Dollar Selloff Continues as Risk-On Sentiment Drives US Stocks to New Highs

Dollar faced broad sell-offs overnight and continued to weaken in Asian session. Investors breathed a sigh of relief after US CPI data indicated that disinflation is progressing, which has reignited speculation about near-term rate cuts by Fed. Or at least, another rate hike is now highly unlikely, as repeated by Chair Jerome Powell. Fed fund futures now show nearly 74% chance of a rate cut in September. Additionally, the probability of two total cuts this year has risen to around 70%. This optimism propelled NASDAQ to lead major US stock indexes to new record closes, while 10-year Treasury yield plummeted, breaking below 4.4% mark.

In the currency markets, New Zealand Dollar emerged as the strongest performer for now, further boosted by its rebound against Australian Dollar. Although Aussie also saw notable gains, its upside was capped by mixed employment data that revealed a rise in unemployment rate. British Pound is currently the second strongest currency, supported by robust wage growth data released yesterday. On the other hand, Canadian Dollar is the second weakest, following the greenback. Swiss Franc is also weak, ranking as the third worst performer. currency. Meanwhile, Euro and the Japanese Yen are positioned in the middle of the pack.

Technically, NZD/USD’s strong break of falling channel resistance suggests that corrective fall from 0.6368 has completed with three waves down to 0.5851. Rise from 0.5851 is probably the third leg of the pattern from 0.5771. For now, further rise is expected as long as 55 D EMA (now at 0.6019) holds. Firm break of 0.6125 resistance will reinforce this view and should pave the way through 0.6368 to 100% projection of 0.5771 to 0.6368 from 0.5851 at 0.6448.

In Asia, at the time of writing, Nikkei is up 0.90%. Hong Kong HSI is up 1.68%. China Shanghai SSE is up 0.48%. Singapore Strait Times is up 0.82%. Japan 10-year JGB yield is down -0.030 at 0.924. Overnight, DOW rose 0.88%. S&P 500 rose 1.17%. NASDAQ rose 1.40%. 10-year yield fell -0.0890 to 4.356.

Fed’s Kashkari: Current rates might be one foot on the brake, not two

Minneapolis Fed President Neel Kashkari stated overnight that Fed likely needs to keep interest rates at the current level for “a while longer,” raising questions about how much they are restraining the US economy.

He highlighted that the “biggest uncertainty” is understanding the exact amount of “downward pressure” monetary policy is putting on the economy. This uncertainty means Fed “probably need[s] to sit here for a while longer” until there is more clarity on where “underlying inflation is headed” before drawing any conclusions.

He remarked on the surprising “resilience” of the economy, suggesting that current interest rates might mean “we’re putting one foot on the brake and not two.”

Fed’s Goolsbee stresses need for housing inflation drop to reach 2% target

Chicago Fed President Austan Goolsbee, in a Marketplace interview, emphasized the importance of a significant decline in housing inflation to achieve the Fed’s 2% overall target.

“It would be hard for me to see that we could get to the 2% overall target unless house prices, inflation comes down substantially from where it is right now,” Goolsbee stated.

Despite the current challenges, Goolsbee remains optimistic, noting, “I’m still both optimistic and my read of the evidence is that that is going to happen.” He pointed to yesterday’s CPI numbers, which show some decrease in housing costs, as a positive sign.

However, he cautioned that if this trend does not continue, Fed will need to delve deeper to understand the underlying issues.

Japan’s Q1 GDP contracts -0.5% qoq, weak consumption and capital spending

Japan’s GDP contracted by -0.5% qoq in Q1, slightly worse than the expected -0.4% qoq decline. On annualized basis, GDP fell by -2.0%, missing forecast of -1.5% drop.

Private consumption, which makes up over half of the Japanese economy, decreased by -0.7%, exceeding anticipated -0.2% decline. This marks the fourth consecutive quarter of decline, the longest streak since 2009.

Capital spending fell by -0.8%, slightly more than the expected -0.7% decrease. This was the first decline in two quarters.

Exports declined by -5.0%, despite ongoing support from inbound tourism, while imports fell by -3.4% amid reduction in energy imports. The trade figures reflect a broader slowdown in global demand, which is impacting Japan’s export-driven economy.

Australia’s employment grows 38.5k in Apr, unemployment rate rises to 4.1%

Australia employment grew 38.5k in April, well above expectation of 25.3k. Full-time jobs fell -6.1k while part-time jobs rose 44.6k. Unemployment rate rose from 3.9% to 4.1%, above expectation of 3.9%. participation rate rose from 66.6% to 66.7%. Monthly hours worked was unchanged. Number of unemployed rose 30.3k or 5.3% mom.

Looking ahead

Italy’s trade balance is a feature in European session. Later in the day, US will release jobless claims, building permits and housing starts, import price, Philly Fed survey, and industrial production.

EUR/USD Daily Outlook

Daily Pivots: (S1) 1.0783; (P) 1.0804; (R1) 1.0842; More…

EUR/USD’s rally from 1.0601 continues today and intraday bias stays on the upside. Next target is 1.0980 resistance. Decisive break there will confirm that whole fall from 1.1138 has completed already. On the downside, below 1.0833 minor support will turn intraday bias neutral first. But further rally is expected as long as 1.0765 support holds, in case of retreat.

In the bigger picture, price actions from 1.1274 are viewed as a corrective pattern. Fall from 1.1138 is seen as the third leg and could have completed. Firm break of 1.1138 will argue that larger up trend from 0.9534 (2022 low) is ready to resume through 1.1274 high. On the downside, break of 1.0601 will extend the corrective pattern instead.

Economic Indicators Update