflation reached its fastest pace since 1982. However, mainland Chinese markets declined, with the Shanghai Composite down 0.32% and the Shenzhen Component down 0.51%. The Hong Kong Hang Seng index was closed for a holiday after hitting a yearly low.

European stock markets are expected to open with a mixed performance on Friday, as concerns over regional growth arise following Germany's GDP data indicating a technical recession in the largest economy in Europe. In contrast, UK retailers witnessed a stronger-than-expected increase in sales last month, with the volume of goods sold rising 0.5% compared to a revised weaker figure in March. This rebound suggests consumer resilience amid a cost-of-living squeeze, potentially increasing pressure on the Bank of England to raise interest rates in an effort to address high inflation.

Chip stocks in the region, including Screen Holdings Co., SK Hynix Inc., and Taiwan Semiconductor Manufacturing Co., experienced gains for the second consecutive day, driven by a bullish sales forecast from Nvidia Corp. The rally in the artificial intelligence sector continued in the US after-hours trading, with Marvell Technology Inc. projecting substantial revenue growth in 2024. Nvidia's shares also soared, nearing a $1 trillion market value.

The ongoing debt-ceiling negotiations in Washington contribute to the uncertainties evaluated by Federal Reserve officials as they consider potential interest rate pauses. Mixed data, including a higher revised first-quarter GDP and lower-than-expected jobless claims, have influenced expectations for another quarter-point interest rate hike within the next two policy meetings.

EURUSD

The USD Index is finding support by its role of safe heaven and also due yesterday GDP and Labor market Data indicating more resilient Economy and tight Labor market. The market priced a 0.25% added hike by the FED as a result. Tight credit conditions from US regional banks are dampening inflationary pressures, leading to speculation of a potential pause in rate hikes during the upcoming June monetary policy meeting. Meanwhile, the German economy has officially entered a recession, with consecutive quarters of contraction, including a 0.3% decline in Q1 real Gross Domestic Product (GDP) and a 0.5% contraction in Q4 of the previous year. These developments may prompt the European Central Bank (ECB) to focus on the economic outlook before addressing inflationary pressures. ECB policymaker Klaas Knot has advocated for two more policy rate increases, followed by a significant period of rate stability.

The EURUSD pair has confirmed a breakout from the long bullish channel, which has opened the door for further selling pressure. Although the pair temporarily found support around 1.0700, recent German and US data, as well as potential developments today, suggest that the market may continue to exert downward pressure on the Euro. The next significant point of confluence can be observed on the Daily chart around the 200MA.

GBPUSD
In terms of retail sales, there was positive news on the monthly front as sales expanded by 0.5%, surpassing the expected 0.3% growth and reversing the previously reported contraction of 1.2%. However, on an annual basis, retail sales fell short of estimates, experiencing a contraction of 3.0% compared to the consensus forecast of a 2.8% contraction. Monthly retail sales, excluding volatile fuel factors, saw a growth of 0.5%, surpassing street expectations of a 0.3% expansion.

The UK Finance Minister expressed confidence in achieving the promise made by UK Prime Minister Rishi Sunak to halve inflation by the end of the year. To provide relief to households affected by persistent inflation, the government aims to reduce taxes. Failing to bring down inflation could have severe consequences according to the finance minister.

Moving forward, it is important to keep an eye on two key factors. First, the US Durable Goods Orders for April, and second, the Core Personal Consumption Expenditure (PCE) Price Index for the same month. The latter is regarded as the Federal Reserve's preferred inflation gauge. Additionally, monitoring the progress of US debt ceiling negotiations will provide valuable insights for future direction.

From a technical perspective, the GBP/USD pair confirmed a breakout below the support level of 1.2350 yesterday, resulting in a similar scenario as the EUR/USD pair. Both pairs have entered a sell-off territory and have broken out of their long-standing bullish channels. The next significant point of convergence that we can identify is around the 1.2200 level.

JPYUSD
According to Bank of Japan (BoJ) Governor Kazuo Ueda, there is a possibility of adjusting the Yield Curve Control (YCC) strategy if the balance between the policy's benefits and costs were to change. As part of the YCC, the Bank of Japan has left room for potential changes such as shortening the duration of bond yield targets to a 5-year zone, compared to the current 10-year zone.

Meanwhile, the Japanese Yen has gained some strength following the release of Tokyo CPI (May) data, which showed a deceleration in inflation. Headline inflation decreased to 3.2% from the previous reading of 3.5%, in contrast to market expectations of an acceleration to 3.9%. Core CPI, which excludes oil and food prices, also dropped to 3.9% compared to estimates of 4.3%, but remained higher than the previous release of 3.8%.

From a technical standpoint, the USD/JPY price has experienced a confirmed breakout, suggesting an increased probability of additional buying pressure in the current market environment. The next important level to monitor is the resistance at 142.1. However, it is worth noting that there is currently a general correction in the USD, which is also causing the pair to retreat towards the last significant resistance/support level at 138.70.

XAUUSD
On Friday, gold made a modest ascent towards the $1,950 per ounce mark. However, it was still on track for its third consecutive weekly decline. The decline can be attributed to the strengthening of the US dollar, as market participants increasingly believe that US interest rates may remain higher for a longer duration than previously expected.

Despite the Federal Reserve's aggressive tightening measures, recent data throughout the week indicated that the US economy remained resilient. This has led to several Fed officials supporting the idea of further interest rate hikes due to persistent inflation. However, some members have also acknowledged that the deceleration in economic growth could potentially reduce the necessity for additional tightening measures.

Meanwhile, investors eagerly awaited updates on the ongoing negotiations surrounding the US debt ceiling in Washington. According to a Reuters report, progress was made on Thursday, with stakeholders only needing to reach an agreement on $70 billion in spending.

From a technical perspective, Gold has found support at the expected confluence point of the 100-day moving average (100MA). This support level could potentially pave the way for an anticipated reversal towards the 1980 level, followed by a strong resistance area around 2000. In the event that the breakout level of 1937 is breached, possible support levels to consider are 1870 and 1800.

DAX40
Miners have played a key role in driving Europe's broad share benchmark to rebound from seven-week lows on Friday, putting an end to three consecutive sessions of losses. This positive momentum is seen across various markets, including commodity markets, following signs of progress in resolving the U.S. debt ceiling standoff. While most metals are trading higher on Friday, they are still on track for weekly losses.

According to a Reuters report citing an unnamed official, U.S. President Joe Biden and top congressional Republican Kevin McCarthy are nearing a deal to raise the government's debt ceiling of $31.4 trillion for a period of two years. The proposed agreement would also include spending caps on most items.

In terms of macroeconomic news, attention is focused on the release of personal consumption expenditure data in the United States, which is closely monitored by the Federal Reserve for insights into consumer spending patterns.

The DAX is experiencing a flat trading day, largely influenced by the optimism surrounding a potential debt ceiling agreement. The recent price action reflects the pressures stemming from the unresolved debt ceiling issue, as well as concerns about Germany's entry into a technical recession. It is important to monitor the current support levels at 15650, followed by 15400.

 

[Zforex]

" Asian Stocks Mixed, US Debt Ceiling Deal Reached, and Fed's Inflation Concerns"​

In Asian markets, MSCI's broadest index of Asia-Pacific shares, excluding Japan, showed a 0.2% increase, although gains in some regions were offset by declines in Chinese and Hong Kong shares. The Nikkei in Tokyo surged 1.0% to reach a new 33-year high, while Australian resource-heavy shares also gained 1.0%. The focus for the week centers around Chinese manufacturing and services sector data for May, following concerns raised by disappointing April figures that indicated potential slowing growth in the largest economy in Asia.

European stock markets are expected to open mildly positive after President Joe Biden and House Speaker Kevin McCarthy reached a deal to suspend the nation's debt ceiling until 2025, amounting to $31.4 trillion. The deal now awaits approval from a closely divided Congress before the United States faces a potential debt payment crisis in early June. U.K. markets are closed on Monday for a bank holiday, while markets on the continent remain open. U.S. markets are closed for Memorial Day.

With negotiators working on drafting the bill, the U.S. House of Representatives could potentially vote on it as early as Wednesday, followed by the Senate later in the week.

On Friday, the personal consumption expenditures (PCE) price index, the Federal Reserve's preferred inflation gauge, came in stronger than expected. Combined with robust U.S. consumer spending, the market sentiment now leans toward the anticipation of a quarter-point interest rate hike from the Fed next month, with expectations of rates remaining at that level for the remainder of the year.

In the upcoming week, U.S. job openings and non-farm payrolls data will likely influence the Fed's decision-making for their June meeting. Economists surveyed by Reuters anticipate an increase of 195,000 payrolls in May, indicating a slowdown compared to the prior month's figure of 253,000.

EURUSD
The US President, Joe Biden, and the top congressional Republican, along with House Speaker Kevin McCarthy, have reached an agreement to raise the federal government's debt ceiling of $31.4 trillion until January 2025. Over the weekend, President Biden strongly urged both chambers to pass the agreement, and McCarthy seems to have no difficulties in getting it approved in the House. However, some policymakers have expressed their discomfort with the compromises made to avoid a default on debt payments, which challenges the positive outlook of the market on this crucial issue.

Furthermore, the release of optimistic data last week, including Durable Goods Orders and the Core Personal Consumption Expenditure (PCE) Price Index, which is the preferred inflation gauge of the Federal Reserve, has reinforced expectations of a more hawkish stance from the Fed. This has put downward pressure on the EUR/USD price. Additionally, concerns about a downward revision of Germany's Q1 2023 growth numbers have renewed fears of a recession in the region and have influenced the more hawkish members of the European Central Bank (ECB).

The EUR/USD pair found support at 1.0700, signaling a potential reversal in the making. The resolution of the debt ceiling issue may shift the sentiment from risk-off to risk-on, benefiting the Euro and weakening the Dollar's status as a safe haven. The key resistance levels to monitor are 1.0750 and 1.0800, while the support levels are at 1.0700 and 1.0600.

GBPUSD
The recent initial agreement reached regarding the extension of the US debt ceiling has the potential to cause the US Dollar to decrease some of its recent gains, provided that policymakers approve the deal in the Congress vote. Led by Kevin McCarthy, the Republicans in the House of Representatives have agreed to raise the US borrowing cap of $31.4 trillion for two years, while the White House has agreed to reduce budget spending but has remained steadfast in not cutting health coverage or increasing poverty. However, with the holidays in the US and UK on Monday, and considering the dissatisfaction expressed by both Democrats and Republicans regarding the deal, it may stimulate buyers of the Cable pair (GBP/USD).

From a technical standpoint, the GBP/USD pair has indeed confirmed a breakout below the support level of 1.2350. However, the ongoing correction in the Dollar is currently pushing the pair higher. Nevertheless, this does not alter the bearish outlook for GBP/USD. The next levels to monitor are 1.2300, followed by strong support at 1.2200. On the upside, resistance levels can be found at 1.2380 and 1.2420.

JPYUSD
The US Dollar (USD) reversed a portion of its modest intraday decline after the US Bureau of Economic Analysis (BEA) released data indicating that the headline PCE Price Index increased by 0.4% in April, compared to 0.1% in the previous month. Moreover, the annual rate accelerated to 4.4%, surpassing expectations for a decline to 3.9% from March's 4.2%. Additional information revealed that the Core PCE Price Index, which is the preferred inflation gauge of the Federal Reserve, ticked up to 4.7% from 4.6%, surpassing consensus estimates.

These data reaffirmed market expectations that the Federal Reserve (Fed) will maintain higher interest rates for a longer period, providing some support to the US Dollar and acting as a tailwind for the USD/JPY pair.

Additionally, the Bank of Japan (BoJ) adopting a more dovish stance could continue to weaken the Japanese Yen (JPY), indicating that the path of least resistance for the USD/JPY pair is towards the upside.

From a technical standpoint, the USD/JPY price is continuing the bullish momentum leading the price to the next big target around 142.10. The possible support level is 140.20 followed by 139.5.

XAUUSD
Hawkish hopes from the US Federal Reserve (Fed), backed by upbeat US data and hawkish comments from the Fed policymakers, as well as from Monetary Fund Managing (IMF) Director Kristalina Georgieva, challenge the gold price upside.

Also, the agreement between McCarthy and Biden in Sunday to avert an economically destabilizing default by suspending the $31.4 trillion debt ceiling until 2025 helped the sentiment toward Gold instead of Dollar and yields.

From a technical perspective, Gold has found support at the expected confluence point of the 100-day moving average (100MA), also preparing for a possible reversal around this level. This support level could potentially pave the way for an anticipated reversal towards the 1980 level, followed by a strong resistance area around 2000. In the event that the breakout level of 1937 is breached, possible support levels to consider are 1870 and 1800.

DAX40
European shares experienced gains on Monday as investors found reassurance in a provisional agreement made by U.S. lawmakers to raise the debt ceiling, thereby avoiding a default. U.S. President Joe Biden and House Speaker Kevin McCarthy reached a budget agreement on Sunday to suspend the $31.4 trillion debt ceiling until January 1, 2025. Biden stated that the deal was prepared to be presented for a vote in Congress.

In a separate development, Turkish President Tayyip Erdogan secured an extension of his two-decade tenure in power through elections held on Sunday.

The DAX has shown an upward movement today, rebounding from the 15700-support level following the positive sentiment resulting from the debt ceiling relief deal. The presence of bullish momentum suggests the potential for the price to rise further towards the next resistance levels at 16300 and then 16825. On the other hand, support levels can be identified as 15700, followed by 15500.

 

[Zforex]

Market Jitters: Investors Cautious as US Debt Ceiling Deal Faces Congressional Vote"​

Asian equity markets experienced mostly negative movements on Tuesday as investors remained cautious ahead of the congressional vote on the tentative US debt ceiling deal and awaited the latest purchasing managers' index readings from China. The Hang Seng Index led the decline, reaching its lowest levels this year. Similar downward movements were seen in the S&P/ASX 200, Nikkei 225, and Shanghai Composite indexes.

In European stock markets, a slight opening dip is expected on Tuesday, as investors eagerly await the progress of the US debt ceiling agreement in Congress. The key economic data for the day is the Spanish inflation reading for May, which is anticipated to show a continued rise in prices with a 4.4% annual increase compared to 4.1% the previous month.

In Spain, Prime Minister Pedro Sanchez surprised observers by calling for a snap election next week following his party's defeat in a regional election over the weekend, in an effort to retain power for the Socialist party.

Further details and clarity are anticipated regarding the tentative agreement in Washington to suspend the $31.4 trillion federal debt ceiling until January 2025, coupled with spending caps and government program cuts. However, the agreement may face obstacles as a few hard-right Republican lawmakers have expressed opposition.

Assuming the debt deal is approved by Congress, the Treasury Department may soon replenish its cash balance and issue over $1 trillion worth of bills throughout the third quarter, according to some estimates.

EURUSD

On Monday, the Euro struggled against the US Dollar, continuing its negative trend. Tuesday will see the release of Spain's preliminary report on the Consumer Price Index (CPI) for May, providing insight into price behavior for the current month. This data holds significance for both European Central Bank (ECB) officials and market expectations.

The US Dollar showed mixed performance on Monday, influenced by an improvement in risk sentiment. The DXY index gained a modest 0.1%, allowing it to close at its highest level in two months, above 104.20. With expectations shifting from a potential pause at the next Federal Open Market Committee (FOMC) meeting to a 25-basis-point interest rate hike, any potential decline in the US Dollar is expected to be limited.

US markets remained closed on Monday for Memorial Day, resulting in a quieter trading session. Market participants analyzed the weekend's agreement in Washington to suspend the debt limit. However, the legislation still requires approval from Congress, so the situation demands continued attention.

The EUR/USD pair is currently testing the 1.0700 level, indicating a potential continuation towards the next significant level around 1.0500 on a daily chart. The DXY index continues to exhibit strong momentum, suggesting the possibility of further gains for the US Dollar toward its next target around the 105.60 which also represent the 200MA.

GBPUSD

GBP/USD started the new week on a subdued note due to the Spring Bank Holiday in the UK. Last week, hawkish bets on the Federal Reserve (Fed) boosted the US Dollar (USD) and led to a loss of nearly 100 pips for GBP/USD. Before the weekend, the US Bureau of Economic Analysis released data showing that the Core Personal Consumption Expenditures (PCE) Price Index, the Fed's preferred inflation gauge, slightly increased to 4.7% year-on-year in April, surpassing market expectations of 4.6%. The report also indicated that consumer activity remained robust, with a monthly rise of 0.8% in Personal Spending. On Sunday, US President Joe Biden and Republican House Speaker Kevin McCarthy reached an agreement to suspend the debt ceiling.

From a technical perspective, the GBP/USD pair has indeed experienced a confirmed breakout below the support level of 1.2350. The strength of the dollar today may further drive the pair lower. It will be important to monitor the next levels, with 1.2300 as the immediate support level, followed by a strong support zone at 1.2200. On the upside, resistance levels to watch for are 1.2380 and 1.2420.

JPYUSD

The US Treasury yields have dropped sharply as investors are optimistic that a raise in the US debt-ceiling for two years will get passage from Congress. The 10-year US Treasury yields have dropped below 3.76%.

This week, US Employment data will be keenly watched. Initially, Tuesday’s JOLTS Job Openings data will be released on Wednesday, which is expected to decline to 9.35M vs. the prior release of 9.59M. Later on Thursday, US Automatic Data Processing (ADP) Employment Change (May) will be released. As per the estimates, the US labor market has added fresh 170K payrolls vs. the former addition of 296K. On late Friday, the Nonfarm Payrolls (NFP) would be the show-stopper event.

On the Japanese Yen front, BoJ Governor Kazuo Ueda said on Tuesday, “The BoJ will patiently maintain the easy monetary policy as there is still a distance to go to stable 2% inflation.” He further added inflation is likely to bounce back after the middle of 2023 led by wage growth, and other factors but there is uncertainty on that outlook. Meanwhile, the BoJ will continue with its bonds buying operations.From a technical perspective, the USD/JPY pair is currently experiencing a strong bullish momentum, pushing the price towards the next significant target at around 142.10. The recent strength in the US dollar further supports this upward movement. In terms of potential support levels, we can look at 140.20 as the initial level, followed by 139.5.

XAUUSD

Despite the market's optimism regarding the US debt-ceiling extension, the price of gold remains subdued. This could be attributed to the risk-averse signals from certain policymakers, particularly Republicans, who are expressing opposition to the compromises made in the deal and are prepared to challenge it in both the House and the Senate.Federal Reserve Chair Jerome Powell recently mentioned that US regional banks' tight credit conditions are effectively managing liquidity in the economy, leading to reduced liquidity disbursement. Companies are facing difficulties in obtaining the necessary working capital and are content with operating at lower capacity.However, new data indicates a surge in consumer spending in the US economy, while labor market conditions have not improved as expected. This has prompted the Fed to maintain its policy of tightening. The release of US employment data will provide further insight into interest rate guidance.

From a technical standpoint, Gold is currently testing the breakout of a critical support level that has held for the past week. The price is testing the 1937 level, which is significant as it represents both the 100-day moving average (100MA) and the lower parallel of a long-standing channel. A confirmed breakout below this level would indicate a potential shift in the long bullish trend and could lead to a further selloff towards the 1875 level. Traders will be closely monitoring this support zone for any decisive price action.

DAX40

European shares are poised to open with cautious gains on Tuesday as investors await approval from Congress for a deal to avert a U.S. default. However, concerns arise as some Republican lawmakers have expressed opposition to the deal, creating uncertainty ahead of the approaching June 5 deadline. Furthermore, the deal is expected to result in significant bond issuance, potentially impacting market liquidity.Investors are also closely monitoring a range of economic reports in the eurozone, including credit, inflation expectations, and various sentiment indicators. Of particular significance is the Spanish inflation reading for May, which is anticipated to reveal a continued rise in prices, with an expected increase of 4.4% on an annual basis compared to the previous month's 4.1%.Spanish Prime Minister Pedro Sanchez has taken personal responsibility for his party's defeat in a regional election and has called for a snap election next week, catching many by surprise, including members within his own government.

The DAX has shown an upward movement today, rebounding from the 15700-support level following the positive sentiment resulting from the debt ceiling relief deal but the sentiment still cautious toward a liquidity drain from the market. The presence of bullish momentum suggests the possibility for the price to rise further towards the next resistance levels at 16300 and then 16825. On the other hand if any shift in sentiment toward risk off we will find the support levels identified as 15700, followed by 15500.

 

[Zforex]

" Asian Equity Markets Decline on Disappointing Chinese PMI Data; Global Markets Await US"​

Asian equity markets faced a significant decline following disappointing PMI data from China. The manufacturing activity PMI for May fell to 48.2, while services growth slowed to its lowest pace in four months. This led to a 1% drop in China's blue chip stocks (CSI300) to 2023 lows, accompanied by a rally in government bonds. Hong Kong's Hang Seng (HSI) fell by 2.5%, bringing the index more than 20% below its January peak when hopes of a reopening rally were high. Australian stocks (AXJO) are also experiencing their worst day since March, with a monthly drop of 2.7%. Even the Nikkei fell by 1.6%, although it still posted a monthly gain of 6.8% that pushed the index above 30,000 to its highest levels in over 30 years.

In Australia, unexpected rise in consumer prices was reported, along with a warning from the central bank chief about potential future challenges. This prompted traders to increase the likelihood of another rate hike next week.European equity markets are expected to open significantly lower on Wednesday, following the losses among global peers. Investors are cautiously awaiting progress on the debt ceiling debate in Washington, as some US lawmakers have expressed opposition to a deal to raise the debt limit. Economic releases in the euro zone, including inflation and GDP data in France and Italy, as well as employment data in Germany, will also be closely monitored by investors.

Legislation to raise the $31.4 trillion US debt ceiling and implement new federal spending cuts, brokered by President Joe Biden and House Speaker Kevin McCarthy, passed an important hurdle and will be debated and voted upon in the full House of Representatives on Wednesday. However, two committee Republicans, Representatives Chip Roy and Ralph Norman, opposed the bill, going against their party's leadership.If the bill passes in the House, it will then move to the Senate for further consideration. Congressional approval is necessary before June 5 to prevent the Treasury Department from running out of funds to pay its debts, which would be a historic event for the United States.

EURUSD

Consumer spending in April exceeded expectations and undermined the possibility of a neutral interest rate policy by the Federal Reserve. Despite Fed Chair Jerome Powell mentioning that further rate hikes are less appropriate due to tight credit conditions, the focus now shifts to the upcoming release of the United States Nonfarm Payrolls (NFP) data on Friday.

In France, consumer price inflation decreased to 5.1 percent year-on-year in May 2023, compared to 5.9 percent the previous month. This marks the lowest level since April 2022, indicating a potential slowdown in inflationary pressures in the second-largest economy in Europe. The release of German Unemployment CPI data today will provide further insights into the overall health of the largest economy in Europe and help confirm or contradict the slowing French inflation data.

Despite these developments, the European Central Bank (ECB) is expected to maintain a hawkish stance in June due to significant divergence from the desired inflation target of 2%. In addition to the Eurozone, other factors and events will likely impact the market especially President Lagarde Speaks.

The EUR/USD pair confirmed a breakout below the 1.0700 level at the start of the European session, indicating a downward movement towards the next target around the 1.0500 area. The DXY index also followed a similar path, confirming the bearish trend and advancing towards the significant resistance level of 105.6 on the Daily chart.

GBPUSD

Lloyds Bank released its monthly business sentiment gauge and inflation signals for May, indicating a decline in the Lloyds Bank Business Barometer from 33% in April to 28% in May. This decrease aligns with the survey's long-term average and reflects the challenging economic environment, driven by persistent inflation and higher wage pressures, according to Hann-Ju Ho, senior economist at Lloyds Bank.

It is important to note that the Pound Sterling pair is influenced by the market's relatively more hawkish view on the Federal Reserve (Fed) compared to the Bank of England (BoE), despite mixed data from the US recently. The US Conference Board's Consumer Confidence Index for May declined slightly to 102.30 from an upwardly revised 103.70 in April. The survey report also revealed a decrease in one-year consumer inflation expectations from 6.2% in April to 6.1% in May. Additionally, the Dallas Fed Manufacturing Business Index for May dropped to -29.1, below market expectations of -19.6.

From a technical standpoint, the GBP/USD pair experienced an initial advance yesterday as the Dollar displayed weakness and underwent a correction. However, this correction proved to be temporary as the Dollar resumed its upward movement, reaching new higher highs. As a result, the GBP/USD pair was pushed lower towards its next significant target level at 1.2300.

JPYUSD

The Japanese Yen (JPY) is receiving support from multiple factors, leading to downward pressure on the USD/JPY pair. The release of disappointing Chinese PMI data for May has raised concerns about a global economic slowdown and dampened investors' appetite for riskier assets. This, coupled with the potential for Japanese authorities to intervene in the markets, has increased demand for the safe-haven JPY and contributed to a bearish sentiment surrounding the major currency pair.

Japan's Vice Finance Minister for international affairs, Masato Kanda, hinted at possible intervention measures to address the weakening Yen, stating that they will closely monitor currency market movements and respond accordingly. He also mentioned that all available options would be considered. Additionally, the ongoing decline in US Treasury bond yields has resulted in a narrowing of the US-Japan interest rate differential, further bolstering the JPY. However, the Bank of Japan's (BoJ) more dovish stance may limit the strength of the JPY.Overnight, benchmark 10-year yields experienced a drop of 12.4 basis points, followed by a 3 basis point decline in Asian trade on Wednesday, bringing the yield to 3.6675%. Bond prices typically rise when yields fall. The correction in bond yields is impacting the USD/JPY pair, particularly considering the current correlation between these two assets.

From a technical standpoint, the USD/JPY pair has undergone an unexpected correction, deviating from its fundamental factors as previously explained. This correction is driving the price towards the next support level at 139.00. Despite this correction, the long-term bullish trend and momentum remain intact.

XAUUSD

In addition to positioning ahead of data releases and consolidation at the end of the month, the price of XAU/USD (gold) is also benefiting from a combination of factors. Mixed US data and China's readiness to implement additional stimulus measures in response to weak activity numbers are supporting the price of gold. Furthermore, there is hope that US policymakers will find a way to avoid a default and the possibility of a more hawkish stance from the Federal Reserve is presenting challenges to the gold price. Currently, the metal is hovering just above a key support level that was previously a resistance level, adding to its significance.Federal Reserve Chair Jerome Powell recently acknowledged that tight credit conditions at regional banks in the US are effectively managing liquidity in the economy, resulting in reduced liquidity distribution. This has made it more difficult for companies to access working capital, leading them to operate at lower capacities.

In gold futures markets, open interest continued its downward trend on Tuesday, declining by approximately 3.3K contracts according to preliminary data from CME Group. However, volume showed an increase of nearly 10K contracts, indicating a potential rebound in the near term.From a technical perspective, Gold experienced a correction yesterday after reaching the support level at 1937. This price movement on the Daily chart suggests a rejection of the support level, keeping Gold within its long-term bullish channel. The current price action may indicate a period of price accumulation, which could potentially lead to a reversal. However, to confirm this reversal, we need additional signals and a breakout above the next resistance level at 1970, which should be closely monitored.

DAX40

On Wednesday, European shares reached their lowest point in over two months, driven by weak economic data from China. The concerns about a global slowdown overshadowed the optimism generated by signs of easing inflation in some major euro zone economies.

Europe's automotive and industrial goods and services sectors experienced the most significant losses, influenced by data revealing a faster-than-expected contraction in factory activity in China during May. This decline in activity was attributed to weakening demand, which is of particular significance as China is Germany's primary trading partner.

Despite the overall gloomy sentiment, there were a few positive indicators. French inflation in May was lower than anticipated, demonstrating a cooling trend. Additionally, the German state of North Rhine-Westphalia also experienced easing price pressures during this month.

The DAX experienced a correction yesterday and opened with a negative tone today, potentially indicating further corrections on the index due to negative fundamentals. However, the presence of bullish momentum remains intact, leaving open the possibility for the price to continue rising towards the next resistance levels at 16,300 and then 16,825.



In the current risk-off sentiment, support levels can be identified at 15,700, followed by 15,500.

 

[Zforex]

Global Markets React to Positive Economic Signals and Monetary Policy Outlook​

Shares in Japan, Australia, and China experienced gains, while South Korea's Kospi index was on track to enter bull market territory with a rise of over 20% since its September low. Hong Kong's Hang Seng index also rose more than 3%, recovering from concerns about Chinese economic growth that had pushed it close to a bear market.

European stock markets were expected to open higher on Friday after U.S. lawmakers passed a bill to increase the debt ceiling and establish a cap on government spending for the next two years, just days before the default deadline. The Fiscal Responsibility Act was approved in the Senate on Thursday, following its passage in the House of Representatives on Wednesday.

Although the ongoing political developments had caused minimal disturbance in the markets recently, attention is now shifting back to the outlook for the U.S. economy, the risk of a recession, and the Federal Reserve's stance on interest rates. Dovish comments from Fed officials, including remarks from Philadelphia Federal Reserve President Patrick Harker on Thursday suggesting a pause in rate hikes, have boosted market sentiment.

While recent statements from officials have indicated that the central bank may refrain from raising rates at its June meeting, the situation is complicated by the continued strength of U.S. data, such as consumer spending and manufacturing orders. The release of an eagerly anticipated labor market report on Friday will provide further insights.

EURUSD

The US Dollar Index faced pressure as some Federal Reserve policymakers called for a pause in tightening policies. This was highlighted by Philadelphia Federal Reserve Bank President Patrick Harker, who reiterated the need to exercise prudence and hit the pause button on policy tightening. In the United States, economic indicators presented a mixed picture, with a contraction in domestic factory activities but a significant increase in jobs. The US ISM agency reported a decline in the Manufacturing Purchasing Managers' Index (PMI), indicating reduced factory activities. However, the US Automatic Data Processing (ADP) agency reported a robust increase in jobs. In the Eurozone, inflationary pressures softened, leading investors to expect a potential pause in actions by the European Central Bank. However, the ECB President is expected to raise interest rates due to persistent core inflation.

The EUR/USD pair experienced a shift in direction influenced by changing fundamental readings, particularly due to a speech by Lagarde and FED members’ comments. The pair underwent a correction, surpassing the 1.0750 level and approaching the 100MA on the 4-hour chart, located around the 1.0780 level. The upcoming Non-Farm Payrolls (NFP) report is expected to have a significant impact on the EUR/USD pair, as any deviations from the forecasted numbers could alter market expectations for the next Federal Reserve (FED) meeting.

GBPUSD

The dollar initially experienced a strong rally following unexpectedly positive JOLTS job opening data. However, it later faced a sell-off after comments made by Federal Reserve speakers Patrick Harker and Philip Jefferson. They indicated that the Fed might consider not raising rates at the upcoming June meeting but would keep the possibility of a hike in July open. This concept of "skipping" a rate hike was introduced by Christopher Waller last week, suggesting that the Fed is adopting a new communication approach to smoothly conclude its tightening cycle.

Meanwhile, the pound continues to demonstrate resilience in the market. Although there has been a slight reduction in expectations for aggressive tightening this year, the overall sentiment remains relatively unchanged. There were speculations that Catherine Mann, a hawkish member of the Bank of England (BoE), would use a recent speech to push back against these expectations, similar to the past when the market anticipated a Bank Rate of 5.50%.

From a technical perspective, the GBP/USD pair experienced a significant correction, dropping to the 1.2450 level. This led to the formation of a well-defined bearish long channel, with the price reversing from the upper parallel of the channel. The US Dollar remains strong compared to other major currencies, suggesting that there is potential for further advancement. In the long term, the GBP/USD price is expected to target the first level of 1.2350, followed by 1.2300.

JPYUSD

According to the Automatic Data Processing (ADP) report, US private sector employers added 278,000 jobs in May, which was slightly lower than the previous month's figure of 296,000 but significantly exceeded the consensus estimate of 170,000. Initially, this data led to a subdued market reaction, with reduced expectations for a 25-basis points rate hike by the Federal Reserve (Fed) in June.On the other hand, the Japanese Yen (JPY) is being supported by the possibility of intervention by Japanese authorities in the markets. Masato Kanda, Japan's Vice Finance Minister for international affairs, hinted on Wednesday that authorities may take action to prevent the Yen from depreciating further. He mentioned that they will closely monitor currency market movements and respond accordingly. Additionally, the JPY benefits from a weaker risk sentiment, contributing to pressure on the USD/JPY pair as investors seek safe-haven assets.

The upcoming Non-Farm Payrolls (NFP) data will be closely watched as it often influences the direction of the pair, given the high volatility typically experienced after its release.

From a technical standpoint, the USD/JPY pair has recently found support around the 139.00 area, which corresponds to a significant historical support level dating back to July of the previous year. Moving forward, key resistance levels to monitor are located at 141.00 and 142.10. However, in the event of a bearish breakout, the next support levels to consider would be at 138.00, followed by 137.6.

DAX40

The US Dollar Index reached a weekly low at 103.45 as Federal Reserve policymakers lean towards pausing in the June monetary policy meeting due to the ongoing contraction in US domestic factory activities.

The fate of the US Dollar Index heavily relies on the forthcoming United States Nonfarm Payrolls (NFP) data. Analysts at Commerzbank believe that if the May labor market report shows strength and exceeds expectations, the Dollar could experience a rise. They anticipate the creation of around 200,000 new jobs in May, following the 253,000 jobs added in April, which would likely maintain the unemployment rate at 3.4%. Achieving the desired significant weakening of the labor market, which could help curb inflation, would not be realized yet.In the gold market, futures prices continued their recovery and briefly surpassed the important $1980 per troy ounce level on Thursday. However, this upward movement was accompanied by declining open interest and volume, indicating a lack of strength for a potential continuation of the rebound.

From a technical analysis perspective, gold experienced a significant correction and retraced towards the 1980 level. It encountered resistance around the 1982 level, forming a bullish pattern that suggests a potential strong reversal if today's data supports it. If there is a breakout above the resistance level, the next notable target would be around the 2000 area. However, if gold's momentum reverses and it turns negative, the support level to watch for would be around 1954.

 

[Zforex]

Asian Shares Extend Rally on Positive Economic Data; European Markets Set for Subdued Start​

Asian shares extended their rally for a third consecutive day as positive economic data boosted optimism about central banks avoiding a recession while managing inflation. Stock benchmarks in Japan and Australia surged over 1%, while South Korea's rose by approximately 0.5%. Hong Kong shares, however, saw a slight decrease after an initial increase. The market was uplifted by China's Caixin's services purchasing managers' index, which indicated a significant rise in activity during May.

European equity markets were expected to have a subdued start on Monday, following a strong finish in the previous Friday's session. Investors continued to evaluate the global economic and monetary policy outlook. Recent data revealed that euro zone inflation in May slowed to 6.1%, the lowest level since February 2022. ECB President Christine Lagarde commented that there was still progress to be made in the tightening cycle. However, Bank of Italy governor Ignazio Visco expressed more dovish sentiments, stating that a decline in energy costs should help alleviate inflation.

On Saturday, U.S. President Joe Biden signed a bill suspending the debt limit until the beginning of 2025, eliminating concerns about the possibility of the U.S. defaulting on its debt obligations. This decision alleviated a significant source of anxiety for financial markets in recent weeks.

While the U.S. labor market remained strong according to Friday's payrolls report, wage growth experienced a slight decline, creating some uncertainty ahead of the Federal Reserve's next policy-setting meeting scheduled for the following week.

The International Monetary Fund (IMF) expects the U.S. central bank to continue raising interest rates at its meeting on June 13-14, as banks maintain their lending activities.

After initially surging by 4.6% due to Saudi Arabia's commitment to reducing oil production by an additional 1 million barrels per day in July, oil prices later trimmed their gains to around 1%. Asian energy shares, however, experienced an increase. Saudi Arabia's efforts are aimed at preventing crude oil from reaching the low levels seen in late 2021.

The euro pair is influenced by the market's inclination towards a more hawkish stance from the Federal Reserve (Fed), particularly following the robust US Nonfarm Payrolls (NFP) report on Friday. Over the weekend, Kristalina Georgieva, the Managing Director of the International Monetary Fund (IMF), suggested that the Fed should take further measures to control inflation. The strong NFP figures, which reached a four-month high, have strengthened expectations of a more hawkish Fed, leading to a recent rise in the US Dollar Index (DXY).

The DXY has also gained strength due to the resolution of the debt-ceiling issue, as US policymakers extended the limit until 2024. On the other hand, the economic growth and inflation indicators in the Eurozone have been discouraging, which favors the Fed's hawkish stance and puts downward pressure on the EUR/USD price.

The EUR/USD pair continued its downward movement following Friday's NFP report, reaffirming the prevailing bearish sentiment for the pair. On the other hand, the DXY (US Dollar Index) continued its upward trajectory, confirming a bullish trend on the daily chart and indicating a potential move towards the significant target level of 105.50. In contrast, the next major target for EUR/USD is the historical area around 1.0550.

The USD continues to strengthen after the post-NFP bounce, reaching a level not seen in over a week. This ongoing USD strength has caused the GBP/USD pair to decline for the second consecutive day. It is important to note that several influential Fed officials expressed support for holding off on interest rate hikes, although the market still factors in the possibility of a 25-basis-point increase in June.

In addition to these factors, expectations of further interest rate hikes by the Bank of England (BoE) have increased due to stronger-than-expected UK consumer inflation data for May. This may help limit the losses for the GBP/USD pair. Traders are now anticipating the release of the final UK Services PMI as well as the US ISM Services PMI later in the early North American session, which could provide new market drivers.

From a technical standpoint, the GBP/USD pair is exhibiting a similar pattern to other major currency pairs after the NFP release, with the downward pressure from the strengthening Dollar causing the pair to decline. The next levels of support for the pair are expected to be around 1.2300, followed by 1.2200.

The US Dollar (USD) received a slight boost in response to the positive NFP report, which indicated the addition of 339K new jobs in May. This exceeded the consensus estimate of 190K and surpassed the upwardly revised figure of 294K from the previous month. As a result, the Greenback experienced some gains and provided a modest lift to the USD/JPY pair.

However, upon closer examination of the report, it was revealed that the Unemployment Rate unexpectedly rose to 3.7%, missing expectations for a slight increase from 3.4% to 3.5%. Additionally, Average Hourly Earnings fell short of estimates, reinforcing market expectations that the Federal Reserve (Fed) is likely to postpone an interest rate hike in June. Consequently, the upside potential for the US Dollar and the USD/JPY pair is limited.

Nonetheless, the downside for the pair is currently cushioned due to the Bank of Japan's (BoJ) adoption of a more dovish stance. This, coupled with the risk-on sentiment observed in equity markets, which undermines the safe-haven Japanese Yen (JPY), acts as a supporting factor for the USD/JPY pair. As a result, bearish traders should exercise caution given these dynamics.

From a technical perspective, the USD/JPY pair displayed a bullish reaction after finding support near the 139.00 region, following the release of the NFP data. The positive impact on the US Dollar provided further strength to the pair, potentially pushing it towards the significant resistance level at 142.20. However, in the event of a correction, the next support level to watch would be around 139.50.

The US Dollar Index (DXY) has been trading in a sideways manner around the 104.00 level, following a strong rally. This consolidation suggests that the USD Index is building momentum for potential further gains. The increased likelihood of another interest rate hike by the Federal Reserve (Fed) has also contributed to the upward movement in US Treasury yields. The yields on 10-year US Treasury bonds have risen significantly, surpassing 3.74%.

With the recent contraction in US factory activity for the seventh consecutive time, investors are now turning their attention to the upcoming release of the US ISM Services PMI data. While the US Manufacturing PMI has struggled to surpass the 50.0 threshold over the past seven months, the Services PMI has performed relatively better than the manufacturing sector. According to the preliminary report, the US Services PMI is expected to decline to 51.5 from the previous release of 51.9. However, the New Orders Index, which reflects forward demand, is anticipated to show improvement, rising to 56.5 compared to the previous release of 56.1.

From a technical analysis standpoint, gold has retraced to its previous support level around 1937, once again testing the 100-day moving average (100MA) on the Daily chart. If the price breaks below this level, it could potentially push the metal towards the next support level at 1880, followed by 1840

European shares experienced a slight uptick in early trading on Monday, primarily driven by the energy sector's gains due to the rise in crude oil prices. Additionally, the telecom sector rebounded after Friday's decline caused by reports of low-cost competition from Amazon.

The European oil & gas sector index saw a 1% increase, supported by stronger oil prices following Saudi Arabia's commitment to reducing production by an additional 1 million barrels per day starting in July.

However, markets struggled to maintain the positive momentum from Friday's gains, which were fueled by easing euro zone inflation, the avoidance of a US debt default, and growing indications that the US Federal Reserve might pause interest rate hikes this month.

In contrast, the Eurozone's service sector performed lower than expected in May, particularly in Germany, France, and Spain, signaling an economic slowdown in the Eurozone. The markets are also anxiously awaiting the European Central Bank's next rate hike decision, which adds further pressure to the economy.

The DAX index continued to improve in sentiment after the vote passed the debt ceiling bill, but today's data from the service sector and the post-NFP data didn't help. The next resistance levels are at 16,300 and 16,825. However, in the current risk-off sentiment, it is important to identify support levels at 15,650 and 15,500.

 

[Zforex]

"Asia-Pacific Markets Slide as Wall Street Pauses, Japan's Nikkei 225 Extends Losses, and Bank of Canada Surprises with Rate Hike"​

The Asia-Pacific markets experienced a decline as Wall Street's market rally paused, causing the broad market index to fluctuate near its highest closing levels since August 2022. Investors in the region carefully assessed economic data released this week. In Japan, the Nikkei 225 continued its slide from Wednesday in a volatile session, ultimately falling by 1.1%, leading the losses in the region. The Topix index also experienced a decline of 0.75%.

In terms of economic data, Japan's annualized GDP for the first quarter was revised to 2.7%, surpassing the 1.9% expectation of economists polled by Reuters and the 1.6% initially reported in preliminary figures.

European equity markets were poised for a lower opening on Thursday due to ongoing global economic uncertainties, which weighed on investor sentiment. Market participants also adopted a cautious approach ahead of the release of US inflation data and the Federal Reserve's upcoming interest rate decision next week. Additionally, investors awaited eurozone unemployment figures and revised gross domestic product data for the first quarter.

In a surprising move, the Bank of Canada followed the Reserve Bank of Australia's unexpected decision earlier in the week and raised interest rates by 25 basis points. This unexpected hike led traders to adjust their expectations regarding the U.S. Federal Reserve's stance, causing some concern over the future policy outlook.

The prevailing consensus suggests that the Federal Reserve will implement at least one more interest rate hike. However, the question remains whether it will occur next week or in July. According to the CME FedWatch tool, the probability of a 25 basis-point hike by the Fed next week stands at 36%, an increase from 22% reported a day earlier.

EURUSD
The upcoming meeting of the European Central Bank (ECB) is anticipated to include a rate hike, as reflected in market expectations. ECB's Schnabel mentioned that the decision on further rate increases will depend on data, while ECB's Knot expressed skepticism about the adequacy of the current level of tightening. This meeting, which also involves the release of new forecasts, holds significant importance for shaping expectations leading up to July.

In terms of economic data, Germany reported a 0.3% month-on-month increase in industrial production for April on Wednesday, which fell below the anticipated 0.6% growth. On Thursday, a fresh estimate of the Euro area's GDP for the first quarter will be published, along with employment change data.
Following the Bank of Canada's rate hike, the US dollar gained momentum on Wednesday, supported by a surge in US bond yields. The 10-year yield climbed by 3.50% to reach 3.79%, marking the highest level since May 29, while the 2-year yield rose to 4.60%. The consensus for the upcoming week still suggests that the Federal Reserve will maintain the Fed Fund rate within the range of 5.00% to 5.25%.

From a technical standpoint, the EUR/USD has formed a symmetrical triangle pattern, suggesting a potential continuation of the downward trend. An important resistance level to watch for is approximately 1.0750, where the 100-day moving average and the downward parallel of the bearish channel intersect. On the other hand, there are support levels around 1.0640, followed by 1.0600.

Several factors are likely to impact the trajectory of the British pound, including the actions of the Federal Reserve regarding interest rate hikes, global economic growth prospects, and economic concerns worldwide. In the past, uncertainties have driven investors towards the US dollar, so these factors will be closely monitored to assess the pound's future direction. The upcoming week could be pivotal in determining market sentiment. In the short term, sideways price movement is expected, but once the market breaks out of the current range, traders should adjust their positions accordingly.

On the other hand, there is a cautious sentiment prevailing as UK Prime Minister Rishi Sunak prepares to visit the US, along with concerns about the potential negative impact of high inflation and a slowdown in productivity growth on the British economy. These factors are exerting downward pressure on GBP/USD prices.

From a technical perspective, there has been little notable movement in price, similar to the situation with the DXY. However, there have been some upward movements in price action. The prevailing sentiment remains bearish, suggesting that the pair is likely to sustain its downward trend towards the next support level at approximately 1.2350. Subsequently, potential support levels can be anticipated around 1.2300 and then 1.2200.

The US economy faces potential challenges as market expectations indicate a need for additional interest rate hikes to address mounting pressure on the US Consumer Price Index (CPI). Former Richmond Fed President Jeffrey Lacker suggests that the current interest rates of 5.0-5.25% should be raised to 6% in order to combat persistent inflation.

Despite discussions surrounding a potential shift away from an ultra-dovish interest rate policy by the Bank of Japan (BoJ) Governor Kazuo Ueda, the Japanese Yen has not shown significant strength. Reports from Bloomberg indicate that BoJ watchers do not anticipate any policy adjustments in June, as Governor Ueda consistently supports the necessity of monetary stimulus to maintain inflation levels steadily above 2%.

In terms of technical analysis, the USD/JPY pair is presently hovering close to the lower limit of a bullish channel on the 4-hour chart. There is a potential for the 100-period moving average (MA) to act as support around the 138.70 level. Additionally, there is a resistance line that is containing price within a narrow range, indicating a symmetrical triangle pattern is forming, which could suggest a potential bullish breakout. Taking the broader perspective into account, the overall outlook remains bullish, with an expectation of continued upward movement in the pair.

During a statement on Wednesday, US Treasury Secretary Janet Yellen emphasized the contribution of robust consumer spending in maintaining the resilience of the US economy. She expressed confidence in the ability to manage inflation while keeping the labor market strong, with a slight increase in unemployment to around 4% compared to May's reading of 3.7%, as reported by Reuters.

The remarks made by former Richmond Fed President Jeffrey Lacker, advocating for a rise in interest rates from the current range of 5.0-5.25% to 6% as a means to address persistent inflation, have heightened the likelihood of another interest rate hike by the Federal Reserve.

Expectations for the USD Index foresee volatility, as the economic calendar for this week lacks significant events. Analysts at MUFG anticipate that the US dollar will likely consolidate at its present strong levels due to reduced market enthusiasm for taking positions ahead of an important week that includes the release of the US Consumer Price Index (CPI) data, along with meetings of the Federal Open Market Committee (FOMC) and the European Central Bank (ECB).

Gold's price has been trading within a confined range, lacking clear direction at the moment. On the daily chart, the 100-day moving average (100MA) is providing support for the price. However, there is a possibility of a downside breakout, which might trigger heightened selling activity and potentially push the price towards the next support zone around 1871.

European shares opened lower on Thursday as rate-sensitive technology shares slipped on expectations of further interest rate hikes by major central banks, although gains in Swiss healthcare group Novartis helped limit losses.

Fears that the U.S. Federal Reserve could opt for a hawkish stance in its meeting next week and expectations that the European Central Bank will continue to tighten its monetary policy weighed on stocks.

The DAX index has been experiencing a period of stagnation, with its movement remaining largely unchanged for four consecutive days. This reflects the prevailing uncertainty in market sentiment, as investors remain cautious about the future actions of central banks and their potential consequences. The index recently tested and surpassed resistance levels at 16,400 and 16,200 respectively, suggesting the possibility of further upward movement towards the next resistance level at 16,800. On the other hand, there is also a chance that the price may retreat and find support at the level around 15,900.