Update: Gold (XAU/USD) trims intraday gains, taking a U-turn from the day’s high near $1,777 to recently around $1,773.50, up 0.53% on a day, heading into Monday’s European session. Even so, the gold buyers cheer downbeat US Treasury yields to keep the corrective pullback from late-April lows.
While increasing odds of the US Federal Reserve’s (Fed) monetary policy adjustments seem to weigh on the US Treasury yields, the recent consolidation in the gold prices could be traced to the US dollar’s strength ahead of the key European session.
It’s worth noting that today’s speech from New York Fed President John C. Williams will be the key for gold traders after St. Louis Fed President reiterated his bullish bias.
Update: Gold price has turned positive for the first time in one week, having found some support just above $1760. The ongoing decline in the US Treasury yield across the curve is saving the day for the gold bulls. Falling inflation expectations and uncertainty over the US infrastructure spending plans is weighing heavily on the returns on the markets, as investors re-think the Fed’s hawkish stance. Last week, gold dropped 6% after Fed signaled sooner-than-expected rate hikes, which killed the demand for the yieldless gold. Gold price hit the lowest in two months last Friday at $1760. At the time of writing, gold is trading at $1774, up 0.55% on the day.
A stronger USD following the Federal Reserve hawkish tone kept the commodities complex down and weighed n precious metals.
Gold experienced heavy selling, with the precious metal closing below $1,800/oz and ending down by 0.52% at $1,764.23 ranging between a low of $1,761.04 and $1,797.31.
The US dollar extended its advance against a basket of currencies in a classic short squeeze as it built on gains logged after the US Federal Reserve surprised markets earlier in the week with a hawkish hold.
The dollar index DXY, which tracks the greenback against six major currencies, was printing its highest levels since mid-April at 92.4050 which put the index on pace for its best weekly jump in about 14 months.
Risk appetite is lower and US stocks are under pressure as the Fed has signalled that it will raise interest rates and end emergency bond-buying sooner than expected.
”Considering that gold was set-up for a pullback like a speed bump on the racetrack, with speculative and physical flows slowing, the ongoing pullback likely has more room to run.,” analysts at TD Securities explained.
”CTAs can add to their shorts below $1730/oz, which suggests some potential for sustained downside momentum.”
Meanwhile, the screw was turned on Friday when St. Louis Federal Reserve President James Bullard said that the US central bank’s toward a faster tightening of monetary policy was a “natural” response to economic growth and particularly inflation moving quicker than expected.
In this regard, on a quieter week ahead in terms of data, the emphasis will be on the shorter end of the US yield curve which is dollar positive.
This may help to push gold below critical weekly support where the counter trendline meets that late April weekly prices, May highs and Nov lows in horizontal structure in the $1,760s.
The daily chart shows that the price is on the verge of a weekly bullish Head and Shoulders with the first upside target coming with a confluence of the prior lows and a 38.2% Fibonacci retracement level.Full Article
Good morning everyone!
I am pleased to say that I will be taking the European Session this week while Justin gets a well deserved break.
So, what are you looking at for today. Selling equities? Looking to buy the USD on dips post the FOMC shift. A potential bargain GBP buy ahead of the BoE on Thursday?
We will start the session with some family first music to get into the co-operative mindset 😉 Expect risk tone to dominate trade today in a light calendar morning.
CME Group’s flash data for crude oil futures markets noted investors trimmed their open interest positions for the second session in a row on Friday, this time by around 27.1K contracts. Volume followed suit and shrank by 176.5K contracts after three daily builds in a row.
Friday’s uptick in crude oil futures markets was amidst shrinking open interest and volume, noting some short covering behind the move. That said, a corrective decline remains well on the cards, although the broad positive stance in crude oil looks unchanged so far. That said, WTI faces the immediate target stays at the YTD highs near the $73.00 mark per barrel.Full Article
The fed is expected to taper sooner now. In 2013 when the Fed tapered gold saw heavy selling. Circa -20%.
Expectations are that the Fed will taper at some point this year, and possibly at the next Fed meeting. Expect sellers to step in at key resistance above current price.
NZD/USD recovers part of its previous day’s losses on Monday. The pair edges higher with 30 pips movement.
As of writing, the NZD/USD pair is trading at 0.6965, up 0.46% for the day.
On the daily chart, NZD/USD fell below the 100-day Simple Moving Average (SMA) at 0.7041, which ignited a fresh round of selling in the pair.
After testing the levels, last seen in March, the pair bounce back from the lower levels.
NZD/USD bulls would be encouraged to test the previous day’s high in the vicinity of the 0.7020 level on a sustained move above 0.6970.
The price action suggests the 0.7050 horizontal resistance level as the next target for the bulls.
The Moving Average Convergence Divergence (MACD) indicator trades in the oversold zone, which signifies stretched selling conditions. It implies the possibility of NZD/USD claiming back the 0.7100 key psychological mark.
Alternatively, if price breaks the intraday low of 0.6934, then it could continue with the prevailing downtrend.
In doing so, NZD/USD could go back to the levels last seen in 2020. The bears would be meeting the first target of 0.6917, a low made on 24 November 2020.
Next, the pair could approach the 0.6900 horizontal support level followed by November 19 low at 0.6878.
In opinion of FX Strategists at UOB Group, Cable could still grind lower and faces the next support of note at 1.3750.
24-hour view: “Our expectation for GBP to ‘consolidate’ last Friday was wrong as the clear break of 1.3900 led to a sharp plunge to 1.3791. Deeply oversold conditions coupled with the relatively firm price actions in early Asian hours indicate that further sustained weakness in GBP is unlikely. GBP is more likely to trade between 1.3780 and 1.3870.”
Next 1-3 weeks: “We have held a negative view in GBP since early last week. Last Friday, we indicated that ‘oversold short-term conditions could lead to 1 to 2 days of consolidation first’. Instead of consolidating, GBP plunged to 1.3791 during NY hours. The rapid and sharp drop appears to be running ahead of itself and while there is room for GBP to weaken to 1.3750, this level may not come into the picture so soon. Overall, the downside risk in GBP remains intact unless it can move above 1.3920 (‘strong resistance’ level was at 1.4010 last Friday).”Full Article
The AUD/USD pair remained under intense selling pressure for the fourth consecutive session on Friday and dive to fresh YTD lows amid sustained US dollar buying interest. In fact, the USD Index shot to the highest level in nearly two-and-half-month tops and remained well supported by the Fed’s sudden hawkish shift. The Fed last week stunned investors and brought forward its timetable for the first post-pandemic interest rate hikes. The so-called dot plot pointed to two rate hikes by the end of 2023 as against March’s projection for no increase until 2024.
Apart from this, a selloff in the global equity market further benefitted the greenback’s safe-haven status and drove flows away from the perceived riskier aussie. The already stronger buck got an additional boost after St. Louis Federal Reserve President James Bullard said that the Fed Chairman Jerome Powell officially opened taper discussion at the last meeting. Speaking to CNBC, Bullard added that the shift toward a faster tightening of monetary policy was a natural response to stronger economic growth and a quicker than expected rise in inflationary pressures.
The combination of factors, to a larger, extent, helped offset a sharp decline in the US Treasury bond yields. In fact, the yield on the benchmark 10-year US bond tumbled to the lowest since February, while those on 30-year bonds fell below 1.20% for the first time in more than four months. Nevertheless, the USD Index posted its best weekly gains in about 14 months. This, along with technical selling below the very important 200-day SMA and the key 0.7500 psychological mark, aggravated the bearish pressure surrounding the major.
However, oversold conditions on short-term charts assisted the pair to stage a modest bounce during the Asian session on Monday. The attempted recovery, however, lacked any strong follow-through buying, instead ran out of steam near the 0.7520 region in reaction to disappointing Australian Retail Sales data. According to the preliminary estimate, the total value of sales at the retail level rose 0.1% MoM in May as against market expectations for a growth of 0.7%. The data fueled worries about the fallout from COVID lockdowns in Victoria, Australia’s second-biggest state economy.
This, along with the prevalent risk-off mood, should act as a headwind for the Australian dollar and keep a lid on any meaningful recovery for the major, at least for now. There isn’t any major market-moving economic data due for release from the US. That said, the strong bullish sentiment surrounding the USD suggests that the path of least resistance for the major remains to the downside.
From a technical perspective, Friday’s steep decline confirmed a near-term bearish breakdown and has already set the stage for further weakness. The pair’s inability to capitalize on the attempted recovery adds credence to the bearish outlook. Hence, any positive move might still be seen as a selling opportunity and remain capped near mid-0.7500s (2100-DMA). This is followed by strong resistance near the 0.7575-80 horizontal zone, which if cleared decisively might prompt some near-term short-covering move.
On the flip side, YTD lows, around the 0.7475 region might lend some immediate support to the pair. Some follow-through selling will reaffirm the negative bias and drag the pair further towards the 0.7400 round-figure mark. The next relevant support is pegged near the 0.7340-35 region, below which the pair seems all set to test sub-0.7300 levels.Full Article
FX option expiries for June 21 NY cut at 10:00 Eastern Time, via DTCC, can be found below.
– EUR/USD: EUR amounts
– USD/JPY: USD amounts
– EUR/GBP: EUR amounts
– AUD/JPY: AUD amounts
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FX Strategists at UOB Group noted further weakness in EUR/USD is not ruled out in the near term.
24-hour view: “While we expected EUR to weaken last Friday, we were of the view that ‘a clear break of the major long-term support at 1.1855 would come as a surprise’. However, EUR cracked 1.1855, dropped to 1.1845 before rebounding quickly. Despite the breach of 1.1855, downward momentum has not improved by all that much. There is room for EUR to dip to 1.1835; the next support at 1.1800 is likely out of reach. On the upside, a break of 1.1920 (minor resistance at 1.1900) would indicate that the current weakness has stabilized.”
Next 1-3 weeks: “We highlighted last Friday, (18 Jun, spot at 1.1915) that risk remains on the downside and the ‘focus has shifted to the next long-term support at 1.1855’. We did not quite expect the rapid manner and ease by which EUR cracked 1.1855 as it plunged to 1.1845 during NY hours. While shorter-term conditions are deeply oversold, further EUR weakness is not ruled out. That said, EUR is unlikely able to maintain the pace of its decline and it may take a while before the next support at 1.1800 comes into the picture. All in, the downside risk remains intact unless EUR can break above 1.1970 (‘strong resistance’ level was at 1.2005 last Friday).”Full Article
GBP/JPY stays pressured for the fifth consecutive day as bears attack early May’s lows, down 0.45% around 151.50, ahead of Monday’s London open.
Although the oversold RSI conditions seem to test the pair bears of late, sustained break of previous support from April and most bearish MACD signals since late March keep the pair sellers hopeful.
On the way down, a 100-day SMA level of 151.13 can offer immediate support to the quote ahead of an ascending support line from late February, around 150.70.
During the quote’s further weakness past 150.70, the 150.00 psychological magnet and April’s bottom surrounding 149.00 could test GBP/JPY bears.
Meanwhile, the corrective pullback may aim for 152.30-40 region comprising multiple tops marked since March before targeting the previous horizontal support around 153.45-50.
It’s worth noting that 154.85 and the 156.00 threshold become the key hurdles during the GBP/JPY upside beyond 153.50.
Overall, GBP/JPY is yet to announce its bearish journey but short-term declines can’t be ruled out.
Trend: Further weakness expectedFull Article
The EUR/JPY price continues to drift lower in the early European session. The pair opens at a higher level, albeit fizzles out rather quickly, and refreshes the multi-month on Monday. The rapid selling action in the previous week erases previous two month gains in a matter of a few days.
As of writing, EUR/JPY is trading at 130.26, down 0.38% for the day.
Investors continue to digest the Fed hawkish outlook on inflation and interest rates. The central bank’s sudden aggressive U-turn pushes the greenback higher against the majors.
The shared currency failed to capitalize the gains on the strong economic numbers, and positive comments from the ECB President Christine Lagarde on weekends which said that progress on strategy overhaul is good so far.
The Euro struggled despite the higher Consumer Price Index (CPI) in May, which beat the market expectations and rose 1% YoY basis.
ECB pledged to continue with its bond buying program despite the raised economic outlook. This signaled some doubts among the policymakers over the pace of economic recovery.
On the other hand, the Bank of Japan (BOJ) announced an extension of its pandemic-relief program and kept its monetary policy unchanged. The yen gains on its traditional safe-haven asset appeal.
As for now, investors are gearing up for the ECB President Lagarde speech to gauge the market sentiment.