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USDCAD rose quickly above the tight bearish channel, but soon stopped around February's lows and near its 20-day SMA on Thursday.

The pair is set to close the month down by 2.3%, marking its worst monthly performance since 2021. That said, the recent bullish channel breakout continues to look promising as both the RSI and MACD are showing a convincing improvement, indicating an encouraging start to July.

If the 20-day SMA at 1.3270 gives way, the price may advance straight to the broken, almost- flat support trendline from November 2022 seen at 1.3350. The 50% Fibonacci retracement of the 1.4667-1.2006 downtrend is adding extra importance to this region. Therefore, a successful move higher and above the nearby resistance of 1.3380 might add extra impetus to the price, bringing the 50-day SMA at 1.3420 next into view. Should the latter prove fragile, the recovery could pick up steam towards the 200-day SMA at 1.3500.

Alternatively, the price could slide to retest Thursday’s low of 1.3235. A continuation lower could examine the 1.3190 constraining zone ahead of June’s floor of 1.3145. Another failure here might threaten a downtrend extension towards the 1.3055-1.3000 zone, which encapsulates two key ascending trendlines from the 2021 lows and the 38.2% Fibonacci level.

In brief, USDCAD is expected to preserve its recovery mood, but traders might wisely wait for a close above the 20-day MA before they drive the pair higher.

On the hourly chart of EUR/USD at FXOpen, the pair started a fresh decline from the 1.0970 zone. The Euro declined below the 1.0930 support against the US Dollar.

There was a break below the 50-hour simple moving average at 1.0900. It is now showing a few bearish signs below the 1.0890 resistance level. The next major resistance is near 1.0900. The main resistance is now forming near a connecting bearish trend line at 1.0930.

A break above 1.0930 could send EUR/USD toward 1.0970. Any more gains might send the pair toward the 1.1010 resistance.

Conversely, the pair might continue to move down toward 1.0845. The next major support is near 1.0820, below which EUR/USD could test the 1.0800 support. Any more losses could send the pair to 1.0765.

Important Takeaways for AUD/USD and NZD/USD Analysis Today

• The Aussie Dollar started a fresh decline from well above the 0.6750 level against the US Dollar.
• There is a key bearish trend line forming with resistance near 0.6630 on the hourly chart of AUD/USD at FXOpen.
• NZD/USD declined heavily below the 0.6125 support zone and tested 0.6050.
• There was a break above a major bearish trend line with resistance near 0.6070 on the hourly chart of NZD/USD at FXOpen.

AUD/USD Technical Analysis

On the hourly chart of AUD/USD at FXOpen, the pair started a fresh decline from the 0.6720 zone. The Aussie Dollar traded below the 0.6670 support to enter a bearish zone against the US Dollar.

The pair even settled below the 50-hour simple moving average at 0.6630. A low is formed near 0.6595 and the pair is now consolidating losses. It is testing the 23.6% Fib retracement level of the downward move from the 0.6750 swing high to the 0.6595 low.

On the upside, the AUD/USD pair is facing resistance near a key bearish trend line at 0.6630. The next major resistance is near the 61.8% Fib retracement level of the downward move from the 0.6750 swing high to the 0.6595 low at 0.6670. A close above the 0.6670 level could start another steady increase in the near term. The next major resistance on the AUD/USD chart could be 0.6750.

On the downside, initial support is near the 0.6595 level. The next support could be the 0.6550 level. If there is a downside break below the 0.6550 support, the pair could extend its decline toward the 0.6500 level. Any more losses might send the pair toward the 0.6440 support.

NZD/USD Technical Analysis

On the hourly chart of NZD/USD at FXOpen, the pair also followed a similar pattern and declined below 0.6125. The New Zealand Dollar gained bearish momentum and traded below 0.6085 against the US Dollar.

A low is formed near 0.6050 and the pair is now attempting a recovery wave. It broke a major bearish trend line with resistance near 0.6070 and the 50-hour simple moving average.

The pair is now testing the 23.6% Fib retracement level of the downward move from the 0.6200 swing high to the 0.6050 low. If there is a move above the 0.6085 resistance, the pair could rise toward 0.6125.

The 50% Fib retracement level of the downward move from the 0.6200 swing high to the 0.6050 low is also near 0.6125 to act as a barrier. Any more gains might open the doors for a move toward the 0.6200 resistance zone in the coming days.

On the downside, immediate support on the NZD/USD chart is near the 0.6050 level. The first major support is near the 0.6020 zone. The next support could be 0.6000. If there is a downside break below it, the pair could extend its decline toward the 0.5950 level.

The EUR/USD chart indicates an interesting situation from the point of view of technical analysis, namely, a “nested” head-and-shoulders pattern.

• The global bearish SHS pattern is formed by the peaks of February, April, June.
• The local bearish SHS pattern is formed by three peaks formed in the second half of June. This should give confidence to the bears, who have statistics that indicate the effectiveness of the pattern.

Please note that inflation data will be published today:

• 12:00 GMT+3: Core CPI Flash Estimate.
• 12:00 GMT+3: US Core CPE is an indicator that the Fed pays special attention to.

Earlier this week, both Lagarde and Powell reaffirmed their resolve to fight inflation. The release of news today can provoke sharp movements in the market — for example, a breakdown of the neck line of the local SHS pattern. Get ready for bursts of volatility.

• Significant up move in G-20 2-year sovereign bond yields except for Japan & China.
• US 2-year Treasury yield may eye the next immediate resistance at 5.20%.
• Higher cost of funding in H2 may deflate current optimism in US stocks.
• Japan’s finance officials have ratcheted up verbal intervention to talk down USD/JPY strength.

Welcome to June month-end, Q2 2023-end, and H1 2023-end where three different periods of closing coincide at the same time which tends to lead to higher volatility in certain asset classes due to a confluence of activities among market participants, portfolio’s rebalancing, and window-dressing.

The moments of “higher volatility” have been captured in the bond market this time around as global sovereign bond yields among the G-20 nations (except for Japan & China) have spiked up significantly yesterday, 29 June; bond yields increase led to bond prices decrease.

Global 2-YR sovereign bond yields on an uptrend exception for Japan & China

Fig 1: G-20 2-YR sovereign yields medium-term trend with MOVE Index as of 30 Jun 2023 (Source: TradingView, click to enlarge chart)

Even the implied volatility of bond yields that measures the future movement of volatility has jumped up as well, the ICE BofAML MOVE Index, a gauge that measures the implied volatility of the US Treasury markets via options recorded a daily gain of +4.8% to close at 113.45 yesterday and hit its highest level since 20 June 2023.

Technical analysis suggests further potential up move trajectories in US Treasury yields

Fig 2: 10-YR & 10-YR US Treasury yield medium-term trends as of 30 Jun 2023 (Source: TradingView, click to enlarge chart)

The 2-year Treasury yield jumped by +15 basis points (bps) yesterday, the highest single-day gain since 25 May 2023 and it is now eying a key resistance at 5.20%. A clearance above it sees the next resistance coming in at 6.20% (the upper limit of a major ascending channel in place since the 1 March 2022 low).

The longer-term 10-year Treasury yield gained (+13 bps yesterday) as well but at a slower momentum pace versus the 2-year yield. Right now, it is approaching key intermediate resistance at 3.90% which has capped prior bullish movements since the 21 October 2022 high of 4.33%. A clearance above 3.90% sees the next resistance coming in at 4.46%.

Deeper yield curve inversion & tighter financial conditions may deflate optimism in US stocks

Fig 3: US key benchmark stock indices year-to-date performance with US Treasury 10-YR-2-YR yield spread as of 29 Jun 2023 (Source: TradingView, click to enlarge chart)

Fig 4: US S&P 500 major trend with Chicago Fed’s Financial Conditions Index as of 29 Jun 2023 (Source: TradingView, click to enlarge chart)

The US Nasdaq 100 has been the global outperformer in the first half of 2023 thanks to the stellar performances of the mega-cap technology stocks that rode on the emergence of the “high productivity optimism” wave driven by Artificial Intelligence (AI) technologies.

The six-month performance of the Nasdaq 100 as of 29 June 2023 stood at +36.57%, its best performance since the second half of 1999 before the Dot.com bubble burst.

The upbeat tone of the Nasdaq 100 has been supported by a looser financial condition in the US after the US regional banking turmoil in March, partly assisted by a liquidity backstop, the Fed’s Bank Term Funding Programme that has continued to increase but at a  slower pace since early June 2023.

Meanwhile, the 10-year over 2-year US Treasury yield spread has continued its inversion path to -1.02%, its lowest level since early March 2023 which has signalled an increase odd of further economic weakness in H2.

The Chicago Fed’s National Financial Condition Index (NFCI) has been on a downward path since the US regional banking turmoil subsided in early April 2023 which indicates a loosening of financial/liquidity conditions in the US. Based on the latest data for the week ending 23 June, the composite NFCI ticked down further to -0.32.

However, the trend of its leading Leverage sub-component has remained upward since mid-March 2023, and if the US Treasury yields continued their expected upward trajectories, it may lead to an increase in funding costs which could see upside pressure on the Leverage sub-component. Thus, a series of future upticks in the composite NCFI that indicates a tighter financial condition cannot be ruled out.

USD/JPY rally is coming closer to the key resistance zone of 145.50/146.10 with risk of intervention

Fig 5: USD/JPY medium-term trend as of 30 Jun 2023 (Source: TradingView, click to enlarge chart)

The bulls of USD/JPY have started to get a bit cautious of the recent four-week weakness seen in the JPY as the 145.00 psychological level per US dollar seems to be a defence level where Japan’s Finance Ministry may intervene in the foreign exchange market.

The USD/JPY rallied to print an intraday high of 145.07 after the release of the leading Tokyo-area inflation data for June has indicated that sticky inflation remains elevated in Japan where the core-core rate (excluding food & energy) rose to 2.3% year-on-year, slightly below 2.4% recorded in May but still hovering close to a 30-year high. The USD/JPY has inched lower by -0.06% intraday to 144.73 at this time of the writing.

In another round of verbal intervention from Japanese officials this morning to talk down the USD/JPY’s strength, Finance Minister Suzuki commented that sharp, one-side movements had been seen in the foreign exchange (FX) market, closely watching FX market with a great sense of urgency, authorities will respond appropriately if FX moves become excessive, and current situation not positive to current policy issues.

These latest comments echoed a similar tone and rhetoric made earlier by Vice Finance Minister Kanda, a top currency official on Monday. Hence, it seems that Japanese officials are getting uneasy about the recent swift pace of the up move seen in the USD/JPY, watch the key near-term support zone of 142.50/25.

USD/JPY grinds rising trend line

The Japanese yen dipped after the CPI in the Tokyo area fell short of expectations in June. The pair has been climbing along a rising trend line from mid-June and the bullish mood means that pullbacks have been opportunities for the buy side to stake in. The greenback is testing the supply zone around 146.00 from last November’s sell-off. A bullish breakout would cement the dollar’s supremacy and pave the way for a rally towards 150.00. On the downside, 144.00 on the trend line is the first support.

GBP/USD breaks lower

Cable slips as traders fear the UK economy is the weakest link in the global tightening campaign. A fall below 1.2650 was a sign of profit-taking after the bulls struggled to push back above 1.2830, putting a dent to the short-term mood. However, Sterling still has an edge from the daily chart’s perspective. 1.2650 at the confluence of the base of a mid-June breakout rally and the 30-day SMA is a key level to expect buying. The brief support-turned-resistance of 1.2710 is the level to lift before cable could resume its uptrend.

FTSE 100 struggles for bids

The FTSE 100 slides as the Thames Water crisis pulls utility stocks lower. A slip below the previous swing low of 7430 has put the bulls on the defensive, giving back most of the gains from the V-shaped bounce in May. The latest uptick came under pressure at 7515 as trapped bulls ran for the exit. However, its breach could extend the recovery to 7580 which coincides with dynamic resistance from the 30-day SMA. On the flip side, 7430 is the bulls’ last chance to prevent a correction all the way to this year’s lows near 7300.

Markets

US weekly jobless claims are notoriously volatile. Since a couple of weeks, markets took them as a pointer to find the turning point in the US labour market. The same happened the other way around in the early pandemic-days. Relying on a notoriously volatile weekly number implies you create a lot of additional weekly volatility. Especially when you get wrongfooted. Higher-than-expected weekly claims pushed US Treasuries higher the past weeks. Markets expected more of the same yesterday, but claims fell from 265k to 239k (vs 265k expected and lowest in a month) and triggered a sell-off in US Treasuries. Fed Chair Powell on Wednesday obviously created the setting by not ruling out back-to-back rate hikes in July and September, a scenario which wasn’t discounted in US money markets. US yields rose by 9.2 bps (30-yr) to 16.4 bps (5-yr) in a daily perspective, with real yields driving the move higher. The US 2-yr yield (4.86%) rose to its highest level since mid-March and keeps the 5.08% cycle top on the radar. The US 10-yr yield tested the May & June top at 3.86% before closing at 3.84%. A break would be technically significant with the March top at 4.09% as target. German Bunds and UK Gilts sold off in lockstep. German yields added 6.9 bps (30-yr) to 10.6 bps (5-yr). The real interest rate advantage helped the dollar, even as the single currency remains relatively strong on the international scene. EUR/USD closed at 1.0865 from an open at 1.0913. First support at 1.0845 was untested, but needs to be monitored. A break below paints a short term double top on the charts, suggesting a drop in the lower half of the broad sideways channel (roughly 1.05-1.10) in place since the beginning of the year. The mirror move already happened in the trade-weighted dollar index with DXY surpassing 103.17. (US) stock markets were the odd one out yesterday, gaining up to 0.8% for the Dow. The more a potential US recession gets pushed forward, the more equity markets remain bullish. With or without higher real yields. This stretch will crack one day, but we don’t fight the trend.

Today’s eco calendar contains EMU June CPI inflation and US May PCE deflators. National European inflation numbers suggests a close to consensus print (5.5% Y/Y for headline; 6.5% Y/Y for core). PCE deflators the past months deviated somewhat from the earlier released (US) CPI readings, so there’s room for market reaction there. Nearby technical resistance (both in US yields and the dollar) indicate that the surprise should be large enough to force breaks ahead of the weekend. June Chicago PMI’s are also on the agenda.

News & views

Japanese data showed a mixed picture this morning. Tokyo inflation ex fresh food prices, the BOJ’s preferred inflation measure, gained slightly from 3.1% Y/Y to 3.2% Y/Y in June. The increase was mainly due to higher electricity prices as authorities allowed utilities to raise prices this month. Headline inflation eased from 3.2% Y/Y to 3.1% Y/Y. The core measure, excluding fresh food and energy prices also slowed from 3.9% Y/Y to 3.8% Y/Y. All data were slightly softer than expected. Still the outcome keeps the debate open on how much the BoJ will have to raise its inflation forecasts at the July policy meeting and what effect it will have on the Yield Curve Control (YCC). In this respect, BoJ Deputy Governor Himino in an interview with Reuters indicated that price rises are stronger than previously expected. While most inflation is still cost-driven, he also sees factors of demand driven inflation. Other data published this morning showed a bigger than expected monthly decline in industrial production (-1.6% M/M; 4.7% Y/Y), after three consecutive months of positive production growth. The labour market remains tight with the unemployment rate unchanged at 2.6%. USD/JPY this morning briefly surpassed the 145 barrier as markets look out for signs from the Ministry of Finance on potential interventions.

Chinese economic momentum slowed further in June. The composite PMI declined from 52.9 to 52.3. The manufacturing index remains slightly in contraction territory (49 from 48.8). The services measure fell more than expected from 54.5 to 53.2. Subindices for employment and exports orders decreased further. New overall orders gained marginally (48.6) but stay in contraction territory. The data reinforce market speculation of further stimulus to support activity. The yuan remains in the defensive with USD/CNY trading near 7.25.

Swiss KOF Economic Barometer dropped slightly from 91.4 to 90.8 in June, above expectation of 89.2. That's the third consecutive monthly decline.

KOF said: " The downward movement in the Barometer is primarily caused by bundles of indicators that capture foreign demand. Here, the outlook continues to deteriorate.

"The indicators covering private consumption and the economic sector of other services also give a slightly negative signal. The indicators for manufacturing and construction, on the other hand, point slightly in a positive direction."

Full Swiss KOF release here.

Economic data released in the US yesterday further fueled the hawkish Federal Reserve (Fed) bets. The US Q1 GDP was revised up from 1.3% to 2%, while analysts had penciled in an improvement to 1.4%. The surprise jump came from a quickened growth in exports and consumer spending, which jumped 4.2% in the Q1. 4.2%! Corporate profits fell, but they fell less than expected, as initial jobless claims fell by the most since 2021. The only good news for the Fed, and its inflation battle, was a slightly softer than expected core PCE figure, which extended to 4.9%, a bit less than 5% expected by analysts. But the rest of the data pointed in the same direction than in the past days and weeks: the US economy seems to be doing FINE! Combined with the Fed’s bank stress test results comforting that the big US lenders are in a position to shoulder further shocks, like recession and chaos in real estate, the US 2-year yield jumped more than 3% to 4.90% for the first time since the mini banking crisis. The probability of a 25bp hike from the Fed in the July meeting jumped to 87%, while the pricing in the market suggests that the Fed’s two rate hikes are now likelier than not.

And perhaps because the aggressive Fed tightening doesn’t impact economic strength as badly ass expected, stock investors saw no urgence in selling their stocks on rising hawkish Fed expectations. The S&P500 advanced 0.45%, Nasdaq was slightly lower, as the small caps of Russell 2000 outperformed with a 1.23% rise yesterday. The US dollar index rallied past its 100-DMA and broke above a one-month descending channel top. Trend and momentum indicators turned positive hinting that a further advance in the US dollar is likely against major currencies in the run up to next week’s all important jobs report, especially if today’s PCE data, the Fed’s gauge of inflation, shows further advance in inflation from 4.4% to 4.6%.

Yet, a further rise in US yields could weigh on stock appetite before the weekly closing bell.

In the Eurozone, investor mood was a bit tricky because inflation data released this week in the Eurozone revealed that inflation in Italy eased more than expected, inflation in Spain eased below the European Central Bank’s (ECB) 2% policy target, but inflation in Germany ticked higher this month, to 6.8%, because of an unfavourable base effect from last year, when Germany offered its citizens ultra-cheap rail tickets. French, and the eurozone’s aggregate preliminary inflation data for June is due today.

The EZ inflation is expected to have eased to 5.6%, and the divergence between Germany and the others may not be a long-term concern, but the ECB will certainly remain well alert, and well hawkish into this summer.

More importantly, the end of ECB’s cheap loans should increase the yield spread between the Eurozone’s core and periphery and weigh on the EURUSD. The pair is now testing the 50-DMA to the downside, and if the Fed hawks continue gaining field, which seems to be the most likely scenario before next week’s US jobs data, we could see the pair correct deeper toward the 1.08/1.0820 region.

In China, the latest economic data didn’t enchant investors. Chinese manufacturing PMI remained below 50, in the contraction zone, for the third consecutive month, despite recurrent policy easing from the People’s Bank of China (PBoC). Nothing seems to be boosting the Chinese recovery because consumer and investor confidence have been severely damaged as a result of government crackdowns and Covid.

The initial forecast for this year - US recession and Chinese rebound - is not happening. On the contrary, the US is growing, and China is slowing. At this point, the Chinese government has no choice but to regain people’s and investors’ confidence if it doesn’t want to become too old before becoming rich enough.

Market movers today

Today, markets will look closely at flash euro area HICP figures. The country figures released on Wednesday and Thursday were on balance a bit higher than consensus, driven by Spain and Germany. Even so, headline inflation is falling and thus consumer headwinds are waning. We have seen early signs of momentum in core prices declining in Q2, and gauging the underlying price pressure will be key for markets. The country releases so far would point to a 5.7% headline print.

At the same time, the euro area unemployment rate is released. It was the lowest on record in April at 6.5% and we do not expect to see any weakening signals here

In the US, we get PCE data for May.

n Norway, we get unemployment figures and in Sweden we get wage data, see more in the Nordic section below.

The 60 second overview

China: Overnight, the official NBS PMIs continued to signal sluggish growth in June, with manufacturing PMI ticking up slightly to 49.0 (from 48.8) and non-manufacturing declining to 53.2 (from 54.5), driven by both construction (55.7; from 58.2) and services (52.8; from 53.8). The latter has already fallen below its pre-Covid average (53.2), suggesting that the boost from reopening has stalled faster than expected. We recently revised down our forecast for Chinese GDP growth to 5.8% in 2023 and 4.8% in 2024.

Japan: Tokyo Core CPI, which is often considered to lead nationwide developments, remained stable above Bank of Japan's target at 3.2% (consensus 3.3%) in June. We think the gradually rising underlying price pressures will push BoJ to eventually loosen the grip on the yield curve control, either at the next meeting on 28 July, or in September. BoJ's deputy governor Himino commented yesterday that he is seeing signs of demand-driven inflation picking up, although still not commenting on the outlook for making policy changes. JPY was little changed overnight.

US: The US Q1 GDP growth was revised up surprisingly sharply yesterday, from 1.3% q/q AR to 2.0%, reflecting stronger private consumption (+4.2% q/q AR). The release was accompanied by initial jobless claims falling against expectations (to 239k), which led to markets increasing bets on upcoming Fed hikes. The peak Fed Funds Rate is now priced at 34bp above the current level by November, implying around 40% probability of two more rate hikes. Atlanta Fed's Bostic appeared more dovish, saying that he expects inflation to cool without the need for further rate hikes. That said, he also added that he does not expect policy rate cuts even in 2024.

Riksbank: The Riksbank hiked by 25bp and increased QT volumes, in line with our expectations. The updated rate path was to the hawkish side, as it guides towards an additional 30bp worth of hikes during autumn (we keep 25bp in September and a peak at 4.0%). In a separate, but synchronized press release the Riksbank announced that they are considering to start hedging part of the FX reserves. While the news sparked speculations if this was a currency intervention (in disguise), the press release made clear and it was later confirmed by Thedéen that this is about 'sound' risk management, it is not a currency intervention and it does not have a monetary policy purpose. As a result, the knee-jerk drop in EUR/SEK was reversed and net-net the impact from the Riksbank was muted. Read more in our Flash comment Riksbank - 25bp hike and more QT, 29 June.

Equities: Global equities were higher yesterday with lift from the cyclical sectors and banks standing out as the big winners. As mentioned yesterday, stress tests are giving some relief to banks, but a further lift came from strong macro data (better demand and better job data) pushing up the long end of the yield curve. Despite banks sticking out yesterday it was yet another day when the bearish investor consensus had to acknowledge that recession is not imminent and a soft landing seems more plausible. Hence, the pain trade higher in equities continued; and being underweight equities and cyclicals in H1 has been a very costly strategy. In US yesterday Dow +0.8%, S&P 500 +0.5%, Nasdaq 0.00% and Russell 2000 +1.2%. Asian markets are mixed again this morning. However, China is for a change leading the advance while Japan is lower. Chinese NBS PMIs were in no way impressive but apparently solid enough to satisfy investors. Futures in Europe and US are marginally higher.

FI: Global yields rose across the board initiated by the surge in German and Spanish inflation data, which was later followed by strong US data released at 14:30 CET. Jobless claims fell over the past week, and Q1 GDP was clearly revised higher where stronger private consumption is part of the driver. The sell-off was recorded primarily in the sub10y point with 10bp higher 10y German yield to stand at 2.41%. Wednesday's settlement of the TLTRO left excess liquidity EUR 493bn lower to EUR 3.6trn, however this did not leave a mark on the €STR fixings that continue to fix 10bp below the deposit rate. Markets still price a 4% peak in ECB policy rate.

FX: USD rallied together with AUD and CAD yesterday. The former aided by stronger-than-expected US key figures. SEK and EUR lost. The former was largely unaffected by the 25bp rate hike by the Riksbank.

Credit: Yesterday CDS indices grinded tighter for another day with iTraxx Main closing at 76bp (-1bp) and Xover at 411bp (-5bp). Primary issuance was rather limited but did see the French banking group BPCE place a five-year EUR500m senior preferred in social format. The social format was likely a factor that helped boost demand with books reported at EUR2.3bn despite a modest concession for the deal.

Nordic macro

Norway: The Norwegian labour market remains tight but is showing some signs of weakening. New job openings are down, and the number of jobless has begun to edge up. Short-term unemployment too has begun to climb, which is often a harbinger of rising unemployment further ahead. We expect this trend to have continued in June, but with the seasonally adjusted jobless rate still unchanged at 1.8%.