Articles

Optimism price is set to swing to the moon for a 40% return

Optimism price is set to swing to the moon for a 40% return

316530   May 31, 2023 22:17   FXStreet   Market News  


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  • Optimism price’s decline is nearing its end game with important support nearby.
  • OP to sling-shot higher as RSI treads into an oversold region.
  • Expect to see OP trading near $1.90 by July.

Optimism (OP) price is sinking this week with a 20% drop since Monday as risk assets in global markets dive. The selling pressure can be felt in nearly every corner for equities, cryptocurrencies like Bitcoin and Ethereum, and altcoins and meme stocks. OP though is showing signs of an end nearby in this technical correction with price action primed for a 40% upbeat move.

Optimism price holds some strong technical cards for that rebound

Optimism price is falling like a rock this week with daily declines of several percent since Monday. OP is not a single case but is rather under the scrutiny of a global risk-off push in global markets where equities and cryptocurrencies are selling off hand in hand. With crypto selling pressure going into its third day, some indicators like the Relative Strength Index (RSI) are too far oversold and hence due for a pullback.

OP is nearing a longer-term green ascending trendline that has already been tested on multiple occasions in the past. Add to that the big figure of $1.30 as a psychological number, and there are two perfect reasons for a rebound. A rebound could quickly go to $1.90 with the pivotal level at $1.46 as the only element in its way of a 40% recovery.

OP/USD daily chart  

OP/USD daily chart    

A break of that green ascending trendline and the $1.30 level, however, would mean some serious risk of a full implosion in OP. At $1.10, there is still the S3 support level for May, but once through that it becomes a clear road to $0.65. That would mean a new low for 2023 and  a near 60% decline for this week.

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OPEC output fell 460k bpd in May – survey
OPEC output fell 460k bpd in May – survey

OPEC output fell 460k bpd in May – survey

316529   May 31, 2023 22:12   Forexlive Latest News   Market News  

  • OPEC members pumped 28.01m bpd in May
  • Production fell 460k bpd after voluntary cuts took effect
  • Output is down 1.5 mbpd from Sept
  • April output was revised down 150k bpd

Nigeria, Angola and Iraq are producing materially under their voluntary and formal cuts. It could be a problem for the oil market if they’re able to restore those flows.

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US Dollar clings to daily gains, eyes on House debate and vote on debt limit deal
US Dollar clings to daily gains, eyes on House debate and vote on debt limit deal

US Dollar clings to daily gains, eyes on House debate and vote on debt limit deal

316528   May 31, 2023 22:12   FXStreet   Market News  


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  • US Dollar has regathered its strength mid-week amid risk aversion.
  • US Dollar Index reached its highest level in over two months above 104.50 on Wednesday.
  • US debt-limit bill advanced to House floor for a debate and a vote.

The US Dollar (USD) has started to gather strength against its major rivals mid-week amid a negative shift witnessed in risk perception following Tuesday’s uninspiring performance. The US Dollar Index, which tracks the USD’s valuation against a basket of six major currencies, turned north early Wednesday and reached its highest level since mid-March above 104.50 before retreating modestly.

The USD’s performance is likely to continue to be impacted by risk perception in the second half of the day with investors keeping a close eye on headlines surrounding the debt-limit bill.

On Tuesday, the House Rules Committee advanced the debt-ceiling bill to the House by an uncomfortably close vote of 7 to 6, causing investors to adopt a cautious stance. Several Republican lawmakers voiced their oppositions against the bill, which will be debated in the House floor and voted on Wednesday before moving to a final Senate vote.

Daily digest market movers: US Dollar benefits from risk aversion

  • Reflecting the risk-averse market atmosphere, Wall Street’s main indexes opened in negative territory on Wednesday. As of writing, the Dow Jones Industrial Average and the Nasdaq Composite indexes were both losing around 0.5% on the day.
  • In an interview with the Financial Times, Cleveland Federal Reserve (Fed) Bank President Loretta Mester said that she doesn’t necessarily see a compelling reason for pausing rate increases amid a “really embedded, stubborn inflationary pressure.”
  • The benchmark 10-year US Treasury bond yield continues to push lower on Wednesday and was last seen losing more than 1% on a daily basis below 3.7%. Nevertheless, the CME Group FedWatch Tool shows that markets are pricing in a nearly 70% probability of the Fed raising its policy rate by 25 basis points (bps) in June.
  • The US Bureau of Labor Statistics will release the JOLTS Job Openings data for April on Wednesday. On Thursday, the ADP’s private sector employment report and the ISM’s Manufacturing PMI survey will be featured in the US economic docket.
  • Previewing the ADP data, “not only have ADP’s figures jumped from miss to beat and the other way around, but these differences have also been significant, especially in recent months,” said FXStreet Analyst Yohay Elam. “After leaping to the highest level since July 2022 in the latest April publication, the upcoming May report could be weak.”
  • Consumer sentiment in the US weakened slightly in May with the Conference Board’s (CB) Consumer Confidence Index edging lower to 102.3 from 103.7 in April (revised from 101.3). The Present Situation Index declined to 148.6 from 151.8 and the Consumer Expectations Index stayed virtually unchanged at 71.5. Finally, the one-year consumer inflation expectations ticked down to 6.1% in May from 6.2% in April.
  • House prices in the US rose by 0.6% on a monthly basis in March, the monthly data published by the US Federal Housing Finance Agency showed on Tuesday. This reading followed February’s increase of 0.7% (revised from 0.5%) and came in better than the market expectation of +0.2%.
  • On Sunday, US President Joe Biden and Republican House Speaker Kevin McCarthy reached an agreement to temporarily suspend the debt-limit to avoid a US debt default. The House of Representatives and Senate still need to approve the deal, which will suspend the $31.4 trillion debt-ceiling until January 1, 2025, in coming days. 
  • The US Bureau of Economic Analysis (BEA) reported on Friday that inflation in the US, as measured by the change in Personal Consumption Expenditures (PCE) Price Index, rose to 4.4% on a yearly basis in April from 4.2% in March.
  • The annual Core PCE Price Index, the Fed’s preferred gauge of inflation, edged higher to 4.6%, compared to the market expectation of 4.6%. 
  • Further details of the BEA’s publication showed that Personal Income increased 0.4% on a monthly basis while Personal Spending rose 0.8%.

Technical analysis: US Dollar Index bullish bias stays intact above key level 

The US Dollar Index (DXY) managed to close above the key technical level of 104.00 (Fibonacci 23.6% retracement of the November-February downtrend) on Tuesday, reflecting buyers’ willingness to defend that support. In case the DXY starts using 104.50 (static level) as support, it could target 105.00 (psychological level, static level) and 105.60 (200-day SMA, Fibonacci 38.2% retracement) next.

On the downside, 104.00 stays intact as key support. A daily close below that level could attract USD sellers and open the door for an extended slide toward 103.00, where the 100-day Simple Moving Average (SMA) is located.

It’s also worth noting that the Relative Strength Index (RSI) indicator on the daily chart stays near 70, suggesting that the DXY could correct lower in the short term before the next leg higher.

Interest rates FAQs

What are interest rates?

Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%.
If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.

How do interest rates impact currencies?

Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.

How do interest rates influence the price of Gold?

Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank.
If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.

What is the Fed Funds rate?

The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure.
Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.

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US: JOLTS Job Openings rise to 10.1 million in April vs. 9.37 million expected
US: JOLTS Job Openings rise to 10.1 million in April vs. 9.37 million expected

US: JOLTS Job Openings rise to 10.1 million in April vs. 9.37 million expected

316527   May 31, 2023 22:09   FXStreet   Market News  


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  • JOLTS Job Openings in the US rose modestly in April.
  • US Dollar Index posts strong daily gains above 104.50.

The data published by the US Bureau of Labor Statistics (BLS) revealed on Wednesday that the number of job openings on the last business day of April stood at 10.1 million, compared to 9.74 million in March. This reading came in higher than the market expectation of 9.37 million.

“Over the month, the number of hires changed little at 6.1 million. Total separations decreased to 5.7 million,” the BLS noted in its publication. “Within separations, quits (3.8 million) changed little, while layoffs and discharges (1.6 million) decreased.”

Market reaction

The US Dollar gathered strength against its rivals after this report and the US Dollar Index was last seen rising 0.5% on the day at 104.58.

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Gold Price Forecast: XAU/USD has been showing relative strength of late – Commerzbank
Gold Price Forecast: XAU/USD has been showing relative strength of late – Commerzbank

Gold Price Forecast: XAU/USD has been showing relative strength of late – Commerzbank

316526   May 31, 2023 22:09   FXStreet   Market News  


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Gold price recovers after slumping to two-month low. Econmists at Commerzbank discuss XAU/USD outlook.

US Dollar is priced at its highest level since mid-March

“The market apparently still sees a small risk that the compromise found at the weekend to raise the debt ceiling in the US will not pass Congress. Voting is set to take place in the House of Representatives today; afterwards the Senate will need to give its approval.”

“The Fed Fund Futures are still pricing in another 25 bps Fed rate increase at the next meeting in June with a probability of roughly 60%. A rate hike on this scale is still fully priced in at one of the next two meetings. In the market’s view, this is likely to be reversed again by year’s end. Against this backdrop, the Gold price has been showing relative strength of late, especially as the US Dollar is priced at its highest level since mid-March.”

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BoE’s Mann: Gap between UK headline and core inflation more persistent than in US
BoE’s Mann: Gap between UK headline and core inflation more persistent than in US

BoE’s Mann: Gap between UK headline and core inflation more persistent than in US

316525   May 31, 2023 22:05   FXStreet   Market News  


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Bank of England (BoE) Monetary Policy Committee member Catherine Mann noted on Wednesday that the gap between the headline and core inflation in the UK is more persistent than in the US and the Euro area, as reported by Reuters.

Mann further added that firms will use it if they have a high pricing power and said that they will remain on a path that has an “awful a lot of volatility.”

Market reaction

GBP/USD edged slightly higher with the immediate reaction to these comments. As of writing, the pair was trading at 1.2380, where it was still down 0.3% on a daily basis.

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GBP/USD bounces off daily low, lacks follow-through; remains below 50-day SMA
GBP/USD bounces off daily low, lacks follow-through; remains below 50-day SMA

GBP/USD bounces off daily low, lacks follow-through; remains below 50-day SMA

316524   May 31, 2023 22:05   FXStreet   Market News  


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  • GBP/USD reverses an intraday dip amid a modest USD pullback from over a two-month high.
  • The disappointing release of the Chicago PMI prompts some profit-taking around the USD.
  • Bets for more Fed rate hikes and the risk-off impulse should act as a tailwind for the buck.

The GBP/USD pair attracts some dip-buying near the 1.2350-1.2345 area on Wednesday and climbs to the top end of its daily trading range during the early North American session. The pair is currently placed around the 1.2400 mark, below the 50-day Simple Moving Average (SMA) hurdle tested the previous day.

The US Dollar (USD) trims a part of its intraday gains to the highest level since mid-March in reaction to the disappointing release of the Chicago PMI, which fell to 40.4 in May from the 48.6 previous. The British Pound, on the other hand, continues to draw some support from the possibility of additional interest rate hikes by the Bank of England (BoE), bolstered by stronger-than-expected consumer inflation figures released last week. This, in turn, lends some support to the GBP/USD pair, though the lack of follow-through buying warrants caution before positioning for an extension of the recent bounce from the 1.2300 neighbourhood, or a nearly two-month low set last Thursday.

Investors now seem convinced that the Federal Reserve (Fed) will keep interest rates higher for longer and have been pricing in another 25 bps lift-off at the next FOMC policy meeting in June. The bets were reaffirmed by the US Core PCE Price Index released on Friday, which indicated that inflation remains sticky. Apart from this, the risk-off impulse supports prospects for a further near-term appreciating move for the safe-haven buck and might contribute to capping any meaningful upside for the GBP/USD pair. The global risk sentiment takes a hit in the wake of weaker Chinese PMI prints, which adds to worries about a global economic downturn and benefits safe-haven assets. 

The aforementioned fundamental backdrop warrants some caution for aggressive bullish traders ahead of important US macro releases scheduled at the beginning of a new month, including the closely-watched Nonfarm-Payrolls (NFP) on Friday. In the meantime, a generally weaker tone around the equity markets might continue to act as a tailwind for the Greenback and keep a lid on any meaningful upside for the GBP/USD pair, at least for the time being.

Technical levels to watch

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US April JOLTS job openings 10.103m vs 9.375m expected
US April JOLTS job openings 10.103m vs 9.375m expected

US April JOLTS job openings 10.103m vs 9.375m expected

316523   May 31, 2023 22:02   Forexlive Latest News   Market News  

  • Prior was 9.59m
  • Hires 3.9% vs 4.0% prior
  • Separations rate 3.7% vs 2.5% prior
  • Quits 2.4% vs 2.5% prior

The dollar has jumped on this report, which indicates that companies are still gung-ho to find workers. The market is pricing in a 62% chance of a June hike.

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United States JOLTS Job Openings came in at 10.103M, above forecasts (9.375M) in April
United States JOLTS Job Openings came in at 10.103M, above forecasts (9.375M) in April

United States JOLTS Job Openings came in at 10.103M, above forecasts (9.375M) in April

316522   May 31, 2023 22:02   FXStreet   Market News  

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US dollar legs lower on manufacturing worries
US dollar legs lower on manufacturing worries

US dollar legs lower on manufacturing worries

316521   May 31, 2023 21:56   Forexlive Latest News   Market News  

The US dollar is under broad pressure on manufacturing worries after a regional manufacturing survey plummeted. The pound is taking full advantage and has nearly erased today’s decline.

Sterling is also benefiting from comments from BOE hawk Catherine Mann, who said the gap between headline and core inflation in the UK is more persistent then in the US or eurozone.

Treasuries are also weighing on the US dollar with 10-year yields down 4.8 bps to 3.64% and the front end down 10 bps.

A Chicago-area survey of manufacturers fell by the most since the dawn of the pandemic, highlighting the kind of negativity that was in the comments of the Dallas Fed survey yesterday.

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Eurozone HICP Preview: Forecasts from four major banks, sharp drop in inflation
Eurozone HICP Preview: Forecasts from four major banks, sharp drop in inflation

Eurozone HICP Preview: Forecasts from four major banks, sharp drop in inflation

316520   May 31, 2023 21:56   FXStreet   Market News  


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Eurostat will release the preliminary estimate of Eurozone Harmonised Index of Consumer Prices (HICP) data for May on Thursday, June 1 at 09:00 GMT and as we get closer to the release time, here are the expectations forecast by the economists and researchers of four major banks regarding the upcoming EU inflation print.

Headline HICP is expected to decelerate at 6.3% year-on-year vs. 7.0% in April and annual core HICP is seen softening marginally to 5.5% against the former release of 5.6%. If so, headline would be the lowest since February 2022 and would also be the first deceleration in core since June 2022.

Commerzbank 

“Inflation is expected to have fallen from 7.0% in April to 6.0% in May. Half of the decline is due to lower energy prices. The price correction for food pushed down the inflation rate by an estimated 0.3 percentage points. However, the inflation rate excluding energy and food is also expected to have fallen by 0.2 percentage points to 5.4% in May. The main reason for this is the introduction of the 49-Euro ticket for regional public transport in Germany.”

Nomura

“We forecast headline Euro-area HICP inflation to fall to 6.2% YoY in May (0.8ppt lower than in April), and core HICP inflation to remain unchanged at 5.6% YoY. Core price momentum is likely to remain strong enough to unnerve the ECB. We think it will remain concerningly high owing to strong labour market pressures, revived inflation expectations and survey evidence of continued upward inflationary pressures. We think a robust core inflation print lends support to our forecast for two further 25 bps hikes from the ECB at its next meetings, bringing its terminal rate to 3.75%.”

SocGen

“We expect the May inflation data to deliver another massive decline in headline inflation from 7% yoy in April to 6% in May. Meanwhile, we think easing goods inflation will help core inflation fall from 5.6% to 5.5%, with a downside risk of 5.4% – which is set to increase the pressure on the ECB to do more rate hikes.”

Citi

“Headline inflation should make another major step down in May as base effects in energy kick in, down to 6.3% from 7.0% in April. We project core HICP inflation to also have eased from 5.6% to 5.5% YoY, with a sub-trend 0.2% MoM gain in seasonal adjusted terms, with temporary factors behind the drop. We though see core CPI re-accelerating in June following the acceleration in negotiated wages in 1Q to 4.3% and likely to pick up further in 2Q.”

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USD/TRY surges to 20.80 and prints another record high
USD/TRY surges to 20.80 and prints another record high

USD/TRY surges to 20.80 and prints another record high

316519   May 31, 2023 21:51   FXStreet   Market News  


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  • USD/TRY extends the sharp advance to the vicinity of 20.80.
  • The lira remains well on the defensive and approaches 21.00.
  • President Erdogan is expected to announce a cabinet reshuffle.

Another day, another record low of the Turkish lira vs. the greenback, this time prompting USD/TRY to trade at shouting distance from the 20.80 zone.

USD/TRY looks at domestic politics

USD/TRY maintains the bullish move unchanged and approaches the round level at 21.00, as market participants continue to digest Erdogan’s victory at Sunday’s elections and latest news of potential changes to his cabinet.

On the latter, and according to officials, it is highly likely that M. Simsek, the former economy chief who is well-respected by financial markets for his orthodox policy expertise, will be appointed to the cabinet, potentially as either the finance minister or a vice president.

Some positive news from the calendar showed the economy expanded more than estimated by 4.0% YoY in the January-March period.

USD/TRY key levels

So far, the pair is gaining 1.45% at 20.6919 and faces the next hurdle at 20.7372 (all-time high May 31) followed by 21.00 (round level). On the downside, a break below 19.4286 (55-day SMA) would expose 19.1559 (100-day SMA) and finally 18.8321 (200-day SMA).

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