According to the Research Department at BBVA, the US dollar is no longer reacting so positively to strong data from the US. Over the long-term, they see the EUR/USD appreciating very gradually, reaching the 1.25 area in 2022.
“The tables have recently turned for the common European currency as it once again moves toward appreciation. Following the period of weakness it experienced earlier this year, the euro has appreciated by over 3.5% so far this quarter, exceeding 1.22. This appreciation occurred earlier than expected.”
“Investors are turning toward European asset markets at the same time confidence in a Eurozone recovery is intensifying. On the other, the strength of the dollar during the first quarter of this year seems to be disappearing, and the currency is no longer reacting as positively to strong data from the United States.”
“Once the end of the COVID-19 crisis is closer and recovery is underway, the key will be its consolidation and the way in which the two large central banks—the Federal Reserve (Fed) and the European Central Bank (ECB)—begin to reverse their expansionary policies, as well as the time at which they begin to reduce asset purchases.”
“In 2022, we expect the euro to continue appreciating very gradually relative to the dollar toward long-term equilibrium levels, which could be around 1.25.”
It increasingly looks like Tuesday’s OPEC+ meeting might not offer much we don’t already know.
A Reuters report, citing two sources, said they don’t expect OPEC+ to discuss output beyond July because they want to wait and see what happens with Iran. Another meeting is planned for June 24, which is after Iran’s election.
Reuters also reports that the larger deficit that the JTC is now forecasting is due to lower supply, not higher demand.
OPEC is in a tough spot because few people — maybe even including Iran — know how quickly Iran can bring barrels back online. They’ll get back to 6 mbpd but the timing is muddly.
Brent remains up 80-cents to $69.53 today.
There’s a negative tone in early week trade with Japan also falling by 1%. That could reflect some end-of-month flows. We’ll get a better picture tomorrow when liquidity returns.
About half of the selling came in the final 40 minutes of trade, at the same time as the jumps in the US dollar against the yen, euro and pound.
The USD/JPY broke below 109.60 and tumbled to 109.34, reaching the lowest level since Thursday. As of writing, it is trading slightly below 109.50, down 35 pips for the day.
The correction on Monday takes place after the US dollar was rejected from above 110.00. On Friday it peaked at 110.19, before bouncing to the downside. On Monday, price action remains limited amid a holiday in the US. Over the last hour, the greenback dropped across the board into the London fix.
Economic numbers from the US are having a large impact on US yields, hence affecting USD/JPY. The 10-year yield closed lower last week below 1.60% and weighed on the greenback.
On the downside, the immediate support in USD/JPY is the 109.30 level followed by 109.00/05. On the upside, now 109.60 is a resistance level and then 109.75 before the 110.00 area.
The GBP/USD pair spent the first half of the day fluctuating in a tight range around 1.4180 but gained traction during the American trading hours. As of writing, the pair was trading at a fresh daily high of 1.4118, rising 0.22% on a daily basis.
In the absence of significant fundamental drivers and macroeconomic data releases, month-end flows seem to be causing the greenback to weaken against its major rivals. The US Dollar Index is currently losing 0.22% on the day at 89.86. Additionally, the thin trading conditions due to the Memorial Day holiday in the US seem to be allowing major pairs to make sharp movements.
There won’t be any data releases featured in the UK economic docket on Tuesday. Later in the day, the ISM Manufacturing PMI, which is expected to improve to 61 in May from 60.7 in April, from the US will be looked upon for fresh impetus.
FX Strategists at UOB Group think that GBP/USD could post additional gains if it manages to clear the resistance at 1.4235.
“GBP has to close above 1.4235 before a sustained advance can be expected,” strategists noted. “On the downside, a breach of 1.4110 would indicate that the upside risk has dissipated. Looking ahead, the next resistance levels above 1.4235 are at 1.4265 and 1.4290.”
The AUD/NZD dropped sharply after the RBNZ hawkish meeting, breaking key technical levels. The downside found support at 1.0600 and then rebounded modestly to 1.0670.
The bias still points to the downside. Consolidation may continue ahead while another test of 1.0600 is expected. A break lower would target the 1.0560 area and below 1.0520. Technical indicators show mixed signs. The RSI is turning to the upside while momentum suggests more losses are likely.
As long as AUD/NZD remains under 1.0760, the outlook would be negative. Before the mentioned level, a strong barrier is located at 1.0715/20. That scenario is not favored at the moment. Any rebound reaching levels under 1.0750 could be seen as an idea for a potential sell.
Update, May 31: The XAU/USD pair registered its first weekly close above $1,900 since early January on Friday and started the new week in a relatively calm manner. Although gold managed to inch higher to $1,910 during the European trading hours, it struggled to preserve its bullish momentum in the second half of the day. With trading conditions thinning out due to the Memorial Day holiday in the US, XAU/USD seems to have gone into a consolidation phase and was last seen moving sideways around $1,905. Earlier in the day, the data from Germany showed that the Harmonized Index of Consumer Prices (HICP), the European Central Bank’s preferred gauge of inflation, rose to 2.4% annually in May from 2.1% in April but this data failed to have a meaningful impact on gold’s valuation.
The US data released on Friday showed that the core PCE Price Index – the Fed’s preferred inflation gauge – jumped 3.1% YoY in April. The reading was considerably above the central bank’s nominal 2% target and validated the higher inflation narrative. Gold, which is extensively used as a hedge against inflation, drew its strength from rising inflationary pressure.
Investors now seem aligned with the Fed’s stubbornly dovish view that the recent spike in prices should prove temporary. Hence, the latest inflation read did little to shift Fed rate hike expectations. This was evident from a fresh leg down in the US Treasury bond yields, which was seen as another factor that extended some support to the non-yielding gold.
The combination of factors acted as a headwind for the US dollar, which further inspired bullish traders and remained supportive. A weaker greenback tends to benefit dollar-denominated commodities, including gold. That said, the underlying bullish sentiment in the financial markets kept a lid on any further gains for the safe-haven XAU/USD, at least for the time being.
The market already seems to have digested US President Joe Biden’s proposed $6 trillion budget plan for the fiscal year 2022 that was unveiled on Friday. Given that markets in Britain and the United States are closed for a holiday, relatively thin liquidity conditions further held investors from placing aggressive bets.
The major trigger for gold this week would be important US macro data scheduled at the beginning of a new month, especially the closely-watched US monthly jobs data. The popularly known NFP report is scheduled for release on Friday and expected to show that the US economy added 621K jobs in May. The unemployment rate is expected to edge lower to 5.9% during the reported month from 6.1% in April. Another blockbuster data could fuel speculations for an earlier than anticipated Fed lift-off and trigger a meaningful corrective slide for the gold.
Looking at the technical picture, gold has been trending higher along an upward sloping channel since the beginning of this month. This points to a well-established short-term bullish trend and supports prospects for additional gains. That said, RSI (14) on the daily chart is flashing overbought conditions and seemed to be the only factor capping the upside for the commodity.
Hence, it will be prudent to wait for some strong follow-through buying beyond multi-month tops, around the $1,1912 region before positioning for any further gains. Gold might then accelerate the momentum further towards challenging the trend-channel resistance, currently around the $1,940 region. Bulls are more likely to pause near the mentioned barrier, which if cleared decisively should pave the way for an extension of the upward trajectory.
On the flip side, any meaningful slide below the $1,900 mark might still be seen as a buying opportunity and remain limited near the trend-channel support, around the $1,888 region. This coincides with 50-period SMA on the 4-hourly chart. Sustained weakness below might prompt some long-unwinding and accelerate the corrective fall further towards the $1,870-68 horizontal support. Some follow-through selling has the potential to drag gold towards the $1,852-50 support en-route the very important 200-day SMA, around the $1,845-44 region.
Update: Gold edged higher during the first half of the trading action on Monday and inched back closer to multi-month tops, albeit lacked any follow-through buying. The commodity was last seen trading around the $1,904-05 region, nearly unchanged for the day.Full Article
I think we’re underrating some of the changes that are coming. Global minimum corporate taxes, digital taxes and carbon pricing are all negative for equities.
The meeting is June 5 and will be the first in-person meeting since the pandemic.
Meetings between Iran and the world powers are ongoing in what Russian officials called the ‘final round’ of talks. They aim to reach a deal that will lift sanctions and allow Iran to resume pumping at a full pace.
Tomorrow, OPEC+ will also meet to discuss production quotas. They’re fully expected to rubber stamp an earlier agreement on July quotas but there will be talks about what to do afterwards.
A hint today came from OPEC’s JMMC monitoring group, which said the inventory overhang will be mostly gone by the end of June and will fall at 1.4 mbpd in 2021 if production is held steady after July. That’s a chance from their 1.2 mbpd forecast previously.
Of course, those numbers could change dramatically if Iran begins to ramp up. They have at least 500kbpd ready to pump now and could add another 500kbpd before year end.
On the pricing side, the brent chart is the one to watch as it flirts with $70 again. That’s seen as a level where OPEC might be persuaded to pump additional barrels or where discipline at the cartel could break down.
On the technical side though, we keep knocking on this door. Two weeks ago there was some selling on Iran headlines and I have to think that’s largely priced in now. If OPEC stays the course, this is the week we might finally get a break but it’s a delicate balance.
The European Central Bank (ECB) announced on Monday that it bought a net 13.351 billion euros of assets last week as part of its quantitative easing programme, compared to 28.461 billion euros a week earlier, as reported by Reuters.
“ECB sold a net 68 million euros of corporate bonds in the week to May 28 vs 1.506 billion euros a week earlier.”
“ECB sold a net 3.395 billion euros of assets in Public Sector Purchase Programme (QE) in the week to May 28 vs 5.892 billion euros a week earlier.”
“ECB bought a net 20.035 billion euros of Pandemic Emergency Purchase Programme (PEPP) bonds in the week to May 28 vs 21.671 billion euros a week earlier.”
“ECB bought a net 61 million euros of assets in Asset-backed Securities Purchase Programme in the week to May 28 vs sales of 276 million euros a week earlier.”
“ECB sold a net 1.282 billion euros of assets in Covered Bond Purchase Programme 3 in the week to May 28 vs sales of 332 million euros a week earlier.”
The EUR/USD pair showed no immediate reaction to these figures and was last seen gaining 0.1% on a daily basis at 1.2202.Full Article
After spending the European session in a tight range near 1.2070, the USD/CAD pair gained traction and touched a daily high of 1.2090. As of writing, the pair was up 0.1% on the day at 1.2085. However, the lack of fundamental drivers suggests that USD/CAD’s recent action is technical in nature.
Earlier in the day, Canada announced that it has registered a current account surplus of C$1.18 billion in the first quarter. Other data from Canada showed that the Raw Material Price Index and the Industrial Product Price Index rose by 1% and 1.6%, respectively, on a monthly basis in April.
The US markets will remain closed due to the Memorial Day holiday on Monday and USD/CAD could find it difficult to gather momentum during the American trading hours. Currently, the US Dollar Index is unchanged on the day at 90.04.
Meanwhile, crude oil prices are edging higher ahead of Tuesday’s highly-anticipated OPEC meeting and helping the commodity-sensitive loonie limit its losses against its rivals. At the moment, the barrel of West Texas Intermediate is up 1% on the day at $67.27.
On Tuesday, first-quarter Gross Domestic Product (GDP) data will be featured in the Canadian economic docket. Later in the session, the ISM Manufacturing PMI from the US will be looked upon for fresh impetus.
The European currency keeps the narrow daily range well in place and now motivates EUR/USD to return to the positive ground in the 1.2200 region.
EUR/USD looks to leave behind Friday’s pullback, although marginal trade conditions and lack of volatility due to the US holiday so far leave spot within the daily range and around the 1.2200 neighbourhood.
In fact, the US Memorial Day holiday plus the UK’s bank holiday drain markets off activity and motivate global assets to keep the consolidative mood at the beginning of the week.
Data wise in Euroland, German advanced inflation figures for the month of May noted consumer prices are expected to have risen 0.5% inter-month and 2.5% from a year earlier, both prints coming in above estimates.
EUR/USD recorded new 4-month highs near 1.2270 during last week before sellers subsequently dragged it to the 1.2130 region, where some decent contention turned up so far. The better mood in the euro remains largely underpinned by the improved sentiment in the risk appetite and the perseverant bearish stance in the greenback, all amidst rising optimism on the recovery in the euro area, which appears in turn supported by the firmer pace of the vaccine rollout. In addition, better-than-expected key fundamentals pari passu with the surging morale in the bloc also props up the upbeat mood surrounding the pair.
Key events in the euro area this week: German labour market report, flash EMU CPI (Tuesday) – German Retail Sales, ECB Lagarde (Thursday) – Germany/EMU Final Composite PMI.
Eminent issues on the back boiler: Asymmetric economic recovery in the region. Sustainability of the pick-up in inflation figures. Progress of the vaccine rollout. Probable political effervescence around the EU Recovery Fund. German elections.
So far, spot is gaining 0.08% at 1.2200 and faces the next hurdle at 1.2266 (monthly high May 25) followed by 1.2300 (round level) and finally 1.2349 (2021 high Jan.6). On the flip side, a break below 1.2132 (low May 28) would target 1.2051 (weekly low May 13) en route to 1.1985 (monthly low May 5).Full Article