2024-06-11 16:30

Risk Sentiment Slips, Gold, VIX Better Bid as US CPI and FOMC Near European indices are lower Tuesday, US counterparts are also in the red. Gold respects support but pullback remains muted. US CPI and FOMC decision out on Wednesday. European indices are still feeling the effects of last weekend’s European Elections where right-wing parties fared much better than expected. In the wake of a crushing defeat, French President Emmanuel Macron called for a parliamentary election at the end of the month, the Belgium PM resigned, while German Chancellor Olaf Scholz’s center-left Social Democrats polled just 14%, their worst-ever result in a nationwide vote. European indices fell during the day Monday, before recovering towards the end of the session, and renewed selling today has seen some indices hit multi-week lows. The FTSE 100 is also under pressure today as risk sentiment sours, with the UK index touching lows last seen at the start of May. Today’s UK labor data has not helped the FTSE’s cause either. UK Sheds Jobs but Pay Grows Complicating BoE Rate Outlook FTSE 100 Daily Chart Gold is pulling back some of Friday’s post-NFP losses after nearing a noted level of support around $2,280/oz. level. The precious metal remains below the 20-day- and 50-day simple moving averages, at $2,355/oz. and $2,343/oz. respectively and will need to break and open above these two indicators if it is to move higher. Gold Daily Price Chart The VIX ‘fear index’ trades around 5% higher on the session, albeit from lowly levels. VIX Daily Price Chart Charts via TradingView This Wednesday promises to be a crucial day for the US dollar, with the release of consumer price inflation figures and the highly anticipated Federal Reserve monetary policy announcement. These twin events carry the potential to significantly influence a wide range of market assets. The Federal Open Market Committee (FOMC) decision will be accompanied by the latest Summary of Economic Projections, including the closely watched "dot plot." This visual representation depicts Fed officials' projections for US interest rates at the end of each calendar year. According to the current dot plot, two officials expect rates to remain unchanged throughout 2023, while two others anticipate a single 25 basis point cut. Five members are looking for two rate cuts, and nine officials foresee three reductions in 2024. However, the new dot plot is likely to reflect a scaling back of rate-cut expectations for 2024, reflecting the Fed's evolving assessment of economic conditions and inflationary pressures. Investors and traders will closely scrutinize the inflation data for indications of persisting price pressures, while the Fed's policy statement and updated economic projections will provide valuable insights into the central bank's monetary policy trajectory. Are you risk-on or risk-off? You can let us know via the form at the end of this piece or contact the author via Twitter @nickcawley1. https://www.dailyfx.com/news/market-update-risk-sentiment-slips-gold-vix-better-bid-as-us-cpi-and-fomc-near-20240611.html

2024-06-11 14:02

Euro (EUR/USD, EUR/GBP) Analysis Euro sell-off continues as periphery bond premium spikes higher EUR/USD falls – US CPI and/or the FOMC meeting could extend the pain EUR/GBP falls through major level of support with little to stop it The analysis in this article makes use of chart patterns and key support and resistance levels. For more information visit our comprehensive education library Euro Sell-off Continues as Periphery Bond Premium Spikes Higher The Euro continued to sell-off after Emmanuel Macron’s dissolved parliament and called for a snap election after his party’s dismal showing in European elections. The high stakes wager centers around the belief that voters will side with President Macron’s party when it really matters, as the European elections have a history of being a ‘protest vote’ to express dissatisfaction with the status quo but ultimately voters have backed away from populist parties when electing lawmakers. However, the first round of elections takes place as soon as the 30th of June with a wave of populist parties sweeping across Europe, most recently seen in Italian politics and now, seemingly making a reappearance in France. The chart below shows the rise in risk premium for French Government bonds (representative of a higher perceived risk of holding French bonds) over safer German bonds of the same duration. When riskier bonds in the euro zone start to sell-off, investors may recall the European debt crises of 2011 when periphery bonds sold-off massively and the euro followed suit. The chart below shows the recent spike higher in French-German yields while EUR/USD continues its sell-off which, to be fair, originated on Friday after a massive upward surprise in US NFP data. EUR/USD Alongside French-German Bond Yield Spreads Source: TradingView, prepared by Richard Snow EUR/USD is one of the most liquid currency pairs in the world, offering short-term trades with a cost effective and convenient market to trade. Discover the real benefits of trading liquid pairs and find out which pairs qualify: EUR/USD Falls – US CPI and/or the FOMC Meeting Could Extend the Pain EUR/USD not only broke below the recent channel, but fell through the zone of support around 1.0800 and the 200 day simple moving average (SMA). The pair runs the risk of trading towards 1.0700 if US inflation surprises the market tomorrow or the Fed decide to shave off two rate cuts from its 2024 Fed funds outlook, or both. In an extreme case 1.0600 may come into focus later this week. EUR/USD Daily Chart Source: TradingView, prepared by Richard Snow EUR/GBP falls through major level of support with little to stop it EUR/GBP has breached a longer-term level of significance around 0.8472, as the pair hurtles towards 0.8340 – the July 2022 swing low. EUR/GBP Daily Chart Source: TradingView, prepared by Richard Snow The daily chart shows the move in greater detail. Price action previously lacked the necessary catalyst/ follow through to trade decisively below the 0.8472 level, but now has managed to achieve this despite UK jobs data revealing further easing in Great Britain. The RSI is flashing red, meaning oversold conditions may begin to weigh if incoming data prints inline with expectations. Any notable deviations from general consensus in either US CPI, UK GDP or FOMC will likely add to the recent volatility. EUR/GBP Daily Chart Source: TradingView, prepared by Richard Snow https://www.dailyfx.com/news/euro-continues-to-stumble-as-periphery-bond-yields-come-into-focus-20240611.html

2024-06-11 09:55

USD/JPY Analysis and Charts Japanese Yen Prices, Charts, and Analysis The Bank of Japan may announce that it is cutting back its bond purchases. USD/JPY traders will also need to follow US data and Wednesday’s FOMC meeting. With the USD/JPY exchange rate approaching levels that could cause concern for Japanese authorities, there is speculation over whether the Bank of Japan (BoJ) will signal its intention to reduce its asset holdings during the upcoming monetary policy meeting on Friday. Market expectations have been building that the Japanese central bank will begin trimming its monthly bond purchases. While the BoJ has no specific target, the central bank roughly purchases around Yen 6 trillion a month of Japanese Government Bonds (JGBs), in an effort to keep rates low. If the BoJ announces that it will pare back these purchases, a pivot towards quantitative tightening, the Japanese Yen should appreciate across the FX market. Japanese interest rate hike expectations have been growing over the past few weeks with the first 10 basis point move now fully priced in at the September meeting, although the end-of-July meeting remains a strong possibility. Markets are forecasting just over 24 basis points of rate hikes this year. USD/JPY is currently within half a point of trading at highs last seen at the start of May. The pair have been moving higher on a combination of longer-term Yen weakness and recent US dollar strength. Wednesday sees the release of US consumer price inflation data and the latest Federal Reserve monetary policy decision, both events that can move the value of the US dollar. The FOMC decision will also be accompanied by the latest Summary of Economic Projections, including the closely followed dot plot – a visualization of Fed official's projections for US interest rates at the end of each calendar year. The current dot plot shows that two officials expect rates to be unchanged during this year, two looking for one 25 basis point cut, five looking for two cuts, while nine members see three cuts in 2024. The new makeup of this dot plot is likely to see rate-cut expectations for 2024 pared back. USD/JPY is back within half a point of highs last seen at the start of May, driven by ongoing Yen weakness and a recent bout of US dollar strength. The chart remains bullish with the pair trading above all three simple moving averages while an unbroken series of higher lows remains in place. While the chart remains technically bullish, as has been the case for the past few months, fundamentals will hold the key to the next move. USD/JPY Daily Price Chart Retail trader data show 24.88% of traders are net-long with the ratio of traders short to long at 3.02 to 1.The number of traders net-long is 0.15% higher than yesterday and 16.82% lower than last week, while the number of traders net-short is 4.62% higher than yesterday and 5.17% higher than last week. We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests USD/JPY prices may continue to rise. Harness the power of collective market psychology. Gain access to our free sentiment guide, which reveals how shifts in USD/JPY positioning may act as leading indicators for upcoming price action. What is your view on the Japanese Yen – bullish or bearish?? You can let us know via the form at the end of this piece or you can contact the author via Twitter @nickcawley1. https://www.dailyfx.com/news/usd-jpy-drifts-higher-will-the-boj-announce-bond-tapering-at-friday-s-policy-meeting-20240611.html

2024-06-11 08:00

UK Earnings, Employment Analysed Unemployment rate ticks higher to 4.4% as 50k jobs were shed in May Average earnings inclusive of bonuses rose to 5.9% from 5.7% Bank of England due to set policy next week and potentially lay the groundwork for a rate cut in the second half of the year as inflation heads lower overall UK Job Market Eases Further While Wages Remain Persistently High The UK job market showed further signs of vulnerability after May witnessed the highest claimant count (application for unemployment benefits) since February 2021. Restrictive monetary policy has helped bring inflation down in a notable fashion but the labour market is feeling the effects. In the three-month period ending in April, employment contracted by 139k (-100k expected) which follows on from a loss of 178k in the three months prior to that. Average weekly earnings in April rose to 5.9%, proving a sticky data point for the Bank of England to contemplate ahead of next weeks policy setting meeting. However, the Bank has previously expressed it is no longer looking at earnings data as a major contributing factor to inflation pressures, meaning the overall decline in broader measures of inflation are likely to point the Monetary Policy Committee (MPC) towards an eventual rate cut towards the latter stages of the year. Learn how to prepare for high impact economic data or events with this easy to implement approach: Market pricing reveals an expectation of one, maybe two rate cuts this year – much like the Fed – with November expected to be the month of interest while September remains a possibility if the data becomes increasingly more dovish (lower CPI, higher unemployment rate, low/contracting growth). Implied BoE Basis Point Cuts into Year End Source: TradingView, prepared by Richard Snow Market Reaction Cable understandably dropped in the wake of the data, with the unemployment rate and May claimant data presenting a worrying picture but the reaction appears limited ahead of major US event risk still to come tomorrow (CPI, FOMC). GBP/USD 5-minute chart Source: TradingView, prepared by Richard Snow The UK data has helped extend the bearish GBP/USD move that developed in the wake of Friday’s massive NFP shock that sent the dollar higher. Understandably, moves are contained ahead of the main event of the week (FOMC) with he Fed due to update its dot plot projection of the Fed funds rate by year end. Many expect an upward revision in the dot plot (fewer rate cuts). The question now is whether stubborn inflation data in the US, alongside a resurgent jobs market will be enough to erase two or just one rate cut from the yearly outlook. GBP/USD trades below the 1.2736 swing high from the end of last year, opening up channel support as the next level of support. To the upside, 1.2800 produces a clear level of resistance, capping prior advances. GBP/USD Daily Chart Source: TradingView, prepared by Richard Snow https://www.dailyfx.com/news/uk-sheds-jobs-but-pay-grows-to-5-9-complicating-boe-rate-outlook-20240611.html

2024-06-10 17:01

FOMC Decides Rate Outlook: FOMC almost certain to leave rates unchanged in light of stubborn inflation, robust jobs Summary of economic projections likely to validate market perceptions of a delayed first rate cut A hawkish Fed message may extend the dollars recent ascent but the inflation data may complicate matters in the lead up Fed to Stay the Course and Delay Timing of First Rate Cut The Fed’s Federal Open Market Committee (FOMC) is overwhelmingly expected to keep interest rates unchanged after the two-day meeting ends on Wednesday - when the official statement and summary of economic projections are due. A real mix of fundamental data has complicated the outlook for the US economy and dented confidence amongst the rate setting committee that inflation is heading towards the 2% target. Most observers will focus on the Fed’s updated dot plot to gauge the path of potential US interest rates. Learn how to prepare for high impact economic data or events with this easy to implement approach: Inflation Shows First Inkling of a Return to 2% Trajectory - Not Enough to Restore Confidence The committee is likely to deliver a similar message to the May meeting, maintaining restrictive monetary policy until they feel confident inflation is moving towards 2%. April’s year-on-year inflation print provided the first move lower since January, with Q1 synonymous with hot, rising inflation. To make things more interesting, the May CPI data is due mere hours before the Fed statement, offering markets a catalyst ahead of the meeting. Services inflation will attract a lot of attention and more importantly, super core inflation (services inflation less housing and energy) as the Fed has placed great importance around this figure as a highly relevant gauge of inflation pressures in the economy. US Headline CPI Year-on-Year Change Source: Refinitiv, prepared by Richard Snow Another source of anguish for the Fed has been the month-on-month core CPI print which failed to move notably below the 0.4% level until the April data – revealing little let up in price pressures. US Core CPI Month-on-Month Source: Refinitiv, prepared by Richard Snow Fed Dot Plot Likely to Draw the Most Attention Markets have moved away form a potential September rate cut after Friday’s bumper NFP surprise and now fully price in a 25 basis point cut in December, essentially wagering the Fed will only cut once this year. Market Implied Basis Point Cuts for 2024 Source: Refinitiv, prepared by Richard Snow However, markets are expecting a downward revision from the Fed but the jury is out as to whether the Fed will trim their forecasts back by a single cut or as much as two cuts which would align the Fed with the market view. Source: Refinitiv, prepared by Richard Snow US growth forecasts will also be updated at a time when US GDP has moderated notably since the 4.9% in Q3 2023. Q1 GDP disappointed massively when compared to estimates but the Atlanta Fed’s forecast of Q2 GDP has recovered strongly, to 3.1% (annualised), suggesting the economy is on track for a strong rebound. It is important to note the Atlanta Fed’s forecast takes into account incoming data and has not anticipated the remaining data for June which will likely impact the actual figure. US Dollar’s Continued Ascent Reliant on Inflation and the Dot Plot The US dollar surged higher on the back of Friday’s impressive NFP print. However, the longer-term direction of travel remains to the downside as there remains an expectation that interest rates will have to come down either this year or next as the economy is likely to come under strain the longer it operates under restrictive conditions. This assumption limits the dollar's upside potential unless inflation data persistently surprises to the upside. Nevertheless, the shorter-term move witnessed in the dollar could extend if the Fed foresee just a single rate cut this year. A lower CPI print on Wednesday could see the dollar ease as inflation remains the chief concern for the Fed but recent prints have not been awfully helpful, suggesting a sharp drop is a low probability event. Given that markets anticipate just one rate cut this year, the greenback may pullback in the event the Fed trims its rate cut expectations from three to two for 2024. 105.88 remains the level of interest to the upside while 104.70, the 200 SMA, and 104.00 remain levels of note to the downside. US Dollar Basket (DXY) Daily Chart Source: TradingView, prepared by Richard Snow S&P 500 Consolidates at Fresh High Ahead of the FOMC Meeting US stocks appear to be cautious ahead of the FOMC meeting after reaching another all-time-high. While unconfirmed, the index could potentially be building up some negative divergence (bearish signal) as price action makes a higher high but the RSI appears to be in the process of confirming a lower high. A dovish Fed outcome is likely to refuel the impressive equity performance to another high but a lower revision to the dot lot could weigh on stocks and send the index lower. In that scenario, 5260 and the blue 50-day simple moving average (SMA) appear as levels of interest to the downside. S&P 500 Daily Chart Source: TradingView, prepared by Richard Snow https://www.dailyfx.com/news/fomc-preview-dot-plot-to-reveal-fewer-rate-cuts-in-2024-20240610.html

2024-06-10 14:03

Gold and Silver Analysis and Charts First Fed rate cut priced-in at the December meeting. Gold nudges higher but the move looks tepid. Silver now running into resistance. US rate cut expectations are being pushed back further after Friday’s forecast-beating NFPs showed the US labor market in robust health. The first 25 basis point cut is not fully priced-in until the December meeting, although the November meeting is a live option. In total, 38 basis points of cuts are seen this year, suggesting that it is currently a coin toss between one of two moves. US Dollar Jumps After NFPs Thump Expectations, Gold Hits a One-Month Low Friday’s US Jobs Report shocked the market and sent US Treasury yields spinning higher and gold and silver sliding lower. Later this week we have May consumer and producer inflation, while the latest FOMC meeting will see all policy settings left untouched. The FOMC press conference may give some clues as to the Fed’s current thinking, along with the latest Summary of Economic Projections (dot plot). US Treasury yields jumped late Friday with the rate-sensitive UST 2-year adding 15 basis points after the jobs data. US Treasury 2-Year Yield Gold is looking to push higher today but the move lacks conviction. The recent $170/oz. range ($2,280/oz. - $2,450/oz.) remains in place and resistance is unlikely to be tested in the near term. A break below support would see $2,200/oz. come into play ahead of $2,193/oz. Gold Daily Price Chart Retail trader data shows 69.35% of traders are net-long with the ratio of traders long to short at 2.26 to 1.The number of traders net-long is 4.98% higher than yesterday and 15.34% higher from last week, while the number of traders net-short is 3.94% higher than yesterday and 17.95% lower from last week. We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests Gold prices may continue to fall. Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger Gold-bearish contrarian trading bias. Silver has outperformed gold this year but fell more than 6% on Friday as longs bailed from the market. Silver is now testing an old level of support turned resistance around $29.80/oz. but is finding it difficult on its first attempt. There is minor support around the $28.75/oz. - $29.00/oz. zone ahead of a recent swing-low at $25.93/oz. Silver Daily Price Chart All Charts via TradingView What is your view on Gold and Silver – bullish or bearish?? You can let us know via the form at the end of this piece or you can contact the author via Twitter @nickcawley1. https://www.dailyfx.com/news/gold-and-silver-struggling-to-push-higher-ust-2yr-yields-remain-elevated-20240610.html