Sustained USD buying exerted some pressure on EUR/USD for the third straight day. A softer risk tone, rising US bond yields continued lending support to the greenback. The downside remains cushioned ahead of the ECB and the US CPI later this week. The EUR/USD pair edged lower for the third straight day on Tuesday, though it lacked follow-through selling and remained confined in last week's broader trading range. A combination of factors assisted the US dollar to build on its recent bounce from over a one-month low, which, in turn, was seen as a key factor exerting some downward pressure on the major. The initial market optimism led by the easing of COVID-19 restrictions was overshadowed by concerns that a more aggressive move by major central banks to constrain inflation could pose challenges to global economic growth. This continued weighing on investors' sentiment and underpinned the safe-haven greenback, which drew additional support from the latest leg up in the US Treasury bond yields. In fact, the yield on the benchmark 10-year US government bond shot back above the 3.0% threshold for the first time in nearly four weeks amid worries about persistent inflation. Despite the prevalent USD buying interest, the downside for the EUR/USD pair remains cushioned in the wake of rising bets for imminent interest rate hikes by the European Central Bank (ECB). Hence, the market focus will remain glued to the ECB monetary policy decision on Thursday. This will be followed by the release of the US consumer inflation figures on Friday, which would determine the Fed's policy tightening path and provide a fresh directional impetus to the buck. In the meantime, the EUR/USD pair is more likely to extend the sideways consolidative price moves in the absence of top-tier economic data. Technical outlook From a technical perspective, the recent strong rebound from the YTD low stalled near the 50% Fibonacci retracement level of the 1.1185-1.0350 slide. The said barrier, around the 1.0775-1.0780 region, should act as a pivotal point for short-term traders. Some follow-through buying, leading to a subsequent move beyond the 1.0800 mark would be seen as a fresh trigger for bullish traders. The EUR/USD pair might then accelerate the momentum to test the next relevant hurdle near the mid-1.0800s. Bulls might eventually lift spot prices to the 61.8% Fibo. level, around the 1.0880 zone, which if cleared decisively will set the stage for an extension of over a three-week-old uptrend. On the flip side, last week’s swing low, around the 1.0625 region, now seems to protect the immediate downside ahead of the 1.0600 mark. A convincing break below could prompt some technical selling and darg the EUR/USD pair back towards the 23.6% Fibo. level, around the 1.0550-1.0545 area. This is followed by support near the 1.0500 psychological mark, which if broken would suggest that the corrective bounce has run its course and shirt the bias back in favour of bearish traders. The pair would then turn vulnerable to weaken further below the 1.0400 mark and challenge the YTD low, around mid-1.0300s  touched in May. 

Inflation in Australia doubles wage growth, according to Q1 figures. The RBA could pull the trigger by 40 bps, as discussed in the May meeting. AUD/USD bearish potential seems limited as long as the pair stays above 0.7140. The Reserve Bank of Australia is having a monetary policy meeting on Tuesday, June 7, and is expected to hike the cash rate for a second consecutive month. In May, the central bank decided to lift the main benchmark by 0.25%, the first move in over ten years. Inflation doubles wage growth Market participants are split on whether the central bank will pull the trigger by another 25 bps or if it will go with a 40 bps upswing. In the May statement, policymakers argued that the best decision would be the latter, with a quarter-point hike priced in at the time being. Either way, the RBA is signaling it is ready to act decisively on taming inflation. Annual inflation in Australia hit 5.1% in the first quarter of the year, after posting 3.4% in the last quarter of 2021. The figure was well above the market’s expectations, one of the reasons the RBA acted swiftly. In the May statement, policymakers anticipated the Consumer Price Index could hit 6% by year-end before easing to 3% by mid-2024. Over the same period, wage growth was up 2.4%, less than half the inflation surge, although slowly improving from the pandemic-related collapse and the highest reading since Q4 2008. Nevertheless, the disconnection between wage growth and inflation has become a burden not only for households but also for the central bank, which juggles between dowsing inflation without provoking an economic setback. AUD/USD possible scenarios As said, a 25 bps hike has been already priced in. If somehow the RBA decided to slow down and go for 0.10% or 0.15%, AUD/USD could come under selling pressure, although if the current market’s optimism persists, the slide should be limited. On the other hand, a 40 bps hike plus hints on more interest rate raises coming would result in the AUD/USD pair surging to fresh monthly highs. From a technical point of view, AUD/USD is battling to overcome the 50% retracement of its latest daily slide at 0.7245, measured between 0.7660 and 0.6828. The daily chart shows that technical indicators are correcting overbought conditions, although the RSI has stabilized well above its midlines. At the same time, the pair is hovering around a flat 100 SMA, while a bullish 20 SMA heads firmly north far below the current level. Overall, the downside seems limited. An immediate support level is 0.7140, the 38.2% retracement of the aforementioned decline. A break below the latter could be the beginning of a bearish movement that could extend towards the 0.7000/20 region. On the other hand, and beyond 0.7245, the pair will likely meet resistance in the 0.7260 price zone, where it topped last week. Gains beyond the area will anticipate another leg north for the upcoming sessions.

US stocks rallied early as improvement with China’s COVID situation, optimism that a strong labor market will help the US consumer handle the latest wave of inflation, and after a wrath of positive news.  With no US economic data releases scheduled for today and a quiet Fed due to the blackout period, US equities followed the rally that started in Asia.  With the exception of the latest Musk/Twitter drama, it was mostly positive news from corporate America, which translated to a good start for shares of Amazon, Eli Lilly, Spirit Airlines, and Didi Global.  The stock market rally couldn’t hold as Treasury yields are edged higher as expectations grow for a much more slower deceleration with pricing pressures. Friday’s inflation report will likely show that inflation is not easing just yet, but that the odds of a recession are still low.  Wall Street will need to wait for a couple more inflation reports after this one before anyone can confidently make a call as to when the Fed may alter their tightening course.  Boris Boris Johnson will remain the Conservative leader and UK prime minister.  A leadership election won’t be needed after 211 Tory MPs voted for Johnson, while 148 MPs voted against, shy of the 180 needed to sack the PM.  This rebellion against PM Johnson was larger-than-expected and may have weakened his position on delivering tax cuts.    The British pound held onto some of its gains as traders only cared about if this confidence vote would lead to a change in leadership. The path for the pound will still be determined by the pace of tightening by the BOE.  Oil Bullishness for crude prices have hit some exhaustion as the energy market has mostly priced in the EU’s ban on most Russian oil imports, a modest boost by OPEC+, and elevated prices that will surely lead to some demand destruction over the coming months.  Crude prices started to weaken after US trade representative Tai’s comments suggested tariff relief was not coming anytime soon. Expectations were growing that the Biden administration might be doing whatever it takes to ease inflation, but a softer stance on China apparently is not happening.  Oil rallied towards a three-month high after the Saudis delivered a large price increase to Asian customers for July. Despite the modest weakness with oil today, energy traders anticipate a tight oil market will last for a while.  Gold Gold prices could not shake off a major move higher with Treasury yields. The move in Treasury yields might be more of a reflection of a ton of supply that is going to hit markets, so the weakness for gold might not last too long.  Investors will fixate over Friday’s inflation report, which many believe should show that inflation is close to peaking.  If the bond market selloff accelerates, gold could be vulnerable to a plunge towards the $1800 level. Bitcoin Bitcoin is definitely forming a base as prices advanced despite some choppiness in equities.  Bitcoin above $30,000 is key for some short-term investors and a move above $33,5000 could trigger some technical buying.  

Outlook: This is a soft week for data, giving everyone time to second-guess the Fed the following week (June 15). Of great interest is the Reserve Bank of Australia meeting overnight tonight, with nary a soul having a faintest about whether the inevitable hike is 25 p, or 40 bp (to take it to 0.75%). Some say 50 bp. In addition, comments from the Gov can be confusing, or at least obfuscating. Inflation is running at around 2.1% q/q but various measures have it as high as 5.2%, so whatever else it may be, the real rate is badly negative. In addition, Australia has the highest home price inflation of any of the majors. The RBA “should” be as hawkish as it’s possible to get. For some reason, though, the RBA tends to be a bit wussy (sorry, mates). Not noted on the Econoday calendar is the Atlanta Fed GDPNow to be updated tomorrow. Last week it got cut to 1.3% from 1.9% on several factors but prominently personal spending down from 4.7% to 4.4% and real gross private domestic investment growth more negative from -6.4% to -8.2%. We need to be careful not to attribute too much meaning to private investment, and for some reason it’s escaping the recession gloomsters, but to some extent it does represent both sentiment and future growth. It was a little funny how fast payrolls departed the scene after coming in better then forecast and better than the ADP. As we wrote then, expectations of policy implications were silly. You simply do not get a shift in policy from a single data-point in a series that has already been relegated to the back burner. To the degree it retained any meaning, payrolls cemented the idea of Fed resolve for at least two more hikes of 50 bp each. Similarly, politically motivated scorn for the Biden government to try to rein in inflation is misplaced. Governments are damned if they do and damned if they don’t. Government did not cause inflation and government can’t fix it, and let’s cut it out with the hypocrisy that wants government out of business but then weeps when government is not interfering more. Not least because interfering almost always backfires because if cack-handed administration. Going into that next Fed hike and first round of QT, it was astonishing to see the Bloomberg MLIV Pulse survey coming up with no recession this year (but maybe next). Sectors that need high liquidity the most are going to do the worst, duh. Analysts wonder just how much extra leverage traders did add on, after all. As Buffet puts it, we are about to find out who has been swimming naked. Not to be argumentative, but the WSJ has recently discovered the dollar and is delivering verdicts as though it has some knowledge and insights. It has neither. For example, “A run of mixed economic data is dragging on the U.S. dollar, stalling a rally that has rippled through the economy and financial markets. The WSJ Dollar Index, which measures the dollar against a basket of 16 currencies, is around 2% off its May peak and fell 1.1% last month. That decline broke a steady march that brought the dollar to multidecade highs. The index rose 0.6% last week, breaking a two-week losing streak. “Behind the slip has been a subtle shift in the economic landscape. According to recent economic reports, American consumers are still spending money at a rapid pace, while employers keep adding jobs, extending the trends that had helped lift the dollar over the past 12 months or so. “Yet there have been signs of weakness elsewhere. Wage growth has moderated from last year, and consumers have been able to sustain their spending only by dipping into savings. The U.S. service sector, which includes restaurant dining and travel, slowed its pace of expansion in May, and sales of new homes in April posted their biggest drop in nine years. “Overall, the data has clouded some asset managers’ outlook of the U.S. economy. They are now wary that the Federal Reserve might have to slow the pace of expected interest-rate increases. That might be welcomed by stock investors, who are acutely aware of the risks that rising rates pose for highly valued shares, but its meaning would be murkier in currency markets.” To pause here: a dip in services is so far a one-time thing, not a trend, a slowdown in wage growth is barely noticeable and only biased folks think anything in the labor market short of a massive change would stay the Fed’s hand. To resume: “Investors typically buy currencies linked to countries where central banks are raising interest rates to rein in a hot economy. Investors expect the Fed to lift rates by a total of a percentage...

Key highlights EUR/USD remained well bid above the 1.0620 support zone. A major bullish trend line is forming with support near 1.0700 on the 4-hours chart. EUR/USD technical analysis Looking at the 4-hours chart, the pair traded as low as 1.0627 before it started a fresh increase. There was a move above the 1.0700 resistance level. The pair remained well bid above the 1.0650 level, the 100 simple moving average (red, 4-hours), and the 200 simple moving average (green, 4-hours). There was a move above the 50% Fib retracement level of the downward move from the 1.0787 swing high to 1.0627 low. However, the pair faced sellers near 1.0750. The 76.4% Fib retracement level of the downward move from the 1.0787 swing high to 1.0627 low acted as a hurdle. It is now consolidating below the 1.0750 resistance. The next major barrier could be near the 1.0800 level, above which EUR/USD could accelerate higher towards the 1.0880 resistance. If there is a downside correction, the pair could decline towards the 1.0700 support. There is also a major bullish trend line forming with support near 1.0700 on the same chart. The next major support sits near the 1.0650 level. The main support sits near 1.0620 and the 100 simple moving average (red, 4-hours). Any more losses might send the pair towards the 1.0500 support.

(Italics: Previous Analysis) U.S. Dollar Index (Daily Timeframe): Snapping a decisive two-week decline, dollar bulls surfaced last week and added 0.5 per cent. The 50-day simple moving average—circling 101.65—served as dynamic support in recent trading, with resistance demanding attention at 102.95. Space south of the current SMA brings light to resistance-turned support at 100.92, accompanied by an ‘acceleration’ trendline support, extended from the low 95.17. Technicians are also likely to acknowledge an additional layer of ‘psychological’ support nearby at 100.00. Trend studies back a dip-buying theme from the aforesaid support structure this week, demonstrating defined upward movement since price made contact with support from 89.69 in May 2021. The relative strength index (RSI) shaking hands with support between 40.00-50.00 (a ‘temporary’ oversold region since August 2021) also underpins a bullish perspective. Support around the 50.00ish neighbourhood is common in strong upward facing markets, similar to what we’re experiencing at present.   EUR/USD: It’s been a tough week for EUR/USD, finishing largely unchanged despite ranging 160 pips between $1.0787 and $1.0627. Having noted the U.S. Dollar Index (see above) trading from support and rooted within a clear uptrend, EUR/USD shaking hands with Quasimodo support-turned resistance at $1.0778 on the weekly chart and working with a market decisively trending lower since 2021 could have sellers strengthen their grip over the coming weeks, targeting 2nd January low at $1.0340 (2017). Technically, however, we’re at an interesting juncture on the higher timeframes. While weekly price tests resistance, price action on the daily timeframe rebounded from support at $1.0638 in the second half of the week. The rebound, as underlined in recent analysis, casts light on a neighbouring daily ascending support-turned resistance, drawn from the low $1.0340 (H4 Fibonacci cluster seen nearby at $1.0876). Also of relevance on the daily chart is the relative strength index (RSI) retesting (and holding) its 50.00 centreline, echoing the possibility of support. The combination of H1 resistance at $1.0762 and H4 resistance from $1.0758 capped upside efforts on Friday. Note the clear whipsaw above H1 supply from $1.0759-1.0745 (yellow), a painful move for those who gained trust in the area following 31st May rejection and subsequent lower low. Downstream, $1.07 calls for attention on the H1 scale, though H1 Quasimodo support at $1.0680 (and a 61.8% Fibonacci retracement) encourages a whipsaw through $1.07 in early trade this week. Ultimately, medium term, a move higher may be in the offing UNTIL daily price connects with its ascending support-turned resistance, at which point sellers are favoured to take the wheel. With that in mind, a whipsaw through $1.07 could be seen to tempt an early-week bid from H1 Quasimodo support at $1.0680. AUD/USD: The Australian dollar eked out a third successive weekly gain (0.7 per cent) versus the U.S. dollar last week, following a lower low that breached 28th Jan $0.6968 low. While an extended pullback is on the table, this remains a sellers’ market in observance of a clear downtrend since August 2011 (check monthly scale) and weekly flow topping at $0.8007 in early February 2021. Weekly support structure remains between $0.6632 and $0.6764, comprised a 100% Fibonacci projection, a price support, and a 50% retracement. A closer reading of price action on the daily timeframe has buyers and sellers battling for position around the 200-day simple moving average at $0.7256. Although sellers had the edge on Friday, Fibonacci resistance between $0.7364 and $0.7322 merits consideration this week. Adding to the technical landscape on the daily, the relative strength index (RSI) cemented position north of its 50.00 centreline (positive momentum) and directed the technical headlights towards indicator resistance at 74.80 (nestled within overbought territory). Extending research to lower timeframe structure reveals Friday bonded with demand from $0.7147-0.7204 on the H4 after leaving H4 channel resistance (drawn from the high $0.7041) unopposed. Note that the demand is joined by H4 channel support, taken from the low $0.6829. On the H1, 5th May high at $0.7266 assumed resistance in early trading on Friday, guiding short-term flow to within striking distance of $0.72. Technically, then, H4 and H1 timeframes emphasise a bullish showing early week from supports, though medium term favours sellers. USD/JPY: USD/JPY powered higher last week, adding nearly 3.0 per cent and reclaiming prior losses. Finishing the week threatening to refresh multi-year pinnacles, further buying—supported by the current primary bull trend since 2021—exposes ¥135.16: 28th January high (2002) on the weekly chart. To the downside on the weekly timeframe, should sellers attempt to take charge once again, support at ¥125.54 warrants attention. Elsewhere on the daily timeframe, supply from ¥131.93-131.10 is within reach this week. Engulfing this area, of course, bolsters the pair’s bullish vibe. Also aiding the bullish picture is the daily timeframe’s relative strength index (RSI) strongly rebounding from 40.00-50.00 support (an area representing a ‘temporary’ oversold zone since May 2021). As...