Forex FOREX PRO WEEKLY, June 12 - 16, 2023

Sive Morten

Special Consultant to the FPA

Many investors have expected that last week becomes a "silence" before the next week's storm of double central banks meeting and inflation data release. But, hardly we could call it as "silence". Investors' sentiment were shaking already by long-term expectation of debt saga resolving and hazard of default, not mentioning other hits from regularly statistics that was pretty interesting as well. Recent EUR reversal tells that investors start taking bets on hawkish Fed meeting result, inspired by poor initial claims data and hawkish C. Lagarde speech. Maybe we're wrong, but I still do not throw away idea of Fed hike this month as well. Fundamentally, we do not see sharp necessity for Fed's pause, despite that unemployment is around 3.7%.

Market overview

In the beginning of the week, a strong U.S. economy is giving an unexpected boost to the dollar, frustrating bearish investors betting on its decline. Fund managers in the latest BofA Global Research survey named shorting the dollar as the market's third "most crowded" trade.

The dollar is "in a very messy transition from bull market to a bear market," said Aaron Hurd, senior portfolio manager, currency, at State Street Global Advisors. "That transition period is going to be fairly frustrating."

Hurd expects the dollar to remain buoyant over the very short term, but decline steadily over the next few years. Bears argue that the dollar has plenty of room to fall, as the currency remains some 15% above its post-pandemic low and the Federal Reserve is widely expected to soon end the interest rate increases that have helped support the greenback.

But the bears' view has been stymied by a run of strong U.S. data that suggests the economy remains resilient despite the barrage of Fed hikes aimed at slowing growth and containing inflation. Most investors believe the dollar will likely remain elevated until U.S. data turns decidedly weaker, allowing the Fed to cut rates.
Traders on Friday were betting that the fed funds rate - which currently stands between 5% and 5.25% - would finish 2023 at 4.988%, compared with expectations in early May to end the year at 4.188%. Higher rates tend to boost the dollar’s appeal.

"The dollar strength is entirely related to the fact that U.S. data is actually pretty good," said Alvise Marino, a strategist at Credit Suisse.


A stronger dollar can be a headwind for risk assets as it helps tighten credit conditions while weighing on the profits of U.S. exporters and multinationals.

Another potentially complicating factor for dollar bears is a flood of U.S. government bond issuance expected in the remainder of the year, with the U.S. Treasury expected to begin refilling its coffers now that the debt limit has been raised.

One view holds that such a large amount of Treasuries will drain liquidity from the market, potentially creating demand for dollars, said Bipan Rai, North America head of FX strategy at CIBC.

Still, many believe it's only a matter of time until the dollar resumes a downtrend that saw it lose as much as 11.5% from its September highs.

UBS Global Wealth Management ranks the dollar as its "least preferred" currency, saying the Fed is likely to cut rates late this year or early in 2024, reducing its yield advantage over the euro and other currencies.

Federal Reserve officials indicated last week that the central bank was likely to skip an interest rate hike at its upcoming meeting, on June 13-14, while leaving the door open to a future rise in borrowing costs. In Europe, European Central Bank (ECB) President Christine Lagarde said further policy tightening was necessary, a trend that would undermine the dollar's yield advantage.

"Once the Fed stops hiking, the market will focus more intently on the timing of the first rate cut and that is likely to undermine the dollar," said Brian Rose, senior economist at UBS Global Wealth Management.

Rai, of CIBC, believes the dollar's lingering strength will give way to weakness as it becomes clearer later this year that the Fed will hold off from further rate hikes while the ECB may have more work to do.

"From a macro sense, I still believe the dollar needs to decline," he said. "But that story might need to wait until the second half of this year."

Recent polls suggest the U.S. Federal Reserve will not raise interest rates for the first time in well over a year at its June 13-14 meeting, according to economists polled by Reuters, but a significant minority expects at least one more hike this year as the economy remains resilient. More than 90% of economists, 78 of 86, polled June 2-7 said the policy-setting Federal Open Market Committee would hold its federal funds rate at 5.00%-5.25% at the end of its meeting next week. The remaining eight expect a 25-basis-point rise.

Since the Fed's last policy meeting in May, strong economic data and comments from a few of its officials have encouraged markets to price in a hike at or before the July 25-26 meeting, with earlier expectations for rate cuts later this year receding quickly. That hawkish change in market expectations has helped boost the U.S. dollar to its highest level since March. The trouble is that inflation has not fallen quickly enough - it was running in April at 4.4% based on the Fed's preferred measure and 4.7% when stripped of volatile food and energy prices.

In the meantime, the U.S. job market has remained remarkably strong, with unemployment rising but still remaining well below 4% and wage inflation falling slowly.

The housing market, which is normally highly sensitive to interest rates, has also withstood the higher borrowing costs for much longer than many expected, with only minor price falls from the levels seen during the pandemic-related boom. U.S. Treasury Secretary Janet Yellen said on Wednesday the economy was strong amid robust consumer spending but some areas were slowing, and that she expected continued progress in bringing inflation down over the next two years.

More than one-third of respondents in the poll, 32 of 86, say the Fed will hike at least once more this year, including the eight who say that will happen in June and 24 who expect a rate rise in July after a pause. Only one predicted a hike in both June and July. Markets are pricing around a 60% chance of a rate cut this year.

"There is not a substantial economic difference between raising policy rates in June or doing so in July. But communicating why rates should not rise in June, despite data to the contrary will be challenging," said Andrew Hollenhorst, chief U.S. economist at Citi, who expects a 25-basis-point increase at both the June and July meetings. If most Fed officials feel at least another 25-basis-point hike will be necessary, it seems simplest to deliver that hike in June rather than 'skip'."

"The longer they don't hike, the longer the economy is going to continue expanding above trend ... the longer you postpone that decision, the harder it is going to be to bring inflation lower," said Oscar Munoz, chief U.S. macro strategist at TD Securities, who forecasts one more rate hike next week.

The European Central Bank, in turn, will hike its key interest rates by 25 basis points on June 15 and again in July before pausing for the rest of the year as inflation remains sticky, according to a clear majority of economists polled by Reuters. ECB President Christine Lagarde said on Monday it was too early to call a peak in core inflation and reaffirmed rates would need to be increased again. The central bank is forecast to raise its deposit rate again by a quarter percentage point on June 15 to 3.50%, according to all 59 economists polled in the latest Reuters survey.

About three-quarters of economists, 43 of 59, forecast another 25 basis point rate hike in July, a stance hardly changed from a May poll. That would take it to a terminal rate of 3.75%, in line with market expectations.

"A 25 basis point rate hike looks like a done deal for next week's meeting," said Carsten Brzeski, global head of macro at ING. Macro developments since the May meeting have clearly had more to offer the doves than the hawks at the ECB... However, the ECB is fully determined right now to err on the side of higher rates."

European Central Bank interest rate hikes could take longer than usual to pass through to the real economy and their impact may be more muted than usual, ECB board member Isabel Schnabel said in a newspaper interview.

"Given the current shortage of workers, one could expect monetary policy transmission to be weaker than usual," Belgian newspaper De Tijd quoted her as saying in an article published on Wednesday.Given the high uncertainty about the persistence of inflation, the costs of doing too little continue to be greater than the costs of doing too much," Schnabel, the head of the ECB's market operation, said.

Still U.S. investment bank Morgan Stanley said on Monday that it expected the European Central Bank (ECB) to end its interest-rate hiking cycle in July at 3.75%.

"We see the ECB ending its hiking cycle in July at 3.75%. Fiscal policy remains supportive," it wrote in a research note.

Currently we do not see big reasons to consider what will happen after July. The major thing that we get from current market sentiment is twofold - market expects Fed's pause and 25 b.p. ECB move. That's what we really need to know. It seems that only first point is under question. If we (and Citi strategist) will appear to be right and Fed hikes, upside USD rally will wash out all bearish stops around.

Goldman Sachs Group Inc. is planning for a period of sluggish growth and higher inflation, the bank's president John Waldron said on Thursday, calling it "a mini-stagflation scenario." (I'm not sure about "mini"). Despite the U.S. economy showing resilience, concerns remain among investors that a recession could happen in an environment of stubborn inflation and high borrowing costs.

"The primary debate to me is inflation. When I talk to our clients ... the single biggest debate that I hear is, how sticky will it be," he said. You're certainly seeing reduced business investment. I still come back to the combination of inflation and geopolitics as two big areas that we have to get a little bit of a better understanding of," he said, referring to the war in Ukraine and U.S.-China relations.

Global equity funds posted outflows for the eighth consecutive week in the seven days leading up to June 7, as concerns over stubbornly high inflation and sluggish economic growth prompted investors to pull back from riskier assets. Hit by a slowdown in global demand, Chinese exports shrank much more than expected in May, while imports also declined due to sluggish domestic consumption. Factory activity also contracted in the U.S. and Europe.


In contrast, global money market funds recorded a net inflow of $55.91 billion, the largest weekly influx since April 5. Global bond funds attracted inflows of $4.02 billion, continuing the trend of net buying for the twelfth consecutive week.

"With policy rates peaking and risks to the economic outlook increasing, we recommend adding exposure to bonds and locking in yields before markets begin to price in much lower interest rates," Mark Haefele, chief investment officer of global wealth management at UBS, said in a note.

Data for commodity funds showed that precious metal funds faced outflows for the second consecutive week, with a total net amount of $545 million. Energy funds saw withdrawals of $58 million.

U.S. jobless claims has become the major bearish driver last week, rose more than expected in the latest week, though the market was generally viewed as consolidating ahead of key inflation data and the Federal Reserve’s interest rate decision next week. The number of Americans filing new claims for unemployment benefits surged to the highest level in more than 1-1/2 years last week with a 28,000-claim jump to a seasonally adjusted 261,000. Economists polled by Reuters had forecast 235,000 claims for the latest week.


“There is a small window of opportunity for the Fed to raise rates again, whether it's June or July, and the market now favors July ... the market doesn’t think there’s anything more to be done because the economy looks set to weaken,” Marc Chandler, chief market strategist at Bannockburn Global Forex in New York.

The Institute for Supply Management (ISM) said its non-manufacturing PMI fell to 50.3 last month from 51.9 in April. A reading above 50 indicates growth in the services industry, which accounts for more than two-thirds of the economy. Economists polled by Reuters had forecast the non-manufacturing PMI edging up to 52.2.

The Treasury market seemed to agree (with Fed's pause), as yields tumbled on concerns that the spike in new U.S. jobless benefits claims suggested a potential recession could be on the horizon.

Still last week in an almost carbon copy of a surprise rate rise in Australia and Canada caught markets off guard on Wednesday by hiking interest rates to a 22-year high of 4.75% due to an overheating economy and stubbornly high inflation.

"The RBA and Bank of Canada have put the cat among the pigeons a bit," said CMC Markets strategist Michael Hewson. "Rate cuts are being repriced. They are being pushed back from the end of this year into next year."

"The main theme to everything out there is the bond sell-off and the realisation that the pause (in the rate hiking cycles of central banks) doesn't mean the end," said Societe Generale strategist Kit Juckes. We are definitely re-pricing rate expectations higher," he added, explaining that traders were also questioning the long-held view that the Fed would end its rate hike cycle well before the European Central Bank.

Markets are pricing in a 64% chance of the Fed standing pat next week, compared with 78% just a day earlier, the CME FedWatch tool showed. Traders largely expect a 25 basis point hike in July though.

The dollar bounced off two-week lows on Friday as investors awaited inflation data and the Federal Reserve's interest rate decision next week for any new clues on how high the U.S. central bank is likely to hike rates.

"They still think they need to do more, and also I would suspect they will continue to discourage expectations of policy easing," said Vassili Serebriakov, an FX strategist at UBS in New York. The Fed is expected to revise higher its "dot plot" of policymakers' rate expectations and inflation projections, "so in that sense, I think the Fed will remain hawkish.

Finally, signs that U.S. inflation continued to cool in May would likely be welcomed by markets, after strong jobs data bolstered the case for those betting rate hikes are easing price pressures without badly hurting growth. Headline consumer prices are expected to rise by 0.3% on a monthly basis, after a 0.4% increase in April.


Also it will be interesting to see what we get in China - May new home price data is due Thursday, after a private survey showed new home prices fell for the first time in four months in May and home sales slumped. Other data released on Thursday could shed light on rising unemployment and cautious consumer sentiment, which have also hurt the economy. As each data point bolsters expectations for fresh stimulus, peak pessimism on China's economy has perhaps passed.


Today we will show you just few charts to illustrate the dynamic and that everything goes constantly. We've got few new data. Based on the charts below, we could make some conclusions. First is - the industrial production is falling across the board and with solid tempo - 8-12% on average. Even in Germany last month the drop was around 10%. And this happens on the background of industrial deflation as PPI is dropping as in EU as in US and China.


Thus, the picture of the economic downturn is relatively clear: the PPI index describes the prices of final goods in technological chains. If final prices fall, then assembly companies actively reduce purchases, this goes down the chains and a clear decline begins.

Contrary to all the stories in various kinds of "expert" sources that say that the situation is changing for the better, even official data do not show this. In reality, as we remember, industrial inflation is seriously underestimated in the sectors where it exists today, so the real economic downturn is significantly higher.

As we have repeatedly noted, during a structural crisis, after a sharp decline in a particular industry (-10% in Germany last month), there comes a time of relative stability (like in Germany now), when may even be a small increase. At the same time, the decline is shifting to other industries. And if attention is not focused on these moments of the recession, then there is a feeling that everything is fine, there is a small increase, there ... and in Germany — after a sharp decline in industry, the situation seems to have settled down and the indicators will be quite tolerable for several months. But the recession will break out somewhere else.

Speaking on US trading deficit, we see a clear process when cheap Chinese imports compensate for the decline in living standards for households. Drop of demand for domestic US goods leads to more production deflation and accelerate production drop.

Taking in consideration the outflow of deposits from American banks, then the picture becomes even more alarming:

Because against the background of how the Treasury sweeps all available liquidity from the market, banks need to somehow maintain their own financial indicators. And if they start raising deposit rates (which is already happening), the cost of loans will also increase. That is, a new wave of economic recession is ahead… In general, the picture looks quite alarming, despite the appointed summer. Let's see what next week will show us, will the Fed risk raising the rate …

Now it is a lot of talks are around US Treasury strategy - how they intend to grab liquidity. Direct printing from the Fed, when it buys back all new bonds issues is excluded. This is direct way to inflation spin up. Hence, the common view suggests that J. Yellen should try to use existed liquidity sources, such as Banks Reserves and Reverse Repo trades. Together they are enough to satisfy government cash demand. But there is a problem - this is business and banks could agree at something else if it provides greater return. It means that J. Yellen has to offer higher yield (above 5.25%) to make banks unwound Repo trades, taking cash back out form the Fed and buy new bond issues. And we were right on this subject - this has happened. But the volume was small (~ 140 Bln net) and it is a big question how they will place the volume 3-5 times greater, just in few weeks.

It seems that Fed is also participated - slowing QT and increased the balance last week. At the same time, banks still have problems with liquidity. Supportive programmes hit all time highs.

On June 12, there will be large placements from the US Treasury (13, 26 and 52 week bills, 3 and 10 year notes and 30 year bonds). The money pump is gradually unwinding, but so far there is no imbalance in liquidity, because for three months of "oblivion" significant deferred demand has accumulated, just in bills, mainly from money market funds (the same hundreds of billions of dollars that have flowed from deposits to money market funds and mutual funds since March).

US investment funds have about $200-250 billion buffers, that was used to close the first salvo of large placements (139 billion in bills). It will hurt more further, because the US Treasury has just begun to be hosted, and there is less and less free cache in the system. It may turn out like in December 2021, when investors tried for 3 weeks to get what was happening, and then they were pressed by a wave of placements from the Ministry of Finance and the tightening of the policy. The problem is that the liquidity balance is much worse now.

Markets still count on Reverse Repo source with ~2.15 Trln in assets, but to satisfy US Treasury they have to extract somehow ~ 400 Bln. But this never happened previously. The problem is also, that the data on Repo assets updates rarely, so we can't get in time information on this subject. Now it seems that money from the reverse repo with the Fed is leaving, although not too fast. It seems that it was about the sources of funding that Yellen spoke with the head of JP Morgan.

Besides, initially J. Yellen was intending to accumulate $750 billion by the end of June, now she speaks about $425 billion, but "at the end of July it is higher." Is the tough phase of the crisis moving to July-August? It is a pity that there is no such operational data on the money supply. The delay is more than a month. Well, it is also impossible to understand whether bank reserves are growing. Delay, again. If there were up-to-date data, we could understand whether new liquidity is emerging or not, but sorry!

That's being said -
Money market funds are managed by big banks, so theoretically they can agree with the Ministry of Finance to send at least all $2 trillion from the reverse repo to buy new bonds. To justify this, the Ministry of Finance needs to give a small premium to the reverse repo rate.

That's why I mentioned bank reserves. Because when the Ministry of Finance spends money from its TGA account, they should be reflected either in the growth of the money supply (that is, increase liquidity in the US economy), or go back to the Fed. Everything is bad with lending, so it's not worth counting on the money supply. But banks need to attach this liquidity somewhere, and this "somewhere" is bank reserves in the Fed. Therefore, if they grow, then we will be able to understand that the money supply is probably not growing.

Finally I'm hear a cool conspiracy theory:eek: In general, the big banks want to gain liquidity (in bank reserves in the Fed), arrange a banking crisis, buy up all the member banks of the Fed in order to get a controlling stake. Control does not give them ability to manage the Fed directly. But! Then, following the banking crisis, the state arranges the reform of the Fed and banks have the rights to manage the Fed. That's what the control share is for. Then the Fed introduces CBDC and the evil banks get control of everyone. And the main villain here is JP Morgan. In my opinion, it's cyberpunk and dystopian beautiful. :p

So, the bottom line is:

Meantime, we have no choice but to wait an update on reserves, M2 and Reverse Repo data to understand whether we're right or wrong. Options actually are not too many. If not our plan then direct Fed printing - we get it by watching on its balance and QT tempo. Whatever happens, drying the households savings and liquidity problems in mid term perspective should support US dollar, when euphoria about possible Fed pivot will lay down. And we still think that it is not the fact, that we get Fed pause in June, especially if CPI will be flat or increase. On coming week, EUR euphoria could hold as Fed and ECB decisions, CPI data just will be released. But constant liquidity hunger gradually will press on the markets. If we will be right about Fed new hike, we could get fastest collapse in recent time. Actually it could start if CPI will show the growth.
Tomorrow in Gold report we also consider another, wider theory that includes recent SEC attack on crypto markets as a part of longer term plan, together with Fed and US Treasury steps of changing global financial system.


Monthly chart barely has changed since last week. June performance is too small by far. EUR has confirmed bearish reversal feature of May candle. Despite the MACD trend remains bullish here, and it could remain bullish, if even EUR drops back to the parity, but whatever depth of retracement will be - this is big move as we're talking about monthly chart.

Now situation looks supportive to B&B "Sell" idea with potential target around 1.0130-1.02 area. And reversal bar here is a good start. It is interesting how EUR will go with it, especially on a background of massive euphoria. Until reversal bar is valid - bearish potential holds here. Few other targets, that we've specified last week are valid as well.



Since major events are yet to happen, weekly time frames is stagnating as well. Last time we've talked about indecision performance and that direction depends on breakout. But, this week the breakout has not happened.

Existed MACD divergence points on nearest target around 1.05 lows. First is, because this is divergence target, second - this is weekly oversold, and, finally, this is YPP.


Here context still stands bullish and we have minor changes compares to Friday. By the shape we have DRPO "Buy" pattern. And current action we should treat as pullback within upside tendency. Targets we've specified yesterday. They are 1.0810 Agreement resistance, DRPO min target is around 1.0850-1.0860 and next one intraday XOP is around 1.09


Here is the only time frame where changes happen. We're constantly watching for two things. First is - upside targets, second - retracement.

Everything is clear with the targets, so we have to focus on validity of upside action. Particularly speaking, market has to stay above major 5/8 Fib level to keep current bullish context. Otherwise it will be clear bearish signal and coming downside breakout. On Friday we've expressed our doubts on reliability of this rally. Obviously that on next week any sharp turns happen only after some fundamental event. It means that it will be difficult to predict it.

Market stands around 1st support that we've specified on Friday. Action down is relatively fast, OP is passed already. So, it makes sense to watch for XOP and strong K-support Agreement to make decision on long entry. For short entry, as we've said we have to either to wait for completion of upside target or to get clear signs of failure. We have nothing by far.
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Master Sive, you must be spening a LOT of time in gathering and writing these articles.
I adore you !!!
Learning something everytime.
Stay healthy !!!
The best of the net...

Well, when you've structured information sources - it is not too hard. BTW, how do you think, should I make it shorter. Is it too bore to read all this stuff? I just try to find optimum size, but everytime can't exclude some information which also seems important to me. Maybe we should contract "Market overview" because there mostly well known facts that have happened through the week...
Well, when you've structured information sources - it is not too hard. BTW, how do you think, should I make it shorter. Is it too bore to read all this stuff? I just try to find optimum size, but everytime can't exclude some information which also seems important to me. Maybe we should contract "Market overview" because there mostly well known facts that have happened through the week...
I feel it is fine as it is. Yes there is a lot to go through but surely that means the 'job' is being done PROPERLY and not skimped. I learnt many, many years ago that it is FAR better to do something properly FIRST TIME, rather than skipping through and not doing it thoroughly and then having to spend more time later, in order to get it 'right'.
Well, when you've structured information sources - it is not too hard. BTW, how do you think, should I make it shorter. Is it too bore to read all this stuff? I just try to find optimum size, but everytime can't exclude some information which also seems important to me. Maybe we should contract "Market overview" because there mostly well known facts that have happened through the week...
No, it's perfect as it is.It's easy to listen, but a lot harder to do my own analysis without your daily overview. The market is hard to read these times.... Without your videos it would be MUCH harder....
Well, when you've structured information sources - it is not too hard. BTW, how do you think, should I make it shorter. Is it too bore to read all this stuff? I just try to find optimum size, but everytime can't exclude some information which also seems important to me. Maybe we should contract "Market overview" because there mostly well known facts that have happened through the week...
Dear Sive, I read your detailed reports with great thirst to absorb the nuances and aspects of the market, for someone like me who is still learning, not easy to condense. For that only I appreciate so much the time you put into providing incessantly week after week this guide accompanied with your videos which I really thank you for. I am sure I voice feelings of so many that come here to learn from you. Your report as it is, is great, see what others say. Kindest regards
Morning folks,

So, it seems our weekend plan works nice, and now it is not many things to do. Market hits daily 1.0810 resistance once again - our first target. Overall background is supportive to further action, but first, it should be some downside reaction on daily level:

On 4H chart OP and 1.27 butterfly extension are done. Next target is 1.0850 - 1.618 butterfly extension and supposed daily DRPO "Buy" min target. Final XOP is around 1.09:


Upward action accurately started from our XOP level. Now, for pullback we consider mostly 1.0760 nearest level, and maybe 1.0740 K-support. Now it is not best area for new long position and we should wait for the bounce. For the bears it is also nothing to do. If say, we get later H&S pattern - that's could be something. If, say, some fundamental background will change - CPI jumps, Fed will be more hawkish or even raise the rate, and/or ECB will be more dovish in comments. But for now, it is not many things to do:

Morning everybody,

So, EUR action is predictable, this is action what we've expected. It seems that only we and Citi believes that Fed still could raise the rate today. All other market society suggests pause. Still, if miracle will happen and we wil be right, it could trigger furious downside action. Hardly it will last for long but probably will be fast.

Meantime, market still stands around 1.0810 resistance.

On 4H chart retracement takes the shape of small wedge or pennant, suggesting good chances for continuation. Next target is 1.0850:

On 1H chart, we mostly are watching for the same patterns. 1.0763-1.0775 is the preferable one, while 1.0735-1.0750 we could treat as a vital area for short-term bullish context. Bears have nothing to do by far, but now you could better recognize potential H&S pattern that I've talked about yesterday. It comes in play if EUR drops to 1.0745 area and start forming the right arm then.