Sample Category Title

EUR/USD

Yesterday’s trading session began with a bearish dominance, but later in the day, the bulls almost recovered all of their losses. At the time of writing the analysis, the bulls have gained momentum and are aiming to reach the first resistance at 1.0480. If they do not manage to overcome the aforementioned level, then the bears will most likely regain control of the market and will try to deal with the psychological support at 1.0400 – a level that they have failed to overcome in recent days. The most important event for today is the announcement of the Fed’s interest rate decision (18:00 GMT), with traders becoming more and more convinced that the central bank will hike the rate by 75 basis points. If this proves to be the case, then this will be the biggest increase since 1991 and volatility will be extremely high.

USD/JPY

For the Ninja, yesterday's trading session was marked by a breach of the resistance at 134.50, and the bulls are now targeting the one at 137.00 – a level that has so far not been reached in the 21st century. At the time of writing, the bears have started a corrective move towards the first support at 134.50. If they are able to overcome it, then the next obstacle in front of them would be the support at 133.15.

GBP/USD

The bears tested the support at 1.1950, but failed to overcome it, and after their failure, the bulls managed to regain some of their market positions. At the time of writing the analysis, traders are trying to stage a rally towards the first resistance at 1.2121. The next key resistance would be the level at 1.2267, with the current move most likely being a corrective one. The Bank Of England interest rate decision on Thursday (11:00 GMT) and today’s Fed decision on whether to hike the rates by 50 bps or 75 bps (18:00 GMT) and the follow-up press conference (18:30 GMT) will have a strong impact on the currency this week.

EUGERMANY40

The German index continues to consolidate around the key level at 13350 as today’s session will most likely be relatively uneventful, that is until the Federal reserve announces their plans for the monetary policy in the U.S. at 18:00 GMT and at 18:30 GMT. The correlation with the U.S. indices is expected to remain extremely high and volatility will most likely be sky-high during the mentioned period.. If, despite that, the bulls end up prevailing, then the first resistance in front of them would be located at 13500. Looking from the higher time frames, we could also see the first support that the bears would have to breach, which would be the psychological level of 13000.

US30

The day for the U.S. blue chips began with a breach of the support from the bears at 30500, indicating that they are still in control as they tried to take the index below the level at 30000. At the time of writing of the analysis, the breach of the aforementioned level of 30500 is being confirmed. Today's session will most likely remain relatively calm, until the storm that is the Federal Reserve engulfs the markets. If they hike the rates by 50 basis points, then the US30 will most likely go on a rally, with the main resistance being the level at 31000. However, if the decision to hike the rates by 50 bps is accompanied by Jerome Powell’s statements that there are talks of further 75 to 100 bps hikes, then the sell-off and volatility are likely to become extremely high.

S&P 500 (SPX) broke below previous low on 5/21/2022 at 3810.32 and opens up a bearish sequence favoring further downside. The entire decline from 1/4/2022 high is unfolding as a triple three Elliott Wave structure. Triple three structure is an 11 swing corrective structure where W, Y, and Z subdivides into 3 waves. Down from 1/4/2022 high, wave ((W)) ended at 4222.62 and rally in wave ((X)) ended at 4637.3. Index then extended lower and ended wave ((Y)) at 3858.87 and rally in ((X)) ((X)) ended at 4176.35.

The 30 minutes chart below shows the decline from ((X)) ((X)) on 6/3/2022 high is in progress as an impulse Elliott Wave structure. Down from 6/3/2022, wave 1 ended at 4098.67 and rally in wave 2 ended at 4167.81. Index then extended lower in wave 3 towards 3705.68. Expect rally in wave 4 to end in 3, 7, or 11 swing and then Index can see a marginal low in wave 5 to complete wave (A). Afterwards, it should correct the entire decline from 6/3/2022 high in wave (B) before the decline resumes. Near term, as far as 6/3/2022 pivot at 4176.35 stays intact, expect rally to fail in 3, 7, or 11 swing for further downside.

S&P 500 30 Minutes Elliott Wave Chart

The Dax 40 sinks as expectations of high interest rates continue to drive global equities south. A break below 13850, a support on the daily chart, prompted short-term bulls to close their bets. The fall below May’s low and critical floor at 13300 came in as a coup de grâce. This may seal the bearish fate and trigger another round of sell-off. The psychological level of 13000 would be the next support. 13600 is a fresh resistance and the bears may look to fade a rebound as the overall mood remains extremely bearish.

The pound softened after an unexpected rise in the UK’s unemployment rate in April. The pair is struggling to hold onto its recent gains after a rally above last April’s high at 168.40. A drop below 166.00 has triggered a round of liquidation as buyers rushed to exit a crowded trade. The recent jitter above 162.00 has turned out to be a dead cat bounce. The bulls will need to clear the support-turned-resistance at 164.20 before they could regain control. Otherwise, the psychological level of 160.00 would be next.

Gold tumbles as the US dollar regains bullish impetus across the board. A clean cut below the demand zone at 1828 indicates weak interest in safeguarding the latest rebound. As trapped buyers look to exit, more selling pressure could weigh on the price action. The RSI’s oversold condition attracted some bargain hunters near 1810. The supply zone between 1840 and 1850 is a major hurdle. A failure to break higher would send the precious metal to the daily support at 1791, a step closer to a full-blown sell-off.

The Federal Reserve (Fed) will announce its latest rate decision today, but most of the wild ride is certainly done by now; the market fully prices in a 75bp hike at today’s decision.

Investors know that the Fed will want to get more aggressive on the back of a difficult-to-ease inflation, and yesterday’s producer data came as another confirmation that inflation has more to inflate in the coming months.

At this point, the decision of a 75bp is almost made, the Fed should only confirm the market verdict.

Could the Fed surprise with 50bp hike?

If the Fed surprises with a 50bp hike, the market will certainly rebound on relief. But the Fed’s primary goal is to tame inflation right now, and not to boost the equity markets. And depressed market conditions seem necessary in achieving that goal.

Now that the 75bp pill has been swallowed by the market, it would be irrational for the Fed not to go ahead with a bigger hike.

Economic projections & dot plot

The aggressive rise in hawkish Fed expectations pushed the US 2-year yield to 3.45% on Tuesday. The 10-year yield flirted with 3.50%. The S&P500 lost another 0.38%, while Nasdaq eked out a small 0.20% gain, but after hitting a fresh low since November 2020.

The US futures are in the positive this morning, but the market will likely remain tense until the Fed breaks the news that it hikes by 75bp. The updated economic projections and the dot plot have an important weight for future expectations.

But the market has already self-punished itself for the rising inflation. Therefore, even in case of a hawkish surprise in economic and dot plot projections, we shall not see a big chunk down in equities.

Hawkish Fed is not a gift for other central banks

Bigger rate hikes from the Fed, and the soaring US dollar are certainly not a gift for other central banks. The US dollar is a base currency, and the rapid appreciation in the greenback increases the cost of the goods that the other countries negotiate in terms of US dollars on international markets, starting from oil and commodities. As a result, a stronger US dollar is a bigger inflation threat for the world.

This is why, the hawkish Fed expectations have a bigger domino effect power on the rest of the world. The German 10-year yield continues pushing higher, and the EURUSD sees a decent support near the 1.04 threshold.

Cable slipped below the 1.20 mark, and a 25bp hike from the Bank of England (BoE) may not suffice to compensate the hawkish Fed, and the renewed Brexit fears.

The softer pound makes the British oil stocks cheaper for foreign investors. Yet, besides the energy and commodity stocks, investors become less comfortable with the British blue-chip index as the renewed Brexit worries and the increased risk of a trade war with EU could take a severe toll on the index.

Market movers

Things can turn around quite rapidly in the current environment and it seems very likely at this point that the Fed makes another U-turn tonight by hiking 75bp (now fully priced by markets) instead of 50bp and signals that another 75bp rate is likely in July. Last time the Fed hiked by 75bp was in 1994 when a single hike of this magnitude was delivered. The Fed is recognising that it is significantly behind the curve and needs to do more to get inflation under control after another higher-than-anticipated print on Friday and too high long-term inflation expectations. We forecast the US will fall into a recession in Q2 23 but with an even faster hiking pace, risk is increasing the recession starts earlier.

On the data front we have US retail sales this afternoon. Retail sales have held up well so far, although big retailers such as Walmart and Target have reported weaker sales of goods outside of groceries lately. Consensus for core retail sales (control group) is 0.3% m/m in May following 1.0% m/m in April.

US also releases a couple of surveys with the Empire index for June and the NAHB housing survey for May.

In Sweden, the quarterly Prospera survey will likely show a further increase in inflation expectations.

The 60 second overview

Market wrap-up: Markets have calmed down ahead of the Fed meeting today. US equity futures a slightly higher in Asian trading while bond yields declined a few bp following a late sell-off yesterday. Oil prices dropped from USD124 to USD121 per barrel last night.

China data: Chinese industrial production and retail sales for May surprised to the upside as industrial production increased from -2.9% y/y to 0.7% y/y (consensus -0.9% y/y) and retail sales moved up from -11.1% to -6.7% y/y (consensus -7.1% y/y). The improvement came on the back of a gradual re-opening and new stimulus and we expect to see a further lift in June when the Shanghai lockdown came to an end. We look for Chinese activity to recover over the summer driven by a renewed stimulus drive and a re-opening bounce but the outlook is blurred by the risk of new outbreaks and lockdowns. Beijing is again on high alert following a covid outbreak related to a bar and is doing mass testing and targeted lockdowns of certain areas.

Gas supply: Gazprom has warned Germany that it will temporarily have to reduce gas supply by 40% through the North Stream 1 pipeline. The official reason is not payment disagreements, but maintenance issues as delivery for a Siemens gas turbine is held up by Canadian sanctions. The German government has so far reacted in a relaxed way, saying that they are monitoring the situation but that gas supply for now is secured. But a pro-longed reduction could create issues with refilling gas storage (currently 55%) sufficiently for the winter months.

FI: An initial rally in bonds was replaced by a significant sell-off in European government bonds. Contrary to the previous sessions, curves steepened, yet the rest of the trends (higher yields and wider spreads) continued. Bunds sold off 12bp to 1.76%, while the Italy-Germany spread widened 2bp. While Italian bonds have underperformed in recent days, the Italian supply yesterday (especially in the long end) saw good demand with bid-to-cover above 2. Front end pricing rose 10bp for the December ECB meeting (€STR) to 181bp, but touched 184bp earlier in the trading session.

FX: Another day where USD was the big winner although EUR/USD ended the day where it started slightly above 1.04. GBP was one of the big losers, as EUR/GBP moved closer to 0.87. Other risk-sensitive currencies such as NOK, AUD and CAD also weakened yesterday. USD/JPY rose further yesterday moving above 135.

Equities: Equities continued lower in a choppy session. However, sector performance reversed completely from the past days. It was now defensives turn to sell off (utilities, staples, health care) while cyclicals (tech, consumer discretionary, industrials) were unchanged. Similarly, growth outperformed value for the first time in a week. In the absence of any Fed surprises today, this would typically be a sign of a trough in bearish sentiment. S&P 500 -0.4%, Nasdaq up 0.2%, Dow -0.5% and Russell 2000 -0.4%. Futures are somewhat higher this morning.

Credit: After a brief rally in the morning, credit spreads resumed their widening trend yesterday. Itraxx main was 2.5bp wider while Xover widened 10.2bp. This leaves these two indices at 108.5bp and 544.4bp respectively. Liquidity in cash space remain very subdued.

Nordic macro

Today's quarterly Prospera survey in Sweden is likely to show a broad-based uptick in inflation expectations, in line with what the monthly surveys have shown. Together with yesterday's higher-than-expected inflation outcome, this is likely to add to the pressure on the Riksbank to hike rates by 50bp at their next meeting (30 June). In a medium-term perspective, perhaps even more interesting is the survey outcome regarding wage expectations, especially in light of recent communication from spokespersons representing labour organisations downplaying the need for wage compensations.

The sell-everything trade has mostly paused for breath over the last 24 hours, with US equities finding their feet overnight, Asian equities rallying today, and the US Dollar giving back some of its recent gains. Bond markets remain the exception. The Bank of Japan is buying JGBs furiously to maintain the yield cap, while US bond yields continued to rise leaving the yield curve almost flat and dangerously close to inversion.

Given bond markets saw no love overnight, I am inclined to believe that clawing back losses elsewhere is merely a consolidation ahead of tonight’s FOMC policy decision. The market has priced in at almost 100%, an FOMC hike of 75bps this evening. My two cents worth is that the Fed will not go 100bps, as that would further erode their credibility on the forward guidance front, which is already ragged. They may, however, decide to upgrade their forward guidance to an even more hawkish tilt. I suspect 75bps is already built into prices now, and if the guidance is more modest in scope, I am sure the buy-the-dippers will be out in force for the rest of the week.

I remain concerned that the Bank of Japan policy meeting is an underrated risk point this week, perhaps even more so than the FOMC outcome itself. A 100bps hike tonight, and/or a very hawkish outlook, will lift USD/JPY once again and may force the BOJ into lifting the 10-year JGB yield cap slightly, despite their actions in the bond market this week. That could, in turn, prompt a very ugly, somewhat short-term correction lower by USD/JPY that could reach 130.00. Expect GBP/YEN, AUD/JPY, and NZD/JPY to get a pasting as well.

The Bank of England rate decision tomorrow will become murkier as well if the FOMC is uber-hawkish tonight. The BOE most likely intends to hike by 0.25%, but with Sterling under some serious pressure right now, its hand may be forced even though it has admitted it has only limited means to manage imported inflation from here. One positive note is that unemployment remains very low in the UK, giving the BOE a decent starting point to inflict monetary pain.

We should be keeping an eye on energy prices over the next few days as well, most notably, European natural gas prices. Nord Stream 1 gas flows from Russia to Germany have been severely reduced as it undergoes summer maintenance. The culprit is a compressor turbine, sent for maintenance in Canada, which now won’t return it as Canada widens sanctions on Russia. Of course, I am sure Russia isn’t using this as an excuse to squeeze Europe, cough, cough. European and UK natural gas prices spiked yesterday, and I have said before that the moment Russia starts messing with European gas supplies, the Euro is heading south. You can put the Sterling in that basket as well.

Looking at the data releases we have had so far today in Asia, it has been mostly positive. Australian Consumer Confidence improved slightly to -4.50% from -5.60%. Rising living costs and mortgage rates leave consumer confidence in a dire spot still. South Korean Unemployment ticked higher to 2.80% in May from 2.70% in April, however, workforce participation rose strongly, dulling the headline numbers impact. Far more importantly, the truckers' strike has ended today, allowing goods to flow to ports and removing a potential growth roadblock.

Japan’s Reuters Tankan Index for June improve to 9.0 from 5.0, as business confidence edges higher. A weaker yen is a boon for manufacturers and was likely the main reason for the jump. A similar impact can be seen in Japan’s April Machinery Orders, which outperformed, rising 10.80% MoM. We can expect a similar impact in May and June. ​ The Nikkei 225 gained no benefit, with both it and the Kospi content to track Nasdaq underperformance overnight as the world press fills its pages with tech-layoff headlines.

China has left its one-year MTF rate unchanged at 2.85% but rolled over the entire CNY 200 billion of maturities. Disappointing at the periphery for those of us waiting for a more comprehensive stimulus from China. Offsetting that, were notable improvements in May Retail Sales, Industrial Production, and Fixed Asset Investment. Retail Sales fell by 6.70%, less-worse than expected. Industrial Production and FAI outperformed, rising by 0.70% and 6.20% YoY respectively. All of that can be laid at the door of the reopening of Shanghai and Beijing and the Shanghai Port.

I must reiterate a word of caution on China though. Markets have leapt into thinking that it would be “one-and-done” for China with covid-zero lockdowns. Bitter experience from around the world shows that this is a naïve point of view, especially regarding omicron. I see a high possibility that China will still endure repeated omicron lockdowns this year unless it changes its covid-zero policy. Thus, China’s growth outlook remains challenging to say the least, even more so if key export markets shift to slowing growth as tighter monetary policy bites.

Indonesia releases its Balance of Trade for May shortly, with the surplus expected to fall from $7.56 billion in April, to $3.83 billion in May. The palm oil export ban will have impacted the headline number, and Indonesia’s commodity exports have bolstered the trade balance this year and supported the Indonesian Rupiah. I wouldn’t normally comment on this data point, but the Rupiah has weakened sharply this past week. If the trade surplus is lower than expected this afternoon, the Rupiah selling may gain more momentum and have a knock-on impact across neighbouring ASEAN currencies. I’m fairly sure a number of Asia’s central banks have been busy this week quietly selling US Dollars, including Indonesia. That smoothing may have to accelerate, especially if the FOMC is very hawkish tonight.

India’s Balance of Trade this afternoon should also make for interesting reading as its imported energy bill soars. A May deficit higher than $20.00 billion could increase pressure on the Rupee as well, which remains near record lows. US Retail Sales will be of passing interest before the main event tonight, especially if the headline and core numbers are soft, with a market on edge about growth stalling in the US.

Otherwise, I believe today will be a "hurry up and wait" messy session as the world awaits the FOMC meeting outcome. I have thrown my two cents in, and I will leave it at that, it has been analysis-paralysis'ed to death elsewhere for those who require more information overload. Today is likely to be the eye of the hurricane, so we should enjoy the temporary peace and quiet.

Asian equities are mixed

US markets were mixed but relatively calm overnight, as Wall Street consolidated after brutal previous sessions. The S&P 500 finished 0.37% lower, while the Nasdaq climbed by 0.18%, with the Dow Jones fell by 0.47%. In Asia, US index futures are seeing some decent pre-FOMC short-covering. S&P 500 futures are 0.40% higher, Nasdaq futures gaining 0.55%, with Dow futures adding 0.25%.

Asia has responded unevenly, despite today’s data releases erring to the positive side. Mainland China markets are outperforming once again, but Japan’s Nikkei 225 has fallen by 0,85%, with South Korea’s Kospi losing 1.55%, and Taipei edging 0.25% lower.

Mainland China is rallying strongly after improving data this morning. The Shanghai Composite has climbed 1.40% higher, with the CSI 300 jumping by 1.85%. Mainland markets staged a mysterious comeback yesterday afternoon and given that three small banks have frozen deposits in China, the rally is even more surprising. Unlike the hapless depositors protesting outside the banks, I suspect that Chinese authorities have turned China’s “national team” health apps “green,” instructing them to go forth and buy. Not to be outdone, Hong Kong’s Hang Seng has also risen by 1.25% today.

Elsewhere, Singapore has risen by 0.60%, but Kuala Lumpur has fallen by 1.50%, along with Jakarta, down 1.0% today. Bangkok has lost 0.50%, with Manila losing 0.60%. Australia is also in the red, the All ordinaries and ASX 200 both falling by 0.75%.

Except for China, is it interesting that the rest of Asia is completely ignoring the rally by US index futures today, even Australia. That suggests to me that Asian investors are overweighting on cash ahead of the FOMC tonight. It wouldn’t surprise me in the least if early Europe follows the same wise course and lightens positioning as well.
US Dollar consolidates pre-FOMC

Currency markets had a choppy but ultimately range trading session overnight, as higher US yields once again supported the US Dollar modestly, while pre-FOMC caution limited its gains. The Asian session is being marked by similar price action, the US Dollar easing today as investors lighten their exposure. The dollar index fell towards 104.50 initially but rallied to close 0.26% higher at 105.47, before easing 0.20% to 105.27 in Asia. ​ The dollar index has support at 104.60 and then 104.00, with resistance at 105.70 and 108.00.

EUR/USD finished lower overnight after running out of steam ahead of 1.0500 as European natural gas prices surged and US yields marched higher. EUR/USD closed almost unchanged at 1.0415, gaining 0.19% to 1.0435 in Asia. EUR/USD has traced out support at 1.0400 and 1.0350, with resistance now ahead of 1.0500 and then 1.0650.

Sterling was an underperformer overnight as natural gas prices surged, the Northern Ireland Protocol continues to vex, the Scottish First Minister signalled she wants to hold a new independence referendum, and the street still errs towards just a 0.25% hike by the Bank of England tomorrow. GBP/USD fell 1.20% to 1.1995, trading in a nearly 300-point range and trading as low as 1.1935 intraday. In Asia, it has struggled to a 0.20% gain to 1.2015. Support is at the overnight low at 1.1935, with resistance at 1.2200.

USD/JPY rose by 0.77% to 135.45 overnight, as the BOJ intervened to cap JGB yields, while US yields moved higher once again. It has fallen back to 135.10 in Asia as US bond futures rally. (yields lower) A 134.00 to 136.00 range should cover USD/JPY into the FOMC.

AUD/USD and NZD/USD fell around 0.75% overnight but have recovered some of those losses in Asia as position squaring dominates the session. AUD/USD has risen 0.40% to 0.6895, with support at 0.6850 and resistance at 0.6970. NZD/USD has risen by 0.15% to 0.6225. It has support nearby at 0.6200, and resistance at 0.6300.

USD/Asia has been noisy if ultimately sideways overnight and today in Asia. USD/KRW, and USD/TWD fell overnight, but reversed higher in Asia after a weaker PBOC CNY fix, leaving them almost unchanged over the last 48 hours. Conversely, USD/CNH and USD/CNY have fallen today to 6.7335 and 6.7200, with 6.7800 and 6.7600 continuing to cap gains this week respectively. USD/INR has fallen back to 77.950, but INR remains near record lows. Meanwhile, USD/MYR and USD/IDR remain at recent highs.

All-in-all, the price action remains quite messy in the G-20 space, with the US Dollar maintaining most of its gains. The price action in the USD/Asia space is even messier, very choppy but ultimately consolidative for the US Dollar. With such a mish-mash of price action in USD/Asia, watching from the FOMC side-lines is probably the most sensible strategy.

Oil is noisy but sideways

Oil prices traded in a very wide range overnight, but like currency markets, once the histrionics passed and the dust settled, didn’t do a lot, remaining near to recent highs. Brent crude ranged between $119.00 and $125.00 before finishing just 1.05% lower at $120.85 a barrel. WTI traded between $116.70 and $123.70 before closing 1.75% lower at $119.00 a barrel.

The histrionics seen overnight are indicative of a market tying itself up in knots over the next big move for energy. Overnight, rumours circulated that President Biden would release more oil from the SPR, that Washington DC was considering a windfall tax on oil companies, that Federal fuel tax would be cut, and it was announced the President would visit Saudi Arabia. All of that was likely enough for the hit money to sell oil, but offsetting that is the chronic refinery capacity limits holding up diesel and gasoline prices globally, news that OPEC was missing its production targets by 176,000 bpd, and a spike in European natural gas prices. Overall, the supply/demand situation remains supply-constrained, and I can’t see that reality changing until the world economy slows sharply.

In Asia, prices are barely moved, no surprise when one looks at the overnight ranges. Brent is trading at $121.25, and WTI is trading at 119.05 a barrel. Unless you are a day trader with deep pockets and nerves of steel, getting involved ahead of the FOMC is likely a fool’s errand. The overnight low/highs for Brent crude at $119.00 and $125.00 are now immediate support/resistance. WTI’s range of $116.70 to $123.70 a barrel also marks support/resistance.

Gold continues to underperform

Gold eased lower once again overnight as the US Dollar maintained strength and US yields moved higher. Gold finished 0.60% lower at $1808.50 an ounce as the tears of gold bugs washes away its one-month gains. In Asia, a slightly lower US Dollar and rallying US bond futures have lifted the yellow metal slightly higher, gold gaining 0.30% to $1813.80 an ounce. Like everything else, its next directional move is going to be dictated by the FOMC meeting and statement tonight, and we can expect messy trading until then.

That said, the inverse correlation to the US Dollar has proved as strong as ever it seems and the technical picture for gold has turned murky. Only a sharp US Dollar correction lower is likely to alleviate selling pressure on gold. But a very hawkish FOMC tonight likely sees gold wave goodbye to its $1800 handle.

Gold has resistance at $1840.00 and $1880.00, the latter appearing an insurmountable obstacle for now. Support is nearby at $1805.00 and then $1780.00 an ounce. Failure of the latter sets in motion a much deeper correction.

Daily Pivots: (S1) 1.2890; (P) 1.2932; (R1) 1.2999; More...

Intraday bias in USD/CAD remains on the upside for 1.3075 resistance. Firm break there will resume medium term rally and sustained trading above 1.3022 fibonacci level will carry larger bullish implications. Next target is 100% projection of 1.2005 to 1.2947 from 1.2401 at 1.3343. On the downside, below 1.2865 minor support will delay the bullish case and turn bias neutral first.

In the bigger picture, focus stays on 38.2% retracement of 1.4667 (2020 high) to 1.2005 (2021 low) at 1.3022. Sustained break there should confirm that the down trend from 1.4667 has completed after defending 1.2061 long term cluster support. Further rise would then be seen towards 61.8% retracement at 1.3650. However, rejection by 1.3022 will maintain medium term bearishness.

The forex markets are steady in tight range in Asia, while Dollar remains the strongest one for the week. Main focus today is on whether Fed would deliver a 75bps hike as markets fully priced in, or stick to its "original plan" of 50bps hike per meeting. Yen is staying as the second strongest on risk aversion while Euro is third. Sterling remains the worst performing, followed by other commodity currencies.

Technically, it should be pointed out that Dollar has yet to take out near term resistance level against most major currencies. The levels include 1.0348 in EUR/USD, 0.6828 support in AUD/USD, 1.0063 resistance in USD/CHF and 1.3075 resistance in USD/CAD. These are the levels for the greenback to overcome.

In Asia, at the time of writing, Nikkei is down -0.83%. Hong Kong HSI is up 1.42%. Chinas Shanghai SSE is up 1.41%. Singapore Strait Times is up 0.62%. Japan 10-year JGB yield is up 0.019 at 0.275, after touching 0.3 briefly. Overnight, DOW dropped -0.50%. S&P 500 dropped -0.38%. NASDAQ rose 0.18%. 10-year yield rose 0.117 to 3.483.

Australia Westpac consumer sentiment dropped to 86.5, on inflation and interest rate

Australia Westpac Consumer Sentiment dropped from 90.4 to 86.5 in June. Over the 46-year history of the survey, the reading was only at or below this level during "major economic dislocations", including during COVID-19, the Global Financial Crisis, early 90s recession, mid-80s slowdown and early 80s recession.

Westpac said: "The survey detail shows a clear picture of a slump in sentiment being driven by rising inflation; an associated lift in interest rates; and a loss of confidence around the economic outlook, both here and abroad."

Regarding RBA policy, Westpac expects another 50bps rate hike in July, as the central bank needs to move quickly in the early stages in a tightening cycle when interest rates are clearly below neutral and risk of over-tightening is moderate.

China industrial production rose 0.7% yoy in May, retail sales down -6.7% yoy

China industrial production rose 0.7% yoy in May, much better than expectation of -1.0% yoy decline. Retail sales dropped -6.7% yoy, above expectation of -7.3% yoy. Fixed asset investment rose 6.2% ytd yoy, above expectation of 6.0%.

The National Bureau of Statistics said the economy "showed a good momentum of recovery" in the month, "with negative effects from Covid-19 pandemic gradually overcome and major indicators improved marginally."

Still, it warned, "we must be aware that the international environment is to be even more complicated and grim, and the domestic economy is still facing difficulties and challenges for recovery."

Fed to hike by 75bps? 10-year yield heading to 4%?

FOMC rate decision is the major focus today. Just before last Friday, markets have well received Fed's communication on the 50bps hike per meeting "plan". But it's another world now after data showed CPI inflation reaccelerated in May. Fed fund futures are pricing in near 100% change of a 75bps rate hike at this meeting. The question now is what Fed is going to deliver.

The new economic projections will also be closely watched too. The stubborn inflation reading should be reflected in the new forecasts, as well as it's impact on growth and employment. More importantly, the dot plot will again catch most attention. Back in March, only 7 of 16 FOMC member penciled in interest rate above 2% by the end of 2022. The balance would likely shift further to the hawks' side. But by how far?

Some suggested readings on FOMC:

• Fed Policy Meeting: Switching to Sharper Rate Hikes?
• FOMC Meeting Preview – The Meeting the World is Watching
• Heads Up: Brace for a Hawkish FOMC Meeting
• Markets Jumped the Gun, Expecting Hawkish Fed Tomorrow
• FOMC Preview: Could the Committee Hike 75bps?

The strong rally, with acceleration in 10-year yield this week is a big surprise. 2018 high at 3.248 was taken out with ease and it's now close to 161.8% projection of 0.398 to 1.765 from 1.343 at 3.554. Break of 3.167 resistance turned support is needed to signal short term topping, or any retreat should be relatively brief. Sustained break of 3.554 will pave the way to 200% projection at 4.077, which is close to 4% handle.

Looking ahead

Swiss PPI and SECO economic forecasts will be released in European session. Eurozone will release trade balance and industrial production.

US will release retail sales, Empire State manufacturing index, import price business inventories and NAHB housing index. But major focus is on FOMC rate decision and economic projections.

USD/CAD Daily Outlook

Daily Pivots: (S1) 1.2890; (P) 1.2932; (R1) 1.2999; More...

Intraday bias in USD/CAD remains on the upside for 1.3075 resistance. Firm break there will resume medium term rally and sustained trading above 1.3022 fibonacci level will carry larger bullish implications. Next target is 100% projection of 1.2005 to 1.2947 from 1.2401 at 1.3343. On the downside, below 1.2865 minor support will delay the bullish case and turn bias neutral first.

In the bigger picture, focus stays on 38.2% retracement of 1.4667 (2020 high) to 1.2005 (2021 low) at 1.3022. Sustained break there should confirm that the down trend from 1.4667 has completed after defending 1.2061 long term cluster support. Further rise would then be seen towards 61.8% retracement at 1.3650. However, rejection by 1.3022 will maintain medium term bearishness.

Economic Indicators Update