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The Reserve Bank of Australia delivered a hawkish surprise momentarily undervalued by the markets. The RBA raised the rate to 0.85%, immediately 50 points after a 0.25% hike last month and expectations for a repeat this time.

A big hike to curb inflation was backed by fast price growth by strong demand for Australian export. And it was just a repeat of such hikes in other advanced economies, including New Zealand.

The stronger-than-expected rate hike caused a legitimate initial surge of 0.8% in the first minute. But surprisingly, this move proved unsustainable, and the AUDUSD soon dipped below levels before the decision’s release.

From the chart, it is easy to see the sustained pressure on the Aussie for the third day after touching the 200-day average. This line was also a significant obstacle in early May, immediately after the reaction to the first policy tightening.

Nevertheless, looking at the prospects for Australia from a fundamental analysis perspective makes it doubtful that a bearish success in the Aussie would be anything more than a local victory. The tone of the RBA comments suggests that we could see a repeat of today’s move in another month. Since the RBA meets 11 times a year, rather than 7–8 or 4 as in many developed countries, the pace of policy tightening is greater than that of the competition.

It is worth noting that the Australian monetary authority has more room to raise rates. Record commodity prices support economic activity (GDP added 0.8% QoQ and 3.3% YoY in Q1) and spur currency inflows into the country, increasing the room for manoeuvre for the central bank.

Today we see a repeat of the pattern as the currency market reacted to the sharp rate hike in New Zealand. However, by zeroing in on its initial momentum, the NZDUSD strengthened by more than 2% in the subsequent five trading sessions, and the chances are high that the AUDUSD will repeat this pattern.

Furthermore, it is also worth bearing in mind that we are in a world where not every central bank can raise its rate by 50 points several times in a row without risking a recession. So, the Aussie might perform “above the market” in the medium term, naturally gaining on most competitors aside from the NZD and USD.

The Canadian employment report is due on Friday at 15:30 GMT, and it is anticipated that the labor market continued to expand in May. At its June 1 meeting, the Bank of Canada (BoC) became more hawkish, signalling that it may have to be cautious to combat inflation, in part due to the robust labor market.

Unemployment rate is anticipated to be steady

In accordance with market predictions, the jobless rate in Canada decreased to 5.2% and is predicted to remain the same in May. It was the lowest rate ever recorded, extending the labor market's remarkable rebound from the Covid-19 pandemic. The employment change is expected to add 30.0K workers from 15.3K before, confirming the labour market's expansion. A positive report would help the Canadian dollar to rise in the face of falling oil prices. Though thus far, OPEC's agreement to pump additional petroleum to compensate for diminished Russian supply has only resulted in a moderate decline in oil futures prices.

BoC raises rates by 50 bps

The Bank of Canada lifted the target for its overnight rate by 50 basis points to 1.5% during the June meeting, in line with market forecasts, and suggested that it will increase rates further at its next decision in order to combat increasing inflation. It was the third consecutive rate increase of equal magnitude to that of the Bank's previous meeting, increasing borrowing prices to their highest level since the beginning of the pandemic. Additionally, the central bank said that it will continue quantitative tightening measures, thereby extending the process of balance sheet reduction. The Bank indicated that it sees more chances that the elevated inflation would stay entrenched, given the economy's excessive demand, in addition to upside risks stemming from the unpredictability of the Ukraine conflict. Inflation in Canada surged to 6.8% annually in April, significantly over the BoC’s estimate 2%, and is anticipated to rise further in the near future before declining.

Dollar/loonie appears neutral to bearish

If the employment report shows higher jobs growth and a lower unemployment rate, it might push dollar/loonie towards the 1.2450 support level ahead of the 1.2400 psychological number. Underneath these obstacles, the price could move towards the 1.2285 support, taken from the trough of October 2021.

A worse-than-expected jobs report could encourage the bulls to break to the upside of the 200-day simple moving average (SMA), which currently stands near 1.2657, meeting the 1.2710 resistance. If buying interest persists, then the market could meet the 20- and 40-day SMA at 1.2760, which are currently ready for a bearish crossover.

Metals are coming down as US yields rally and causing some support for the USD. We see gold coming back below 1844 after it stopped at the upper side of a range last week so it appears that this is a sideways consolidation, possibly a flat in wave B. In flats, you will see that the pair can find some support near wave A level, which in our case comes in around 1828. Ideally, we will see a new bounce from that area this week when DXY may turn down again.

On DXY we see five waves down and three waves up, so resistance may not be far away.

The USDJPY continues to trend higher and posted new 2022 high at 133.00 in early Tuesday, following break and close above previous yearly peak on Monday.

Weak Japan’s household spending data signaled that rising costs hit consumers more than expected, contributing to fresh yen’s weakness, along with comments from top officials which add to expectations that the Bank of Japan is unlikely to change its ultra-loose monetary policy in the short term.

The action on daily chart shows that larger uptrend resumes after correction, as technical studies remain in full bullish setup.

Bulls now eye 2002 peak at 135.16, with obstacles en-route standing at 133.24 and 134.41 (Fibo 138.2% and 161.8% projection of the upleg from 126.36 (May 24 low).

Former top at 131.34 now reverted to solid support which should keep the downside protected.

Res: 133.24; 133.83; 134.41; 135.16.
Sup: 131.85; 131.34; 130.43; 130.00.

The Australian dollar rose in early trading after the Reserve Bank of Australia (RBA) delivered its second back-to-back rate hike this year. The bank decided to increase interest rates by 25 basis points and signaled that it will deliver more hikes later this year in a bid to fight inflation. It signaled that inflation would keep rising because of the ongoing crisis in Ukraine and rising oil prices. Recent data showed that the country’s inflation jumped to more than 5% in the first quarter of the year. However, the unemployment rate dropped to the lowest level in years. The RBA joins other central banks like the Fed and BOE in implementing more rate hikes.

American stocks jumped on Monday as investors continued to assess the rising inflation and the potential for high interest rates by the Federal Reserve. The Dow Jones rose by more than 200 points while the Nasdaq 100 jumped by over 1%. Amazon was the top moving stock after the company implemented a 20-to1 stock split. Another top mover was DiDi, the Chinese ride-hailing company, whose shares jumped by over 50% as regulators ease curbs on its business. Meanwhile, Twitter shares declined after worries about Elon Musk’s decision to acquire the company emerged. Through his lawyer, Musk said that Twitter had withheld important information.

The British pound rose slightly after Boris Johnson survived a no-confidence vote in Parliament. Proponents of the vote failed to garner enough supporters to impeach the prime-minister. He was being impeached for holding parties in 2020, when most of the country was in a lockdown. Analysts believe that the pound rose since the impeachment vote removed uncertainty in the UK. Later today, the pound will react to the latest UK PMI data. Analysts expect that the services PMI dropped to 51.8 in May while the composite PMI fell slightly in May.

EURUSD

The EURUSD pair has struggled in the past days. The pair dropped to 1.0693, which is below the important resistance level at 1.0764, the lowest level last week. It has moved slightly below the 25-day moving average. It formed a head and shoulders pattern while the Relative Strength Index (RSI) has been falling. The Stochastic Oscillator has moved to the neutral point. Therefore, there is a likelihood that the pair will keep falling ahead of the ECB decision.

XAUUSD

The XAUUSD pair declined to a low of 1,842, which was the lowest level since June 3. It has fallen from last week’s high of 1,872, which was the highest level last week. The RSI has moved below the neutral point at 50. It also moved slightly below the neutral point of the Bollinger Bands while the Stochastic Oscillator is slightly above the oversold level. The pair will likely keep falling to the next key support at 1,830.

NZDUSD

The NZDUSD pair declined slightly as the dollar strength continued. It is trading at 0.6487, which is lower than last week’s high of 0.6582. It has moved slightly between the 50% and 38.2% Fibonacci retracement level. At the same time, the MACD and the Relative Vigor Index have moved lower. The pair will likely continue falling as bears target the key support at 0.6400.

UK PMI Services was finalized at 53.4 in May, down from April's 58.9. That's the weakest level since February 2021. PMI Composite was finalized at 53.1, down from April's 58.2. S&P Global added that business activity expansions eased for the second month running. Input cost and prices charged inflation hit fresh record highs. Growth projections were lowest since October 2020.

Tim Moore, Economics Director at S&P Global Market Intelligence: "May data illustrate a worrying combination of slower growth and higher prices across the UK service sector. The latest round of input cost inflation was the steepest since this index began in July 1996, while the monthly loss of momentum for business activity expansion was a survey-record outside of lockdown periods."

Full release here.

Eurozone Sentix Investor Confidence rose from -22.6 to -15.8 in June, above expectation of -20.0. Current Situation Index rose from -10.5 to -7.3. Expectations Index rose from -34.0 to -24.0.

Sentix said, "the real economy is not suffering as quickly and as severely from phenomena such as rising inflation and supply chain problems as one might have suspected.

"While consumers are already suffering much more from rising prices, many companies are still benefiting from inflation-related pull-forward effects. So far, many companies have also been able to pass on their sharply rising costs to their customers.

"But this is likely to be a finite phase. At a certain point, end consumers will have to cut back. Then, at the latest, the ability of companies to pass on their costs without restriction will also come to an end. In addition, there is a foresee-able change in monetary policy, which could also become more restrictive in the Eurozone from July.

"On the other hand, it should be positive that according to the sentix topic barometer the inflation peak should have been passed for the time being."

Full release here.

We expect the Board will decide on another 50 basis point increase in July. By front loading the moves it can firmly establish its inflation fighting commitment. The cash rate is then likely to move in 25 basis point increments with a pause as the Board moves above neutral to a peak in February of 235 basis points.

The RBA Board decided to raise the cash rate by 50 basis points at its June Board meeting.

This bold decision came as quite a surprise to many analysts. Even the decidedly bearish market was priced for a more modest move.

In our latest preview on June 3, we noted that “The arguments set out above would also be consistent with a 50 basis point move. However, given that the Board actively considered 40 basis points at the May meeting we think it more likely that the 40 basis point option will be taken.”

The key observation in the Governor’s statement was, “Inflation… is higher than earlier expected. Global factors account for much of the increase. But domestic factors are playing a role too, with capacity constraints in some sectors and the tight labour market contributing to upward pressure on prices.”

This statement clearly signals that the Bank now recognises that it has a significant challenge to contain inflation and today’s decision points to it now being prepared to act decisively.

For that reason, we expect that the next move in July will also be a 50 basis point increase.

That would push the cash rate to 135 basis points. Having eliminated the emergency policy settings of 2020 at today’s meeting the next move would be to take back the 75 basis points of cuts we saw in 2019 when the Bank was frustrated at the consistently low inflation prints. Recall that the cash rate entered 2019 at 1.5%.

A slowdown in the pace of hikes in August can be expected but a response will still be necessary to the likely upside surprise on inflation for the June quarter with a further 25 basis point move required.

With the cash rate having reached 160 basis points by August it will be prudent for the Bank to pause. Our analysis of the leverage in household balance sheets points to a cash rate of around 160 basis points being “in the neighbourhood” of neutral – better to pause at that point to assess the impact on household consumption; house prices; the labour market; consumer and business confidence; and the response of wages growth to these inflation pressures.

We expect further increases of 25 basis points will be required in November and December in response to another disturbing inflation print for the September quarter. 2022 would end with a cash rate of 2.1% - a policy stance that we would assess as in the contractionary zone.

Readers will be aware that we expect that the FOMC will have paused following its December rate move and the RBA is likely to take some guidance from that decision. We expect that the 25 basis point increase from the RBA in February will be the last in this tightening cycle with the terminal rate settling at 2.35%.

That terminal rate is only slightly higher than the 2.25% terminal rate we forecast following the May Board meeting.

Even though the RBA’s forecasts and our own forecasts point to a larger inflation task than expected in May the decision to front end load the hikes (we only expected one hike of 40 basis points in June to be followed by 25’s) will prove to be much more effective in meeting the inflation challenge by signalling clearly to economic agents that the RBA is very serious about its role in returning inflation to within the band by 2024.

Containing inflationary expectations must be the most urgent task of a central bank.

That final paragraph now rings quite clearly that “The Board is committed to doing what is necessary to ensure that inflation in Australia returns to target over time.”

Bitcoin rose 4.9% on Monday, ending at around $31.5K. However, on Tuesday morning, the first cryptocurrency collapsed 7% to $29.5K, the second such bear attack in the past seven days. Both were of similar magnitude, but the latter should have a more considerable negative effect. It more than offset Monday’s gains and temporarily brought the price back to levels from May 30.

The BTCUSD consolidation has been going on for more than a month. Earlier it was formed as a triangle with decreasing amplitude of fluctuations, but since the end of last month, it became more like a sideways pattern, from which it makes several failed attempts to break upwards.

The market dynamics this Tuesday morning are a reminder that the market cannot now rally again as it did in 2020. Bitcoin’s prolonged sideways slide is turning current prices into the norm, although current levels seemed like a good buy for the long term two months ago. 2018 and 2019 teach us that such consolidations can last for months and often lead to new selloffs from frustrated fast earners.

In our view, the bitcoin bear market is not over yet, although it has made a significant part of its way down. The market is full of rumours that short-term buyers have already capitulated, backed up by Kathy Wood. But the whole bear market rarely ends at this phase. Far more often, a bull market begins when medium-term investors and even some long-term investors capitulate, bringing stressed market professionals into play. It is unlikely to reach this point before the price returns to the highs of 2017.

Bitcoin’s short-term volatility is irrelevant, MicroStrategy CEO Michael Saylor said. He said BTC is the surest thing in a very volatile world and is more suited to long-term investment rather than trading.

According to a survey by The Economist, 37% of respondents in the world’s leading economies are interested in having their governments adopt cryptocurrencies as legal tender.

EURJPY has the potential to repeat last week’s exciting bull run, executing another acceleration to a new 7½-year high of 142.00 early on Tuesday.

Having already charted eight consecutive green days and three months of gains, some depreciation would be normal in the coming sessions, especially as the RSI and the fast-Stochastics smoothly sail in the overbought territory. With the price having closed marginally above the upper Bollinger band over the past three days, the odds for a downside correction are growing larger. Nevertheless, given the persisting positive momentum in the MACD and the upward slope in the RSI, which is just entering the overbought zone and has yet to reach its former resistance zone, there might be some room for improvement before the next bearish round takes place.

Advancing above the 142.00 psychological level, the bulls may initially take a breather around the 143.30 barrier taken from November 2014. A steeper increase could get congested within the 144.50 – 145.00 restrictive zone, where the 161.8% Fibonacci extension of the April- May downfall is placed. Notably, a resistance line drawn from February's peak is passing through this area too.

If sellers take immediate control, the pair may look for a rebound near 140.00, where April’s ascend almost topped. Slightly lower, the 139.10 – 138.62 tight region, which encapsulates the constraining red Tenkan-sen line, could next come to the rescue, preventing an outlook deterioration towards the short-term support trendline and the 20- and 50-day simple moving averages (SMAs) seen at 136.50 - 137.00.

In brief, EURJPY is trading overbought in the short-term picture and its nonstop bullish momentum could motivate some profit-taking in the near term. But before that happens, the pair may print another higher high.