Sample Category Title

Dollar is extending the near term pull back in Asian session today, driven by a combination of factors including a risk-on market sentiment, falling Treasury yields, and growing market expectations of a Federal Reserve "skip" in June. However, the greenback, along with other currencies, will be closely watching today's non-farm payroll data for further direction. As it stands, Swiss Franc is trailing Dollar as the week's second worst performer, followed by Euro. On the other hand, Sterling is actually the quiet star of the week, followed by Aussie and Loonie. Yen is currently mixed as near term consolidation extends.

Technically, Gold is now eyeing 1985.08 minor resistance with current rebound. Break there will indicate that a short term bottoming is formed at 1931.84. More importantly, such development will keep the medium term rising channel intact. That is, rise from 1614.60 is indeed not over yet. Retest of 2062.95 or even 2074.48 record high could be seen soon, which could also correspond to near term selloff in Dollar.

In Asia, at the time of writing, Nikkei is up 1.03%. Hong Kong HSI is up 3.79%. China Shanghai SSE is up 0.78%. Singapore Strait Times is up 0.24%. 10-year JGB yield is down -0.0074 at 0.413. Overnight, DOW rose 0.47%. S&P 500 rose 0.99%. NASDAQ rose 1.28%. 10-year yield dropped -0.029 to 3.608.

Fed Harker: We are clearly in restrictive, we can sit there for a while

Philadelphia Fed President Patrick Harker recommended a pause in interest rate hikes at the upcoming FOMC meeting, stating. "It's time to at least hit the stop button for one meeting and see how it goes," he said yesterday.

Harker also noted, "I think we are at the point, or very close to the point now, where we are clearly in restrictive territory, and we can sit there for a while," he explained. "We don't have to keep moving rates up, and then have to reverse course quickly."

Looking ahead, Harker expects the US economy to grow less than 1% this year, and anticipates unemployment rate, currently at 3.4%, to increase to around 4.4%. Additionally, he forecasts a decrease in inflation to 3.5% this year and 2.5% next year, predicting it to reach Fed's 2% target only by 2025.

BoJ Ueda: No time frame to achieve inflation target, but not so long as 10 years

In a parliamentary address today, BoJ Governor Kazuo Ueda said "The time it takes for the impact of monetary policy to appear on the economy could move around a lot depending on circumstances."

"We therefore do not have any time frame in mind" in achieving the inflation target, he added.

"Having said that, our baseline view is that it won't take so long as over 10 years. We'll still seek to hit the target at the earliest date possible," he remarked.

Ueda reiterated that the Bank of Japan's purchases of Real Estate Investment Trusts (REITs) form part of their expansive monetary easing strategy. He noted, "We are conducting the purchases (of REITs) as part of our massive monetary easing program. Given it will take more time to achieve our price target, we will maintain the easy policy."

US non-farm payroll in spotlight, NASDAQ presses key resistance

Today, market watchers are turning their attention to US non-farm payroll report, a key indicator of the health of the American labor market. Economists are forecasting job growth of around 180k in May, with the unemployment rate predicted to slightly increase from 3.4% to 3.5%. Meanwhile, average hourly earnings are expected to continue a trend of robust growth with another 0.3% mom rise.

Looking at some related economic data, ISM manufacturing employment index showed a modest rise from 50.2 to 51.4, while ADP private job data indicated a strong increase of 278k. The four-week moving average of initial jobless claims saw a slight dip from 239k to 230k. All these numbers suggest a job market that remains steady, showing no significant signs of weakening.

In terms of monetary policy, Fed funds futures are currently pricing in 76% probability that Fed will opt to "skip" a rate hike at the upcoming FOMC meeting on June 14. Nevertheless, there is still around a 60% chance of another 25bps increase in June to a range of 5.25-5.50%. Today's data could significantly alter this picture if it brings any surprises.

Over in the equity markets, NASDAQ is once again testing a crucial cluster resistance level at 13181.08, following a brief retreat earlier this week. The level represents 100% projection of 10088.82 to 12269.55 from 10982.80 at 13163.53, as well as 50% retracement of 16212.22 to 10088.82 at 13150.52.

Decisive breakthrough above this 13150/80 range would confirm underlying medium term bullish momentum in NASDAQ, potentially sparking upward acceleration towards 161.8% projection at 14511.22. Let's see how NASDAQ reacts to today's data.

AUD/USD Daily Report

Daily Pivots: (S1) 0.6511; (P) 0.6547; (R1) 0.6608; More...

AUD/USD's strong break of 0.6558 minor resistance confirm short term bottoming at 0.6457, just ahead of 61.8% projection of 0.7156 to 0.6563 from 0.6817 at 0.6451. Intraday bias is back on the upside for 55 D EMA (now at 0.6659). Sustained break there will target 0.6817 resistance next. Nevertheless, rejection by 55 D EMA will keep near term outlook bearish. Firm break of 0.6451 will resume the fall from 0.7156 to 100% projection at 0.6224.

In the bigger picture, rejection by 55 W EMA (now at 0.6822) keeps medium term outlook bearish. Current development suggests that down trend from 0.8006 (2021 high) is possibly still in progress. Retest of 0.6169 (2022 low) should be seen next. Firm break there will confirm down trend resumption. For now, this will remain the favored case as long as 0.6817 resistance holds.

Economic Indicators Update

Main focus now turns to US non-farm payroll report today. Markets are expecting 180k job growth in May. Unemployment rate is expected to tick up from 3.4% to 3.5%. Meanwhile, average hourly earnings are expected to show another month of robust 0.3% mom growth.

Looking at some related economic data, ISM manufacturing employment rose slightly from 50.2 to 51.4, but ISM services data is not released yet. ADP private job data showed strong 278k growth. Four-week moving average of initial jobless claims fell slightly from 239k to 230k. There is nothing in these data that show significant loosening in the job market, not to mention weakness.

Fed funds futures are now pricing in 76% chance of a "skip" at upcoming FOMC meeting on June 14. Meanwhile, there is around 60% chance of another 25bps hike in June to 5.25-5.50%. The landscape could change quite notably if there is surprises in today's data.

NASDAQ is back pressing key cluster resistance at 13181.08 after brief retreat earlier in the week. The level represents 100% projection of 10088.82 to 12269.55 from 10982.80 at 13163.53, as well as 50% retracement of 16212.22 to 10088.82 at 13150.52.

Decisive break of this 13150/80 handle will confirm underlying bullish momentum in NASDAQ, and could prompt upside acceleration to 161.8% projection at 14511.22. Let's see how NASDAQ reacts to today's data.

In a parliamentary address today, BoJ Governor Kazuo Ueda said "The time it takes for the impact of monetary policy to appear on the economy could move around a lot depending on circumstances."

"We therefore do not have any time frame in mind" in achieving the inflation target, he added.

"Having said that, our baseline view is that it won't take so long as over 10 years. We'll still seek to hit the target at the earliest date possible," he remarked.

Ueda reiterated that the Bank of Japan's purchases of Real Estate Investment Trusts (REITs) form part of their expansive monetary easing strategy. He noted, "We are conducting the purchases (of REITs) as part of our massive monetary easing program. Given it will take more time to achieve our price target, we will maintain the easy policy."

Philadelphia Fed President Patrick Harker recommended a pause in interest rate hikes at the upcoming FOMC meeting, stating. "It's time to at least hit the stop button for one meeting and see how it goes," he said yesterday.

Harker also noted, "I think we are at the point, or very close to the point now, where we are clearly in restrictive territory, and we can sit there for a while," he explained. "We don't have to keep moving rates up, and then have to reverse course quickly."

Looking ahead, Harker expects the US economy to grow less than 1% this year, and anticipates unemployment rate, currently at 3.4%, to increase to around 4.4%. Additionally, he forecasts a decrease in inflation to 3.5% this year and 2.5% next year, predicting it to reach Fed's 2% target only by 2025.

Key insights from the week that was.

The ABS Monthly CPI Indicator surprised to the upside in April, a solid 0.5% lift raising the annual rate of inflation from 6.3% to 6.8%, well above the consensus estimate for a slight up-tick to 6.4%. Although dwelling prices and rents came in stronger than expected, this was largely offset by a fall in electricity prices, leaving total housing costs up only 0.3% in the month. In our view, the most significant driver for headline inflation was a 7.2% rise in holiday travel/accommodation costs. Highlighting the breadth of the pulse, the annual trimmed mean measure – which was reinstated in April– showed underlying inflation lifting from 6.5% to 6.7%.

The April CPI update poses upside risk to our current Q2 CPI forecast of 1.1% and highlights the need to continue carefully assessing inflation risks.

In the lead-up to next week’s Q1 GDP report, the ABS also released two partial indicators for investment.

Construction work done rose by a solid 1.8% in the three months to March, centred on the continued uptrend in infrastructure investment, public infrastructure up a sizeable 18%yr and private infrastructure 12%yr. Private building experienced mixed fortunes however, with new dwelling construction down 2.6% but renovation work up 2.7%.

The Q1 CAPEX survey subsequently delivered an upside surprise. In the detail for current activity, equipment spending posted a notable 3.7% gain, with strength most apparent in mining. On spending intentions, the second estimate for 2023/24 CAPEX plans remained constructive, up 5.0% compared to the second estimate a year ago. In our view, this implies a 5.9% rise in CAPEX spending over the financial year. While positive for now, we anticipate the investment outlook will soften, with later estimates likely to see firms mark down their plans.

Despite the solid reads on construction work and equipment spending, we have revised down our forecast for Q1 GDP from 0.4% to 0.2%, reflecting a softer read on consumption and a materially weaker contribution from net exports.

Before moving offshore, a quick note on housing. The recent stabilisation in Australia’s housing market continues to reverberate through CoreLogic’s home price (PDF 179KB) data, as evinced by the 1.4% gain in May across the nation’s capital cities, leaving prices up 3% over the last three months alone. Reflective of this progress, private credit growth (PDF 127KB) within housing-related lending segments is also stabilising at a subdued level, tracking a three-month annualised pace of 4%. While developments around the established market were mostly positive, an 8.1% decline in dwelling approvals highlights the hit to new construction from interest rates and construction costs. For a comprehensive update on the sector, see the Westpac Housing Pulse.

Offshore, China’s NBS manufacturing PMI remained in contractionary territory for a second consecutive month in May at 48.8 as the initial wave of re-opening faded. The non-manufacturing PMI also fell, but at 54.5 remained materially above 50, signalling continued expansion.

Lower demand from developed economies and anxiety over the outlook likely contributed to the deceleration, with the new export orders detail for manufacturing weaker than total new orders. For services, despite a material decline in new orders, the employment index held steady. This speaks to confidence in the medium-term outlook amongst the service sector. A historic comparison highlights why: over the 5 years before the pandemic, the non-manufacturing PMI averaged 54.1, 0.4pts below May; during the period, annual GDP averaged 6.7%.

Input and output prices also saw a substantial decline in the month across the economy. The producer price index has been declining on a year ago basis since October 2021 despite the input prices metric in the PMI growing for much of that time. Depressed input prices are flowing through to output prices, contributing to the palsy CPI prints seen since the start of the year – the CPI up just 0.1%yr in April.

Clearly then, the inflation concern of the developed world is not an issue for China. This provides scope for authorities to offer additional support if/ when they feel there is need. We expect data to remain volatile over coming months, but to orbit a strengthening trend. Policy support should only prove necessary at the margin.

Over in the US, the ISM manufacturing PMI ticked down to 46.9 points in May from 47.0 in April. The biggest change was seen in the ‘prices paid’ detail which plunged below 50 to 44.2. Assessed together with the Chinese data, this outcome suggests falling commodity prices and slower demand are resetting price growth globally. New orders and the order backlog also declined, signalling ongoing contraction in coming months. That said, manufacturers look as though they intend to hold onto staff, with the employment index holding above 50.

The desire to hold onto staff is being seen more broadly across the economy. Earlier in the week, the JOLTS survey reported 10,103k job openings in April, up from 9,745k in March, breaking the downtrend present since December 2022. The series tends to be highly volatile, so this result should not be taken as a sign of renewed labour market tightness but rather resilience. Supporting this view, the hiring rate remained stable in April, corroborating reports from the Fed’s beige book that businesses seem less keen on expanding their labour force, with many reporting they are ‘pausing hiring or reducing headcount’. Employees are also clearly of the view that it is better to remain in a known role than chance a new opportunity, the quit and separation rates continuing their downward trend.

Considering economic activity, the Fed’s Beige book also confirmed a slowdown in demand for transport services which likely fed through to input costs. But the Fed also reported “growth in spending on leisure and hospitality” and for economic activity overall, pointing to GDP growth below trend or stagnation instead of recession.

Finally to policy. FOMC committee member Barkin emphasised in a speech this week that he is looking at the employment and inflation data before determining whether demand-side pressures are abating in supporting the case for a pause at the June meeting. Jefferson and Harker however seemed to have a June pause as their base case ahead of tonight’s nonfarm payrolls release, as we do. Importantly, this week also saw the debt ceiling suspended until 2025, the market’s uncertainty fading as the bill moved through Congress.

The monetary policy outlook for Europe is much more uncertain. The flash CPI reported inflation fell to 6.1%yr in May as services inflation decelerated to 5%yr. But core inflation remains uncomfortably high. Indeed, ECB President Lagarde opined this week that "there is no clear evidence that underlying inflation has peaked" and that there is still "ground to cover to bring interest rates to sufficiently restrictive levels".

Key Highlights

• USD/JPY started a downside correction from the 140.93 high.
• It traded below a key bullish trend line with support near 139.60 on the 4-hour chart.
• EUR/USD managed to stay above 1.0620 and corrected higher.
• The US nonfarm payrolls could increase by 190K in May 2023, down from 253K.

USD/JPY Technical Analysis

The US Dollar faced resistance near 140.93 after a massive increase against the US Dollar. USD/JPY started a downside correction below the 140.50 level.

Looking at the 4-hour chart, the pair traded below a key bullish trend line with support near 139.60. There was a sharp move below the 50% Fib retracement level of the upward move from the 137.42 swing low to the 140.93 high.

The pair even spiked below the 138.80 support. Immediate support is near the 138.25 level. It is near the 76.4% Fib retracement level of the upward move from the 137.42 swing low to the 140.93 high.

The next major support is near the 137.90 level or the 100 simple moving average (red, 4 hours). If there is a downside break below the 137.90 support, the pair could decline toward the 200 simple moving average (green, 4 hours).

On the upside, the pair might face resistance near the 139.50 level. The next major resistance is near 140.00, above which the pair could rise toward the 140.80 level.

Looking at EUR/USD, the pair found support near the 1.0620 level and recently started a short-term upside correction.

Economic Releases

• US nonfarm payrolls for May 2023 – Forecast 190K, versus 253K previous.
• US Unemployment Rate for May 2023 - Forecast 3.5%, versus 3.4% previous.

Let's dive into the latest developments shaping the global economic landscape. Good news first: the threat of an unprecedented US debt crisis has receded, as US lawmakers passed a bill to raise the debt ceiling and avoid a catastrophic default. Phew! But don't pop the champagne just yet, because storm clouds are still looming. High inflation, rising interest rates, and sluggish growth are challenges that have yet to disappear. Economic growth in the US and China, the world's top two economies, shows signs of stuttering. China's recovery is losing steam, impacting Germany's hopes for an easy exit from its downturn. A slowdown in Europe's largest economy spells trouble for the rest of the region, which narrowly avoided a recession earlier this year. Inflation remains uncomfortably high, prompting central banks to consider further interest rate hikes. These developments have the potential to weigh on consumer spending and business investment. Buckle up, folks, as we navigate these uncertain times and keep a close eye on their impact on forex markets. Stay informed and trade wisely!

US Dollar - Daily Timeframe

The US Dollar on the daily timeframe has finally given the first signs of rejection from the supply zone, as highlighted above. The additional confluence from the resistance trendline and the descending array of the moving averages seems to lend even more credence to the possibility of a bearish price action on the US Dollar chart.

Analyst’s Expectations:

• Direction: Bearish
• Target: 102.75
• Invalidation: 104.71

XAUUSD - Daily Timeframe

More often than not, Gold tends to correlate inversely to the price of the US Dollar. Based on that fact, we can naturally expect a bullish price action from Gold. Now, let’s combine that with the available confluences we can see from the chart above:

The 100-Day moving average support
The support trendline of the rising channel
The bullish array of the moving averages

Overall, the stars seem readily aligned in favor of bullish price action.

Analyst’s Expectations:

• Direction: Bearish
• Target: 2016.52
• Invalidation: 1949.95

EURUSD - Daily Timeframe

Similar to the case of Gold, bearish price action on the US Dollar usually implies a bullish price action on EURUSD. Considering, however, the confluences based on the support trendline of the rising channel, the pivot zone as highlighted, the support trendline of the wedge pattern, and finally, the bullish array of the moving averages, I believe we should be seeing some bullish price action on EURUSD shortly.

Analyst’s Expectations:

• Direction: Bullish
• Target: 1.08554
• Invalidation: 1.06524

GBPUSD - Daily Timeframe

By now, I’m sure you can already guess my sentiment regarding the direction of GBPUSD. If your guess was ‘bullish,’ you are right! The confluences I have for this sentiment aside from the correlation with the US Dollar price action include; the support trendline, the bullish array of the moving averages, and the rejection from the 100-Day moving average support.

Analyst’s Expectations:

• Direction: Bullish
• Target: 1.25942
• Invalidation: 1.23275

CONCLUSION

The trading of CFDs comes at a risk. Thus, to succeed, you have to manage risks properly. To avoid costly mistakes while you look to trade these opportunities, be sure to do your due diligence and manage your risk appropriately.

Thanks to the incredible advancements in horizontal drilling and fracking technology, the United States has experienced a mind-blowing shale revolution. They've become the heavyweight champion of crude oil production, leaving Saudi Arabia and Russia in the dust. They even turned the tables and became net exporters of refined petroleum products in 2011. Talk about a plot twist! This seismic shift has made the U.S. about 90% self-sufficient in energy consumption, according to the Energy Information Administration. As U.S. oil exports soar, oil imports take a nosedive, which not only helps decrease the trade deficit but also throws the historically strong relationship between oil prices and the U.S. dollar off balance. Buckle up, folks! The oil market is full of surprises. Happy trading!

US Dollar - Daily Timeframe

The US Dollar on the daily timeframe has finally given the first signs of a rejection from the supply zone as highlighted above. The additional confluence from the resistance trendline and the descending array of the moving averages seems to lend even more credence to the possibility of a bearish price action on the US Dollar chart.

Analyst’s Expectations:

• Direction: Bearish
• Target: 102.75
• Invalidation: 104.71

XTIUSD - Daily Timeframe

As I earlier explained in the first paragraph, the relationship between the value of the Dollar and the price of Oil has seen some drastic changes in recent times. This indicates the possibility of a positive correlation between both commodities. Based on the price action of US Crude trading within the descending channel, and the bearish array of the moving averages, I believe we should get to see XTIUSD drop even further.

Analyst’s Expectations:

• Direction: Bearish
• Target: 63.28
• Invalidation: 74.49

XBRUSD - Daily Timeframe

Brent may yet continue on its bearish rally due to the confluence of the descending channel and the bearish moving average array. The latest rejection on XBRUSD also seems to have happened from the 50-Day average. I, therefore, expect to see a continued bearish price action until the trendline support is reached.

Analyst’s Expectations:

• Direction: Bearish
• Target: 66.73
• Invalidation: 78.43

CONCLUSION

The trading of CFDs comes at a risk. Thus, to succeed, you have to manage risks properly. To avoid costly mistakes while you look to trade these opportunities, be sure to do your due diligence and manage your risk appropriately.

• USDCAD reversed from resistance level 1.3625
• Likely to fall to support level 1.3400

USDCAD currency pair recently reversed down from the key resistance level 1.3625 (which stopped the previous waves (i) and (b)).

The downward reversal from the resistance level 1.3625 stopped the previous impulse waves (iii), 3 and (3).

USDCAD can be expected to fall further toward the next support level 1.3400 (which stopped the previous minor correction (ii) in the middle of May).

• AUDCHF reversed from key support level 0.5875
• Likely to rise to resistance level 0.6000

AUDCHF currency pair recently reversed up from the key support level 0.5875 (which has been steadily reversing the pair from the end of April).

The support level 0.5875 was strengthened by the lower daily Bollinger Band.

Given the bullish divergence on the daily Stochastic indicator, AUDCHF can be expected to rise further toward the next round resistance level 0.6000.