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• US Dollar Index grinds near the lowest levels in three weeks after snapping two-day winning streak.
• US inflation data bolsters market’s bets on Fed’s status quo and weigh on the DXY despite upbeat yields.
• Cautious mood ahead of the FOMC announcements put a floor under the US Dollar price.
• Expectations of witnessing a hawkish halt from US central bank highlight qualitative updates from the Fed.

US Dollar Index (DXY) steadies above 103.00, after bouncing off a three-week low, as markets brace for the Federal Reserve (Fed) announcements on Wednesday. The greenback’s gauge versus six major currencies slumped the most in a week, to the lowest levels since May 22, after the US inflation data fuelled speculations of the US central bank’s halt to the rate hike trajectory present in the last 10 monetary policy meetings.

As per the latest US inflation data for May, the headline Consumer Price Index (CPI) drops more-than-expected and prior releases to 0.1% MoM and 4.0% YoY. However, the Core CPI, known as the CPI ex Food & Energy, matches 0.4% monthly and 5.3% yearly forecasts. It’s worth noting that the US headline CPI dropped to the lowest since March 2021 and hence justifies the market’s expectations of the US Federal Reserve (Fed) hawkish halt, which in turn should have weighed on the US Dollar.

Following the data, the CME’s FedWatch Tool suggests more than a 90% chance of the US Federal Reserve’s (Fed) no rate hike during today’s monetary policy meeting, versus around 75% chance before that.

It’s worth noting, however, that the ex-Fed Officials have been pushing for a hawkish halt to the rate hikes and prods the DXY bears. On Tuesday, Former Dallas Federal Reserve Bank (Fed) President Robert Kaplan said that he would support a "hawkish pause" at this week's meeting while also adding that he would “leave the question of a July hike open.” Previously, Ex-Boston Fed President Eric Rosengren tweeted, “Expect a hawkish skip this week.”

As a result, Wall Street benchmarks rose for the second consecutive day but the US Treasury bond yields remain firmer. That said, the US 10-year Treasury bond yields rose to a 13-day high of 3.83% whereas the two-year counterpart poked the highest levels in three months with 4.70% mark before easing to 4.67% in the last hours.

Looking ahead, the pre-Fed sentiment may prod the DXY, as well as allow the greenback’s gauge to pare recent losses. However, the traders will pay attention to the US central bank’s economic forecasts, dot-plot and Chairman Jerome Powell’s press conference for clear directions afterward, as the rate hike pause is almost given.

Technical analysis

A clear bounce off the 100-DMA, around 103.00 by the press time, keeps the US Dollar Index buyers hopeful. The recovery moves, however, need validation from the 21-DMA hurdle of 103.75 to convince the DXY bulls.

• GBP/USD retreats from the highest levels in five weeks as UK monthly data dump, Fed decision loom.
• Overbought RSI, failure to cross fortnight-old resistance line and Doji candlestick challenge the Cable buyers.
• Golden Fibonacci ratio, 200-SMA and bullish MACD signals put a floor under the Pound Sterling prices.

GBP/USD fades upside momentum at a multi-day high on the key day comprising the US Federal Reserve (Fed) verdict and the monthly UK data dump. That said, the Cable pair remains dicey near 1.2600 after rising the most in a week to prod the highest level since May 11 the previous day. Apart from the pre-data/event anxiety, the Pound Sterling also justifies the technical clues to tease the sellers on important data.

That said, overbought RSI conditions and an ascending resistance line from June 01, around 1.2615 by the press time, are the first-tier challenges for the GBP/USD bulls. Also restricting the Cable pair’s upside is the Doji candlestick on the four-hour play marked at the multi-day high, suggesting a pullback in prices.

Hence, the quote is likely to consolidate the latest gains, which in turn highlights the 61.8% Fibonacci retracement level of its May month fall, around 1.2535. It’s worth noting that the said technical level is also known as the golden Fibonacci ratio.

In a case where the GBP/USD drops below the said key Fibonacci support, it can fall to the 50% Fibonacci retracement near the 1.2500 round figure.

It should be noted, however, that the bullish MACD may join the 200-SMA level of 1.2485 to challenge the Cable bears afterward.

On the contrary, a clear upside past the latest peak of near 1.2625 could defy the bearish bias and propel the GBP/USD price towards challenging the previous monthly high of around 1.2680.

GBP/USD: Four-hour chart

Trend: Limited downside expected

• Silver falls past the $23.88/80 confluence of the 50 and 20-day EMAs.
• Further losses could be seen if Silver breaks below the 100-day EMA at $23.52, with the next target being the June 8 low of $23.41.
• On the upside, a break above $23.90 could pave the way toward the $24.00 level.

Silver price extended its losses past the confluence of the 20 and 50-day Exponential Moving Averages(EMAs) as higher US Treasury bond yields sparked a sell-off of the white metal. XAG/USD’s sellers targeted the 100-day EMA at $23.52 but could not achieve their goal. The XAG/USD trades at $23.68.

XAG/USD Price Analysis: Technical outlook

Silver tumbled below the $23.88/80 confluence of the 50 and 20-day EMAs, extending its losses past an upslope support trendline drawn since the beginning of June. Even though XAG/USD remains in consolidation, a drop below the 100-day EMA at $23.52 will send the white metal tumbling toward the June 8 low of $23.41 before challenging the $23.00 mark.

In that outcome, the XAG/USD’s next support would be the important 200-day EMA at $22.92, which, once cleared, would pave the way for additional losses.

For a bullish continuation, XAG/USD buyers must reclaim $23.90, so they can threaten to break $24.00. A breach of the latter will expose Silver to further buying pressure. XAG/USD can rally towards the next resistance at April 25 low-turned resistance at $24.49 before challenging $25.00.

XAG/USD Price Action – Daily chart

• AUD/USD seesaws around the highest level in five weeks, prods four-day uptrend.
• US inflation underpins hopes of Fed’s inaction but doves are unconvinced and challenge the optimists, as well as AUD/USD bulls.
• Mixed sentiment about China, RBA also check the Aussie pair buyers at multi-day peak.
• Light calendar at home allows cautious mood to stop buyers; Fed’s economic forecasts, dot-plot and Powell’s Speech eyed.

AUD/USD portrays the typical pre-Fed anxiety as it dribbles around 0.6770 amid the early hours of Wednesday, after refreshing the monthly high the previous day. That said, the Aussie pair cheered downbeat prints of the US inflation data, as well as the firmer sentiment the previous day, to refresh the five-week high before retreating from 0.6806. However, the market’s expectations that the Fed hawks won’t easily leave the table challenge the Aussie pair buyers of late.

The latest US inflation data came in mixed for May and weighed on the US Dollar, following the initial corrective bounce. That said, the headline Consumer Price Index (CPI) drops more-than-expected and prior releases to 0.1% MoM and 4.0% YoY. However, the Core CPI, known as the CPI ex Food & Energy, matches 0.4% monthly and 5.3% yearly forecasts. It’s worth noting that the US headline CPI dropped to the lowest since March 2021 and hence justifies the market’s expectations of the US Federal Reserve (Fed) hawkish halt, which in turn should have weighed on the US Dollar and allow the AUD/USD to grind higher.

That said, the CME’s FedWatch Tool suggests more than 70% chance of the US Federal Reserve’s (Fed) no rate hike during today’s monetary policy meeting. With this, the US Dollar Index (DXY) dropped to the lowest levels in three weeks, taking the Gold Price down with it, before bouncing off 103.05.

Apart from the US inflation and Fed concerns, the People’s Bank of China’s (PBoC) rate cut also allowed the AUD/USD buyers to remain happy, due to the Aussie-China ties. In doing so, the pair traders ignored mixed data at home, as well as fears that the Reserve Bank of Australia (RBA) has limited scope to fuel the rates further towards the north.

While portraying the mood, Wall Street cheered downbeat US inflation and hopes of no rate hike from the Fed but the US Treasury bond yields remain firmer. That said, the US 10-year Treasury bond yields rose to a 13-day high of 3.83% whereas the two-year counterpart poked the highest levels in three months with 4.70% mark before easing to 4.67% in the last hours.

Looking ahead, the recently firmer yields join the downbeat US inflation to prod the AUD/USD bulls. Hence, even if the Fed’s status quo is almost given, the pair traders will pay attention to the US central bank’s economic forecasts, dot-plot and Chairman Jerome Powell’s press conference for clear directions.

Technical analysis

Despite the latest retreat, the AUD/USD pair remains well beyond the 200-day Exponential Moving Average (EMA) and the previous resistance line from mid-February, respectively near 0.6755 and 0.6730, which in turn keeps the buyers hopeful.

• NZD/USD is trading at 0.6154, showing minimal gains of 0.11%.
• Key support levels are April 26 low at 0.6111, the June 8 low of 0.6032, and the year-to-date (YTD) low at 0.5985.
• Bullish signs are apparent in oscillators, yet they suggest a mixed bias due to a slightly above-midline RSI and falling three-day RoC.

NZD/USD is still consolidated despite breaching previous resistance at the 20-day Exponential Moving Average (EMA) at 0.6125. However, failure to clear the 50-day EMA at 0.6167, the NZD/USD pair trimmed some of its gains, registering a gain of 0.43%. As the Asian session commences, the NZD/USD trades at 0.6154, reporting minimal gains of 0.11%.

NZD/USD Price Analysis: Technical outlook

The NZD/USD is neutral to a downward bias, albeit breaking a downslope resistance trendline that intersects with the 50-day EMA. For the NZD/USD to shift the bias to neutral, buyers must reclaim the May 12 swing low-turned resistance at 0.6182 before the NZD/USD could challenge the 0.62 handle. On the other hand, to resume its bearish bias, the NZD/USD needs to drop below the 20-day EMA at 0.6124 for the pair to extend its losses.

In the outcome of the latter scenario, the next support would be April 26, low at 0.6111. A break below that area and the NZD/USD would surpass the next support at 0.6100 as the pair continues to test the June 8 low of 0.6032. Once cleared, the year-to-date (YTD) low would be up for grabs at 0.5985.

From an oscillator point of view, bullish signals are emerging but are still in the early stages of a shift to a neutral bias. The Relative Strength Index (RSI) is slightly above 50-midline; while the three-day Rate of Change (RoC) portrays buyers are losing momentum. Hence, the bias is mixed.

NZD/USD Price Action – Daily chart

• Gold Price stays depressed within fortnight-long symmetrical triangle, pressured after three-day losing streak.
• United States inflation cements market’s expectations of no Federal Reserve rate hike but hawkish dot-plot, weighs on XAU/USD.
• Mixed headlines surrounding China, firmer US Treasury bond yields add strength to bearish bias about the Gold Price.
• Surprise Fed moves will be dealt with heavy XAU/USD volatility, which needs caution on trader’s side.

Gold Price (XAU/USD) remains on the back foot around the lowest level in a week, challenging the bearish breakdown of the trend continuation chart pattern, suggesting further downside of the XAU/USD. That said, the Gold Price holds lower grounds near $1,943 amid early Wednesday morning in Asia. It should be noted that the precious metal’s latest weakness pays little heed to the downbeat United States (US) inflation readings while appearing closely (inversely) linked to the firmer US Treasury bond yields.

Gold Price drops despite softer United States inflation

Gold Price teases the technical breakdown of a short-term symmetrical triangle, signaling further downside of the XAU/USD, even as the US inflation numbers match market forecasts. The reason could be linked to the upbeat US Treasury bond yields and China-related news.

On Tuesday, the US inflation data came in mixed for May but managed to please the US Dollar buyers. That said, the headline Consumer Price Index (CPI) drops more-than-expected and prior releases to 0.1% MoM and 4.0% YoY. However, the Core CPI, known as the CPI ex Food & Energy, matches 0.4% monthly and 5.3% yearly forecasts. It’s worth noting that the US headline CPI dropped to the lowest since March 2021 and hence justifies the market’s expectations of the US Federal Reserve (Fed) hawkish halt, which in turn should weigh on the US Dollar and allow the Gold Price to grind higher.

That said, the CME’s FedWatch Tool suggests more than 70% chance of the US Federal Reserve’s (Fed) no rate hike during today’s monetary policy meeting. With this, the US Dollar Index (DXY) dropped to the lowest levels in three weeks, taking the Gold Price down with it, before bouncing off 103.05.

China-linked news, Treasury bond yields also weigh on XAU/USD

While the US Dollar dropped on downbeat United States inflation but couldn’t impress the Gold Price buyers, the reason could be linked to the mixed catalysts surrounding China and the upbeat Treasury yields, as well as the pre-Fed positioning.

People’s Bank of China (PBoC) cuts the Repo Rate to 1.9% from 2.0% and confirms the previous fears suggesting slower economic growth in the world’s biggest industrial player. With this in mind, Bloomberg said, “China’s central bank cut a short-term policy interest rate, easing its monetary stance to help aid the economy’s recovery.”

Elsewhere, the latest fears of the stiff US-China tension also should have weighed on the Gold Price. On Monday, the US expands its ban on imports from Xinjiang. China vows to protect China firms against any US sanctions, per Reuters. Following that, Bloomberg released prepared remarks of US Treasury Secretary Janet Yellen’s scheduled Testimony in front of the House Financial Services Committee as she said that the International Monetary Fund (IMF) and the World Bank (WB) serve as important counterweights to non-transparent, unsustainable lending from others, like China.

Amid these plays, Wall Street cheered downbeat US inflation and hopes of no rate hike from the Fed but the US Treasury bond yields remain firmer. That said, the US 10-year Treasury bond yields rose to a 13-day high of 3.83% whereas the two-year counterpart poked the highest levels in three months with 4.70% mark before easing to 4.67% in the last hours. With this, the market’s demand for bonds and risk-on seemed to have weighed on the Gold Price. However, it all depends upon the Federal Reserve (Fed) for a clear direction.

Federal Reserve’s move is crucial for the Gold Price

Although the recently firmer yields join the downbeat US inflation to weigh on the Gold Price, the XAU/USD move appears unconvincing amid the softer US Dollar. Hence, even if the Fed’s status quo is almost given, the Gold traders will pay attention to the US central bank’s economic forecasts, dot-plot and Chairman Jerome Powell’s press conference for clear directions. The same can keep the Gold bears on the board in case of a hawkish halt, which is more likely.

Also read: Gold Price Forecast: XAU/USD bearish as US CPI fuels optimism

Gold Price technical analysis

Gold Price remains on the back foot as it prods the bottom line of a two-week-old symmetrical triangle.

That said, the below 50.0 level of the Relative Strength Index (RSI) placed at 14, suggests bottom-picking of the XAU/USD from the triangle’s lower line, around $1,942 at the latest.

The following recovery, however, remains elusive unless the Gold Price remains below the stated trend-continuation chart pattern’s top, close to $1,969 by the press time.

Even if the quote Gold Price crosses the $1,969 hurdle, the 200-SMA and a three-week-old horizontal resistance zone, near $1,983-85, will be a tough nut to crack for the bulls before taking control. Also acting as an upside filter is the $2,000, a break of which will welcome the XAU/USD buyers with open hands and a pass to prod the $2,050 hurdle.

On the flip side, the XAU/USD’s break of the triangle’s support of near $1,942 can quickly challenge the yearly low marked in May around $1,932.

Following that, the 61.8% Fibonacci Expansion (FE) of its May 10 to June 02 moves, near $1,910, will precede the $1,900 round figure to act as the final defenses of the Gold buyers.

Overall, stronger resistance on the top and a likely hawkish Fed rate halt keep the Gold sellers hopeful.

Gold Price: Four-hour chart

Trend: Further weakness expected

• USD/CAD W-formation is compelling although bears stay in control. 
• The key support area is in focus guarding deeper to 1.3000. 

The Canadian dollar hit a four-month high against its US counterpart on Tuesday on bolstered bets for a pause in the Federal Reserve's interest rate hiking cycle. Us inflation on Tuesday was the catalyst along with the oil price. This all follows the Bank of Canada last week that raised its benchmark interest rate for the first time since January, tightening by 25 basis points to 4.75%.

The bears are in control as follows:

USD/CAD weekly chart

USD/CAD's weekly chart is showing that the M-formation's neckline is vulnerable to a test in the coming weeks. So far, the bears remaining control but they are headed into a key area of potential support. A significant break of 1.3262, however, will open the risk of a deeper move towards 1.3000. 

• AUD/JPY is currently trading in the 94.80s, having hit a YTD high of 95.05
• On the upside, the AUD/JPY October 21 high at 95.74 and September 20 high at 96.54 serve as key resistance points.
• On the downside, if AUD/JPY falls below 94.00 would open the way toward the December 13 high at 93.35 and the Tenkan-Sen line at 93.08.

AUD/JPY rallies past the previous year-to-date (YTD) high of 94.41 and pierces the 95.00 figure to reach a new YTD high, though retraced somewhat, meandering at around 94.80s, after hitting a low of 93.97.

AUD/JPY Price Analysis: Technical outlook

AUD/JPY is set to extend its uptrend after printing a new year-to-date (YTD) high at 95.05. However, oscillators like the Relative Strength Index (RSI) indicator portray the AUD/JPY as overbought. Of note, the AUD/JPY might consolidate above the November 16 high at 94.65 and the 95.00 figure, ahead of the Federal Reserve’s (Fed) decision, which is set to spark volatility in the financial markets.

If AUD/JPY climbs above 95.00, the next resistance would be the October 21 high at 95.74 before challenging the 96.00 figure. Once cleared, next would be the September 20 high at 96.54, before the AUD/JPY tests at 97.00.

Conversely, if AUD/JPY drops below 94.00, it would pave the way toward the December 13 high at 93.35, followed by the Tenkan-Sen line at 93.08.

AUD/JPY Price Action – Daily chart

• The EUR/GBP erased most of Monday’s gains and eyes multi-month lows at 0.8535.
• Wage inflation in the UK accelerated in May, and Unemployment decreased in the three months leading up to April.
• Hawkish bets and rising UK yields give the Sterling traction.

The EUR/GBP retreated to the 0.8555 area during Tuesday’s session, erasing most of Monday’s gains +.. Moreover, the Sterling traded strong against the USD, JPY ,CHF, AUD and NZD as hot labour-market data from the UK fueled hawkish bets on the Bank of England (BoE) and a rise in British yields.

British yields support the Sterling after hot labour-market data

The UK Office for National Statistics reported a decrease in jobless benefit claims by 9.6K in May, down from the previous figure of 46.7K . The Unemployment Rate slightly dropped to 3.8% instead of the expected 4% in the three months leading up to April. Average earnings, including and excluding bonuses, which serve as a gauge of wage inflation to the BoE, also rose during this period. That being said, British yields increased across the board with the 2-year rate leading the way, seeing a 5% rise to 4.88%, its highest level since 2008.

Ahead of the June 22 meeting, a 25 basis point (bps) hike is already priced in. Likewise, investors are also discounting hikes for the August, September, and November meeting, and hence a policy rate peaking at 5.5%. However, the short-term trajectory of the Sterling will be determined by the updated macro forecast of the BoE, and investors will pay attention to any clues in the monetary report or the Governor Bailey press conference regarding forward guidance.

On the other hand, Euro price dynamics will also be determined by the European Central Bank (ECB) decision on Thursday and the macroeconomic forecast of its members. As for now, investors fully priced in a 25 bps hike announcement.

EUR/GBP Levels to watch

According to the daily chart, the EUR/GBP maintains a bearish outlook for the short-term. Despite Monday’s impressive gains, indicators still remain deep in negative territory while the pair trades well below the 20-,100- and 200-day Simple Moving Averages (SMAs), near August 2022 lows of 0.8535.

Supports levels to watch: 0.8550, 0.8545, 0.8535
Resistances levels to watch: 0.8600 (psychological mark), 0.8620, 20-day SMA at 0.8636.

• EUR/USD bulls are in the market and eye a break of 1.0830. 
• All now depends on the Fed ahead of the ECB late rin the week. 

EUR/USD popped and dropped on Tuesday after hitting a 3-week high. A weaker dollar Tuesday was supportive of the euro but there was a turnaround when traders took a second inspection of the US inflation story. Core CPI remains sticky. However, central bank divergence remains positive for EUR/USD on the prospects for the Fed to pause raising interest rates on Wednesday this week while the ECB continues to raise interest rates. 

However, the technical picture is clouded as follows:

EUR/USD daily charts

The price is on the backside of the dominant bullish trend. This leaves a bearish bias on the daily charts. However, there are prospects of a meanwhile move higher as follows:

A move above 1.0830 opens the risk of a prolonged move higher for the coming days. 

EUR/USD H4 chart

The 4-hour chart sees the price supported at the neckline of the W-formation. 

After the release of US CPI data, market participants turned their attention to the FOMC meeting. Before the Fed's decision, New Zealand will report Q1 Current Account and the UK Industrial Production data. Later, before the monetary policy decision, more US inflation data is due with the Producer Price Index.

Here is what you need to know on Wednesday, June 14:

Wall Street cheered US inflation data as the Dow Jones gained 0.43% and the S&P 500 climbed 0.69%. Risk-on flows weighed on government bonds, causing them to decline and boosting yields, despite the inflation data. Asian and European markets also finished higher, supported by signs of stimulus from China.

The annual Consumer Price Index (CPI) rate dropped in the US to 4% in May, below the expected 4.1%, reaching the lowest level since March 2021. These numbers cemented expectations of a pause from the Federal Reserve on Wednesday. The statement, the economic projections, and Powell’s words will be watched closely for clarity about the next steps from the central bank. Prior to the decision, more inflation data is due with the Producer Price Index.

Analysts at Wells Fargo commented:

US Treasury yields initially dropped following the CPI report but rebounded sharply. Similarly, yields in Europe also increased. The Japanese Yen reversed and suffered important daily losses across the board. USD/JPY rose for the fourth consecutive day, climbing above 140.00. On Friday, the Bank of Japan will have its monetary policy meeting. 

EUR/USD reached weekly highs near 1.0820 but pulled back under 1.0800. It ended with gains and the trend is up, but it is facing resistance. The European Central Bank is expected to raise key rates by 25 basis points on Thursday.

The Pound outperformed on Tuesday following a better-than-expected UK employment report. Later on the day, BoE's Bailey said data show the labour market is "very tight". The UK will report Industrial Production and GDP data on Wednesday. GBP/USD posted the highest close in a month above 1.2600 and is looking at May highs. EUR/GBP erased most of Monday's gains, falling to the 0.8550 area.

The decision from the People's Bank of China to ease short-term policy rates helped commodity currencies only modestly. These currencies pulled back during the American session, despite risk appetite, amid a modest recovery of the US Dollar.

USD/CAD traded below the crucial support area of 1.3300, reaching the lowest since February, but rebounded to close the day at 1.3305/10. The pair remains under pressure.

NZD/USD consolidated above 0.6100; it peaked at 0.6176 but then pulled back under 0.6150. New Zealand will report Current Account data on Wednesday. 

AUD/USD rose for the fourth consecutive day but was rejected from above 0.6800, offering mixed signals. Australia will report employment data on Thursday.

Gold tumbled to the $1,940 area amid higher government bond yields; after the US CPI report, the yellow metal peaked at $1,971 before reversing its direction. Silver lost 1.65%, ending at $23.65.

• GBP/JPY soared to a fresh cycle high, rising to a daily high of 176.80, last seen in January 2016.
• Hot labor-market figures from the UK fuel hawkish BoE bets. 
• Rising UK yields favour the Sterling.

On Tuesday, the GBP/JPY rose to a new cycle high of 176.72, gaining more than 1.20% as hot labour-market data from the UK fueled a rally of the British bond yields as markets expect a more hawkish stance by the Bank of England (BoE). On the other hand, the Yen weakened against most of its European rivals as policy divergence weighs on the Japanese currency.

Hot labour-market figures from the UK made British yields rally

The UK Office for National Statistics revealed that the number of those claiming jobless benefits contracted by 9.6K in May from its previous measure of 46.7 K. Moreover, the unemployment rate slightly decreased to 3.8% vs the 4% expected in the 3 months prior to April, while average earnings, including and excluding bonuses, accelerated during the same period. In that sense, falling unemployment and accelerating wage inflation fueled hawkish bets for the BoE and provided a boost in the arm for Sterling. 

That being said, Governor Andrew Bailey stated on Tuesday that “The labor hoarding is going on because of the tight market, and firms are reluctant to make people redundant.” Regarding inflation, “Food inflation is taking a lot longer to come down than we expected,” and he expects inflation to come down but that it may take longer than anticipated.

Regarding the next meetings: WIRP suggests a 25 bp hike is fully priced in, with nearly 15% odds of a larger 50 bps move.  Hikes are priced in for August, September, and November, which would see the policy rate peak near 5.5%. In that sense, the hawkish bets were reflected in rising UK yields. The 10-year bond yield rises to 4.47%, while the 2-year yield stands at 4.93% and the 5-year yield at 4.56%, all three seeing increases of from 2% to 4%.

GBP/JPY Levels to watch

Technically speaking, the GBP/JPY maintains a bullish outlook for the short term, but indicators reached overbought conditions suggesting that a downward technical correction may be on the horizon as the cross trades in multi-year highs since mid-May. The Relative Strength Index (RSI) rose above 70.00 (overbought), and the Moving Average Convergence Divergence (MACD) stands in positive territory.

If the GBP/JPY clears the 176.80 area, the pair could see a more pronounced move towards the psychological mark at 177.00 and the 177.50 zone. On the other hand, in case the cross corrects to the downside, support levels line up at the 174.50 area and below the psychological mark at 174.00, at the 20-day Simple Moving Average (SMA) at 173.40.

GBP/JPY Daily chart

• GBP/USD bulls are in the market and eye higher highs.
• Bears note the prospects of a test of the trendline support. 

GBP/USD bulls are in the market with the price rallying on Tuesday from a low of 1.2495 to a high of 1.2624 so far. Traders are getting behind the central bank divergence theme which has helped the pound reach to the strongest since May 10th as recent US inflation rate data reinforced the view that the Federal Reserve is about to change course. 

Besides the sentiment turning at the Fed, the recent UK labour market report has sewn the seeds for a hawkish Bank of England for longer. The unemployment rate fell to 3.8% for the period of February to April, while both employment levels and wage growth experienced significant increases. This follows Monday's hawkish rhetoric from BoE's policymaker Catherine Mann who emphasized a need to take measures to curb inflation.

On Tuesday, data showed that the US Consumer Price Index edged up 0.1% last month after increasing 0.4% in April, core CPI increased 0.4% in May, rising by the same margin for the third straight month. However, the Greenback pared back initial knee-jerk losses as this is a number that is too high to be compatible with the Fed's 2% inflation target, thus there are still chances that the FOMC will justify another 25-bp rise at the outcome of the FOMC meeting.

Nevertheless, GBP/USD remains better bid with the money markets pricing in a 95% chance the US central bank will decide to forgo an 11th straight interest-rate hike and keep the benchmark rate at 5.00% to 5.25% on Wednesday. Moreover, the rate futures market also trimmed bets on a Fed rate hike in July following today's CPI report.

GBP/USD daily chart

The daily chart is bullish while above 1.2285 swing low. There are prospects of a meanwhile correction, however, which leaves the trendline support vulnerable. 

• EUR/JPY jumps to monthly highs and eyes the cycle high at 151.61, struck on May 2.
• German HICP from May was confirmed at 6.3 YoY.
• Markets expect a 25 bps hike by the ECB on Thursday.

The EUR/JPY jumped to its highest level since early May, near 151.20, as the Euro gained traction on rising German bond yields. This means that for Thursday’s European Central Bank (ECB) decision, a 25 basis point (bps) is effectively priced in, and for the Bank of Japan (BoJ), markets expect Governor Ueda to keep its dovish policy settings unchanged. In that sense, monetary policy divergence seems to be weighing on the Yen.

German yields declined after inflation data

Germany’s final revision from May’s Harmonized Index of Consumer Prices (HICP) remained unchanged at 6.3% YoY, according to the market consensus. Likewise, the Spanish HICP from the same period of time was confirmed at 2.9% and displayed a monthly deceleration. In addition, ZEW surveys for Germany from June came in mixed, with the Economic Sentiment coming in at -8.5 vs the -13.5 expected, while the Current Situation index came in at -56.5 vs the -40 expected

Amid the disinflationary impulse in May and the ongoing weakness seen in the Eurozone (EZ), the burden of proof for the ECB has reversed, implying that the ECB will need to justify why they will need to continue to hike, if they hike at the June 15th meeting. Focus now shifts to the updated forecast of the Bank, and investors will look for clues regarding forward guidance.

That being said, following the data from Germany, bond yields are in decline, and the DAX has risen. The 10-year bond yield increased 4% to 2.46%, while the 2-year yield sits at 3.03% and the 5-year yield 2.48%, with a 0.14% decline, respectively. On the other hand, the German DAX (DAX) stock index trades with 0.83% gains. 

EUR/JPY Levels to watch

According to the daily chart, the EUR/JPY holds a bullish outlook for the short term as the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) both remain in positive territory while the pair stands above its main moving averages, suggesting that the buyers have the upper hand. In addition, there is no strong resistance until the cycle high at 151.61, last seen on May 2, and technicals hint at a retest.

On the upside, If EUR/JPY manages to move higher, the next resistances to watch are at the 151.30 zone, followed by the mentioned cycle high and the psychological mark at 152.00. On the other hand, in case the cross loses more ground, support levels line up at the psychological mark at 150.00 and below around the 20-day Simple Moving Average (SMA) at 149.70 and the 149.00 area.

EUR/JPY Daily chart

• USD/CHF trades at 0.9058, capped on the topside by  0.9117/20; on the downside by the confluence of the 50 and 20-day EMAs at 0.9041 and 0.9039.
• A decisive break below 0.8980 could push USD/CHF towards June 9, 2021, low at 0.8925.
• To continue bullish momentum, USD/CHF needs to break past the 0.9120 area, eyeing April 3 high at 0.9196.

USD/CHF halts its rally to just two days, retraces from weekly highs reached on Monday at 0.9109, shy of testing the 100-day Exponential Moving Average (EMA) at 0.9117. Therefore, the USD/CHF is trading at 0.9058, below its opening price by 0.34%.

USD/CHF Price Analysis: Technical outlook

The USD/CHF daily chart is neutral to downward biased but cushioned on the downside by the presence of the 50-day Exponential Moving Average (EMA) at 0.9041, immediately followed by the 20-day EMA at 0.9039. Conversely, USD/CHF's first resistance is the weekly high, followed by the 100-day EMA and April 10 high at the 0.9117/20 area, tested three times. However, the USD/CHF remains trading below the latter since the end of March 2023.

If USD/CHF would resume its downtrend, it needs a decisive break below the June 9 swing low of 0.8980. Once cleared, the USD/CHF would slide toward June 9, 2021, a low of 0.8925, before testing the 0.8900 figure.

Conversely, for a USD/CHF bullish continuation, the pair must claim the 0.9120 area. Once broken, the USD/CHF next supply zone would be the April 3 high at 0.9196 before challenging the 0.9200 handle.

USD/CHF Price Action – Daily chart

• USD/MXN falls over 0.30% as US headline inflation drops, encouraging Fed’s likely pause in June.
• Despite the US Dollar drop, Treasury bond yields rise; 10-year note at 3.827%.
• Bank of Mexico Governors emphasize the need for maintaining higher rates.

USD/MXN tumbles to fresh seven-year lows, achieved during the last six trading days, courtesy of US Dollar (USD) weakness. A US inflation report sent the US Dollar sliding against most G10 FX peers, alongside the Mexican Peso (MXN). At the time of writing, the USD/MXN is trading at 17.2164, down more than 0.30%.

Upbeat market sentiment and cooling US inflation boost risk-sensitive Mexican Peso

The market sentiment remains upbeat, a positive sign for the Mexican Peso, which is seen as a risk-sensitive currency. May inflation in the US flashed signs of cooling down, with headline inflation, known as the Consumer Price Index (CPI), dropping 0.8% from April’s 4.9% to 4% YoY. Additionally, excluding volatile items like food and energy, also known as Core CPI, edged lower, 0.2% to 5.3% YoY, aligned with estimates. However, core CPI month-over-month (MoM) remained unchanged for the second straight month, indicating that inflation still lingers in the economy.

Following the data release, the US Dollar Index (DXY), which measures the buck’s value against a basket of its rivals, dives 0.27% at 103.347 after hitting three-week lows. At the same time, US Treasury bond yields, particularly the 10-year benchmark note, are at 3.827%, eight basis points higher than its opening price.

That said, Wall Street expects the Fed to pause in June but is likely to resume in July, according to the latest figures reported by the CME FedWatch Tool. Money market futures odds for a quarter percentage increase to the Federal Funds Rate (FFR) are 62.5% and continue to aim up compared to the last week.

In tomorrow’s Federal Reserve Open Market Committee (FOMC)meeting, the Federal Reserve will also update the Summary of Economic Projections (SEP) and the Dot-Plot, which is foreseen to cement the Fed’s hawkish stance, not as a dovish pivot.

Across the border, the Mexican economic docket was absent. Still, the latest remarks by the Bank of Mexico (Banxico) Governors, Victoria Rodriguez Ceja and Jonathan Heath, stressed the need to hold higher rates for at least two meetings.

Upcoming events

On Wednesday, the US economic agenda will feature May’s Producer Price Index (PPI), the FOMC’s decision, and Fed’s Chair Jerome Powell’s press conference.

USD/MXN Price Analysis: Technical outlook

The USD/MXN is set to continue to drop further, pending decisively cracking the 17.2000 mark, albeit hitting a new YTD low of 17.1990. Though a daily close below the latter would send the USD/MXN plummeting toward the 2016 low of 17.0500 before challenging the 17.00 mark. Conversely, if USD/MXN pierces May’s low turned support at 17.4038, that could open the door for a recovery toward the 50-day Exponential Moving Average (EMA) at 17.5166.

• Silver price is under pressure as traders await Fed.
• US CPI was mixed and Silver turns lower and eyes key support. 

The Silver price was offered on Tuesday. Silver sold off following a mixed inflation report from the US and ahead of the Federal Open Market Committee's interest rate decision, statement, projections and Chairman Jerome Powell's press conference on Wednesday. At the time of writing, XAG/USD is trading down some 1.60% after dropping $24.407 to a low of $23.668 so far. 

Silver was sold off when traders noted the implications for sticky core inflation in the US. While the US Consumer Price Index edged up 0.1% last month after increasing 0.4% in April, core CPI increased 0.4% in May, rising by the same margin for the third straight month. The Greenback pared back initial knee-jerk losses as this is a number that is too high to be compatible with the Fed's 2% inflation target, thus there are still chances that the FOMC will justify another 25-bp rise at the outcome of the FOMC meeting. Nevertheless, the money markets are pricing in a 95% chance the US central bank will decide to forgo an 11th straight interest-rate hike and keep the benchmark rate at 5.00% to 5.25% on Wednesday. Moreover, the rate futures market also trimmed bets on a Fed rate hike in July following today's CPI report.

''With core CPI/PCE prices and other underlying inflation measures still not showing significant progress ahead of the June FOMC meeting, we remain of the view that a final 25bp rate hike to 5.25%-5.50% remains on the table,'' analysts at TD Securities argued. ''In our view, if the hard data points to an economy that remains strong enough to make the Fed signal a likely rate hike for July, perhaps it is more optimal to go now.''

Silver technical analysis

The weekly chart shows the market being rejected at a 50% mean reversion after a move to test the neckline of the M-formation. This leaves prospects of a break of the middle structure's low of the current three candles at around $23.25 to confirm a bearish bias. This will leave the support line vulnerable to a test in due course. 

The daily chart's swing low at $23.25 is indeed a key level on the downside guarding support areas lower down towards the weekly trendline support:

• WTI recovers, trading at $69.44 per barrel following the US inflation report.
• China’s rate cut sparks an increase in WTI price due to a potential surge in oil demand.
• Saudi Arabia’s proposed crude output cut is expected to tighten the global market in July.

Western Texas Intermediate (WTI), the US crude oil benchmark, recovered some ground due to a softer US Dollar (USD) following the May inflation report in the United States (US). At the time of writing, WTI is trading at $69.49 per barrel, a gain of more than 3%.

Fed’s potential pause on rate hikes and China’s rate cut boost crude oil prices

Oil prices are pairing some of its Monday losses due to several factors. Firstly, a US inflation report from the US Department of Labor justifies the Federal Reserve’s (Fed) stance to pause its tightening cycle, as the Consumer Price Index (CPI) rose by 4% YoY, below forecasts and the prior month’s reading. In comparison, core CPI expanded by 5.3% YoY, below April’s data, aligned with estimates.

That weakened the greenback as traders speculated about a less aggressive Fed. The US Dollar Index (DXY) trades with losses of 0.40%, at around three-week lows of 103.212.

Meanwhile, the People’s Bank of China (PBoC) cut rates on its lending rate for the first time in 10 months, aimed to stimulate China’s economy, which failed to gain momentum after lifting the Covid-19 zero-tolerance restrictions. That sparked a rise in WTI price, as China, the largest crude importer, would likely increase oil demand.

That, alongside Saudi Arabia proposed crude output cut to kick in the next month, cushioned Monday’s losses and bolstered WTI price towards the $70.00 per barrel mark.

Nevertheless, a recent report by the Organization of Petroleum Exporting Countries and its allies, OPEC+, held that demand will remain steady despite slowing growth. However, it noted that Saudi Arabia’s cuts would tighten the global market in July.

Further data related to oil is expected, with the International Energy Agency (IEA) will release its latest projections, while the American Petroleum Institute (API) is scheduled to unveil its estimates of US crude oil.

WTI Technical Levels

• USD/JPY trades at around 139.90s after the release of the US CPI report.
• US inflation shows signs of cooling, providing a rationale for a Fed pause on rate hikes.
• US Dollar Index drops 0.34%, reaching its lowest level since May 23.

USD/JPY rose after the release of the US inflation report in the United States (US) and cemented the case for a Federal Reserve (Fed) pause on its tightening cycle after increasing rates by 500 basis points since March 2022. At the time of writing, USD/JPY trades at 139.90, shy of challenging the 140.00 mark.

Cooling inflation strengthens the case for Fed pause; US Dollar Index at three-week lows

Inflation in the US flashed signs of cooling down in the headline figure, but the core remains stickier. The US Department of Labor revealed the Consumer Price Index (CPI) in May rose by 4% YoY, beneath estimates and less than April’s 4.9%. CPI has printed a lower reading than the previous month for twelve straight months, strengthening the case for a Fed pause.

Nevertheless,  core CPI, which excludes volatile items like food and energy, increased to 5.3% YoY, aligned with estimates, but 0.2% below the prior’s month data. Money market futures speculate that Jerome Powell and Co. would increase rates at the July meeting by 25 basis points (bps) to 5.25%-5.50%, as shown by the CME FedWatch Tool, with chances at 58.2%, higher than a week ago.

Following the data release, the USD/JPY seesawed around the 139.00-140.00 area before stabilizing around current exchange rates. Meanwhile, post the US CPI release, US Treasury bond yields are rising, with the 10-year note yielding 3.790%, gaining five basis points (bps), a tailwind for the USD/JPY.

The US Dollar Index (DXY), a measure that tracks the buck’s value against a basket of six currencies, drops 0.34%, exchanges hands at 103.201, its lowest level since May 23, at three-week lows.

Upcoming events

The US economic docket will feature May Producer Price Index (PPI), followed by the US Federal Reserve Open Market Committee (FOMC) monetary policy decision and the Fed Chair Powell press conference.

USD/JPY Price Analysis: Technical outlook

From a daily chart perspective, the USD/JPY pair is neutral to slightly tilted upwards as it sits above the daily Exponential Moving Averages (EMAs). Nevertheless, for a bullish continuation, the USD/JPY must break above the 140.00 mark, so it can threaten the next resistance at the year-to-date (YTD) high of 140.91 before cracking 142.00. Conversely, the USD/JPY could pull back if it breaks below the 20-day EMA at 138.88, exposing as the next demand zone, the month-to-date (MTD) low of 138.42.

• The NZD/USD jumped to 0.6177 and holds above the 200-day SMA.
• US CPI decelerated in May, and investors now fully price in a hike pause on Wednesday by the Fed.
• Eyes on Fed decision, FOMC macro forecasts and dot plots.

In Tuesday’s session, the NZD/USD managed to jump above the 200-day to a high of 0.6177 but retreated to 0.6145 as the US Dollar lost strength following the release of the May Consumer Price Index (CPI). As the data came in below expectations, market participants are fully discounting that the Federal Reserve will not raise interest rates on Wednesday. 

Investor’s assessment of US CPI weakened the US Dollar

The US Bureau of Labor Statistics released the Consumer Price Index (CPI) for May, which fell slightly below expectations. The headline figure declined to 4% YoY, compared to the expected 4.1%, while the Core measure matched expectations at 5.3% YoY. The monthly measures from both the CPI and Core CPI rose by 0.1% and 0.4%, respectively.

Following the release of the data, markets have fully priced a pause at the upcoming Federal Reserve meeting on Wednesday, which seems to be weakening the Greenback. Attention now turns to clues on forward guidance. The CME FedWatch Tool suggests that investors are betting on a 63% probability of a rate hike in July.

In addition, the release of updated macroeconomic forecasts and dot plots from the Federal Open Market Committee (FOMC) will also contribute to the shaping of expectations of future Fed meetings.

NZD/USD Levels to watch

According to the daily chart, the technical outlook of the NZD/USD has turned bullish for the short term as indicators jumped to positive territory, suggesting that the buyers now have the upper hand. The Relative Strength Index (RSI) jumped above its midline while the Moving Average Convergence Divergence (MACD) prints rising green bars. However, the bearish cross performed between the 20 and 200-day SMA’s may limit the NZD/USD upside’s potential in the following sessions. 

On the upside, resistance levels can be found at the daily highs around 0.6177, followed by the 0.6200 psychological mark and the 100-day Simple Moving Average (SMA) near 0.6220. On the other hand, supports line up at the 200-day SMA at 0.6150 (former resistance) and below at the 20-day SMA at 0.6120 and the 0.6100 zone.

NZD/USD Daily chart

• USD/CAD trades at the lowest level since mid-February, under 1.3300. 
• Headline US CPI fell to 4% in May versus the 4.1% expected. 
• Investors expect a no-hike for Wednesday’s Fed decision.

The USD/CAD turned south on Tuesday, falling below 1.3300 as the US Dollar weakened following the release of local inflation data. With data coming below expectations, markets are now fully pricing in a no-hike by the Federal Reserve (Fed) on Wednesday. On the Canadian side, no relevant economic data will be released on Tuesday. The Loonie is also benefiting from higher Oil prices and positive risk sentiment. 

Markets diggest US CPI data ahead of Fed’s decision

The US Bureau of Labor Statistics’ Consumer Price Index (CPI) came below expectations in May. The headline inflation rate slightly decreased to 4% YoY versus the 4.1% expected and down from its previous figure of 4.9%. On the other hand, the Core inflation measure matched expectations easing to 5.3% YoY from the previous 5.5%. On a monthly basis, the CPI and the Core CPI rose 0.1% and 0.4%, respectively.

Following the data, the CME FedWatch Tool suggests that investors have practically fully priced in a no-hike for Wednesday’s Fed decision. Attention now shifts to the following meetings, so that investors will eye any clues regarding forward guidance in Chair Powell’s press conference, the updated macroeconomic forecasts and the dot plots from the Federal Open Market Committee (FOMC). As for now, the stronger case for July’s meeting is a 25 bps hike, whose odds slightly increased to 63%.

The US Dollar, measured by the DXY index, is trading 0.35% lower on the day following inflation numbers,  retreating to the 103.30 area.

USD/CAD levels to watch

Based on the daily chart, the USD/CAD shows a bearish bias in the short term, as the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) suggest that the sellers are in control, while the pair trades below its main moving averages.

Upcoming resistance for USD/CAD is seen at the zone at 1.3350 level, followed by the 1.3380 area and the psychological mark at 1.3400. On the other hand, support levels are seen at the 1.3300 area, followed by April’s low at 1.3273 and the 1.3250 zone.

USD/CAD daily chart

Stage is set for the central banks. Strategists at Commerzbank discuss how the Fed meeting could impact Gold price.

Will the Fed meeting point the way for Gold?

• AUD/USD gains 0.55%, trading at 0.6787 despite the US CPI data release.
• Fed is likely to delay rate hike as inflation cools; Futures suggest hike likelihood at 58.2% next month.
• Despite the ongoing RBA tightening cycle, AUD boosted by marginal gain in Consumer Confidence

AUD/USD remains trading in the green, extending its rally to four straight days, but gave back some of its earlier gains following an inflation report in the United States (US). Data released from Australia in the Asian session lifted the pair, but at the time of writing, it exchanges hands at 0.6783, up 0.55%.

Inflation slowdown gives room for Fed's pause; AUD/USD nears weekly high

The US Bureau of Labor Statistics (BLS) released May inflation figures, with the Consumer Price Index (CPI) expanding 4% YoY, below estimates of 4.1% and the prior’s month 4.9%. Excluding volatile items, the so-called core CPI stood at 5.3% YoY, aligned with estimates, though it ticked 0.2% lower than April’s data.

Therefore, as inflation cools, the Federal Reserve (Fed) can skip a rate hike in June to check the economic status before the July meeting. Money market futures estimate the Fed would raise rates 25 basis points (bps) to 5.25%-5.50% next month, as shown by the CME FedWatch Tool, with chances standing at 58.2%, higher than a week ago.

After the inflation release, the AUD/USD edged towards a five-week high of 0.6802 before making a U-turn as investors digested US data. Nevertheless, the AUD/USD has resumed its uptrend, approaching the 0.6790 area, shy of the 0.68 handle.

On the Aussie (AUD) front, Consumer Confidence for June, revealed by Westpac, printed a marginal gain of 0.2%, above estimates of 0%, but smashed May figures of -7.9%. Nevertheless, it should be said the reading remains at soft levels, with Australians hurt by the high inflationary pressures and the Reserve Bank of Australia (RBA) tightening cycle.

Must read: FOMC Preview: Banks expect the Fed to take a break, but signal higher rates ahead

Upcoming events

The US economic docket will feature the US Federal Reserve Open Market Committee (FOMC) monetary policy decision, followed by the Fed Chair Powell press conference. The Producer Price Index (PPI) for May will be revealed earlier.

AUD/USD Price Analysis: Technical outlook

The AUD/USD remains neutrally biased, slightly tilted upwards, as the 200-day Exponential Moving Averages (EMAs) sit above the spot price. However, to resume its bullish continuation, the AUD/USD must reclaim 0.6800 before testing the psychological 0.6850 before challenging the February 21 high of 0.6919. Conversely, failure at 0.6800 could pave the way for a test of the 200-day EMA at 0.6758.

The US Federal Reserve will announce its monetary policy decision on Wednesday, June 14 at 18:00 GMT and as we get closer to the release time, here are the expectations as forecast by analysts and researchers of nine major banks. 

Markets expect rates to be kept steady after several Fed officials highlighted a skip. Forward guidance will be key.

Danske Bank

TDS

Nordea

Rabobank

RBC Economics

Deutsche Bank

Wells Fargo

Credit Suisse

The FOMC appears likely to ‘skip’ hiking the Fed Funds rate at its June 14 meeting, but still signal that further hikes remain possible if not likely at subsequent meetings. The hawks probably need higher-than-expected CPI data on June 13 to shift the vote in favor of a June hike. If the FOMC does pause this month, we see a meaningful chance it will hike 25 bps in July.

ANZ

CPI inflation matched consensus in May. Markets lowered the odds of both June and July hikes after the CPI report. Economists at TD Securities 

A June hike is still on the table

The past month has been a challenging one for both the onshore/offshore Renminbi. Economists at CIBC Capital Markets have revised their Q3 forecast higher to 6.85. 

Rate cuts are coming

Bank of England (BoE) Governor Andrew Bailey said on Tuesday that inflation will come down, but it will take longer than expected. He mentioned that the central bank has incorporated more inflation persistence into its models.

Regarding labor market data, Bailey noted that the UK market is very tight and recovering slowly. He made these comments while speaking before the House of Lords Economic Affairs Committee. He also stated that banks in the UK are safe and robust.

Market reaction:

After lagging on Monday, the Pound is outperforming on Tuesday. GBP/USD is trading at the highest level in four weeks above 1.2600, and EUR/GBP is at 0.8565 after being above 0.8600 earlier in the day.

Economists at ING expect the USD/CAD pair to trade considerably lower.

USD/CAD can end the year closer to 1.25 than 1.30

The Euro underperformed in May and was the third worst-performing G10 currency. Economists at MUFG Bank analyze EUR/USD outlook.

ECB is set to remain hawkish

The Latam currencies continue to perform well in a low-volatility world looking for carry trade opportunities. The Mexican Peso remains the standout performer and should hold onto its gains, economists at ING report. 

Peso remains the market’s best friend

• GBP/USD has recaptured the crucial resistance of 1.2600 as US inflation has decelerated.
• Soft US inflation landing has joined easing Employment conditions, and weak economic activities, which will support neutral policy by Fed.
• The Pound Sterling witnessed stellar buying interest after the release of the upbeat UK Employment data.

The GBP/USD pair has reclaimed the round-level resistance of 1.2600 in the early New York session. The Cable has attracted significant bets as the United States Consumer Price Index (CPI) for May has softened as expected by the market participants.

Monthly headline US inflation has reported a slight pace of 0.1% vs. the estimates of 0.2% and the former pace of 0.4%. Also, annualized headline CPI has softened to 4.0% while the street was anticipating a decline to 4.1% from the former release of 4.9%. The impact of lower gasoline prices is clearly visible in the headline inflation.

Meanwhile, monthly core CPI that excludes the impact of oil and food prices has remained steady at 0.4% as expected. Annualized core CPI has decelerated to 5.3% as expected by the street.

Soft US inflation landing has joined easing labor market conditions, and weak economic activities, which are going to provide luxury to Federal Reserve (Fed) chair Jerome Powell for keeping policy unchanged. Investors should note that the Fed has already hiked interest rates to 5.00-5.25% after a 10 consecutive rate-hiking spell.

S&P500 has added significant gains in its opening session as investors’ sentiment for a neutral interest rate policy stance by the Fed has improved. The US Dollar Index (DXY) has shown a mild recovery after dropping to near 103.10. A volatile action from the USD Index cannot be ruled out as investors will start preparing for the Fed’s interest rate decision. Contrary to the USD Index’s action, the 10-year US Treasury Yields have rebounded to near 3.77%.

On the Pound Sterling front, investors will keep an eye on the speech from Bank of England (BoE) Governor Andrew Bailey. In the European session, the Pound Sterling witnessed stellar buying interest after the release of the upbeat United Kingdom Employment data. The Unemployment rate slipped again to 3.8% while Claimant Count Change remained lower than estimated.

• USD/TRY’s rally encountered a tough barrier near 23.70 so far.
• Retail Sales in Türkiye rose 0.9% MoM, 27.5% YoY in April.
• Investors’ attention shifts to the CBRT meeting on June 22.

USD/TRY keeps the bid bias well and sound, although gains appear to have met a wall around the 23.7000 zone on Tuesday.

USD/TRY now looks at the CBRT event

USD/TRY maintains its bullish stance unaltered for the third session in a row and tests the 23.7000 region in the first half of the week.

The lira has continued to fall sharply despite the appointment of market-friendly officials following Erdogan’s victory in the May 28 second round of the general elections.

The relentless decline in TRY comes in tandem with growing pessimism among investors, both domestic and foreign, about the newly constituted economic team's likely future measures on monetary policy.

Nevertheless, it is uncertain whether the Turkish central bank’s Governor Erkan will be able to assert her monetary influence while working under Erdogan's leadership. The initial round of this battle is anticipated to take place on June 22, during the CBRT monetary policy meeting. There exists a considerable divergence of opinions regarding the appropriate course of action, ranging from minor interest rate increases to a potentially drastic strategy involving a substantial rate hike.

So far, the Turkish currency has already depreciated nearly 28% since the start of 2023, while the decline has reached more than 180% since the CBRT started to reduce the One-Week Repo Rate in August 2021.

Earlier in the session, Retail Sales in Türkiye expanded at a monthly 0.9% and 27.5% YoY in April.

What to look for around TRY

USD/TRY maintains its upside bias well in place, always underpinned by the relentless meltdown of the Turkish currency.

In the meantime, investors are expected to closely monitor upcoming decisions on monetary policy, particularly after President R. T. Erdogan named former economy chief M. Simsek as the new finance minister following the cabinet reshuffle in the wake of the May 28 second round of general elections.

The appointment of Simsek has been welcomed with optimism by market members in spite of the fact that it is not yet clear whether his orthodox stance on monetary policy can survive within Erdogan’s inclination to battle inflation via lower interest rates.

In a more macro scenario, price action around the Turkish lira is supposed to continue to spin around the performance of energy and commodity prices - which are directly correlated to developments from the war in Ukraine, broad risk appetite trends, and dollar dynamics.

Key events in Türkiye this week: Retail Sales (Tuesday) – Budget Balance (Thursday) – End Year CPI Forecast (Friday).

Eminent issues on the back boiler: Persistent skepticism over the CBRT credibility/independence. Absence of structural reforms. Bouts of geopolitical concerns.

USD/TRY key levels

So far, the pair is gaining 0.11% at 23.6228 and faces the next hurdle at 23.6804 (all-time high June 12) followed by 24.00 (round level). On the downside, a break below 19.9718 (55-day SMA) would expose 19.4784 (100-day SMA) and finally 19.0198 (200-day SMA).

Strategists at ANZ Bank analyze Silver's (XAG/USD) outlook.

Fundamental backdrop is still supportive

See – Gold Price Forecast: XAU/USD to break previous high of $2,060 on a rebound from current levels – ANZ

US consumer prices hardly increased in May. Economists at Commerzbank analyze how the figures could influence the Fed decision due out tomorrow.

US inflation allows Fed to pause tomorrow

• The US dollar tumbled across the board after the release of US CPI.
• Annual US inflation eased to 4% in May, which is the lowest since March 2021.
• USD/JPY is under pressure and testing the 139.00 level.

The USD/JPY dropped sharply following the release of US inflation data, reaching a low of around 139.00 and remaining under pressure ahead of Wall Street's opening bell. 

The US Consumer Price Index (CPI) rose 0.1% in May, which was below the expected increase of 0.2%. The annual CPI rate fell from 4.9% to 4.0%, reaching the lowest level since March 2021. The Core CPI advanced 0.4%, in line with expectations, and the YoY rate slowed from 5.5% in April to 5.3% in May.

These numbers leave the door wide open for the Federal Reserve (Fed) to skip a rate hike on Wednesday. The FOMC will announce its decision tomorrow and is expected to keep the target interest rate range at 5.00-5.25%. After the inflation figures, US bond yields tumbled and boosted the Japanese Yen. Equity prices on Wall Street rose, and futures point to a positive opening.

The USD/JPY is currently testing the 139.00 area and remains in a recent familiar range, with risks tilted to the downside for the moment. Volatility is set to remain elevated ahead of the Fed's decision and as markets digest the latest inflation figures. 

A clear break under 139.00 in USD/JPY would signal further losses, with the first target at the June low of 138.40. On the upside, resistance is seen at 139.75 and then 140.00. Consolidation above 140.00 could lead to an acceleration to the upside. 

Technical levels 

Economists at CIBC Capital Markets expect AUD/USD to appreciate in the coming quarters.

Upside risks to AUD

• EUR/USD rises to new multi-week highs in the 1.0820/25 band.
• Germany, EMU Economic Sentiment came in mixed in June.
• US headline CPI surprises to the downside in May.

EUR/USD sees its upside reinvigorated and advances to new highs past 1.0820 on turnaround Tuesday.

EUR/USD now looks at Fed, ECB

The upside momentum in EUR/USD gathers extra impulse and appears to surpass the 1.0800 hurdle in a more convincing fashion following the release of US inflation figures measured by the CPI.

On the latter, further disinflationary pressures saw the headline CPI rise less than expected 4.0% in the year to May and 5.3% when it comes to prices excluding food and energy costs (the core CPI).

In the meantime, the greenback weakens further and flirts with the 103.00 neighbourhood when tracked by the USD Index (DXY) in tandem with further decline in US yields across the curve.

Closer to home, the Economic Sentiment in both Germany and the broader Euroland improved to -8.5 and deteriorated to -10.0, respectively, for the current month.

What to look for around EUR

EUR/USD manages to surpass the key 1.0800 barrier on the back of the persistent selling bias in the US dollar.

In the meantime, the pair’s price action is expected to closely mirror the behaviour of the US Dollar and will likely be impacted by any differences in approach between the Fed and the ECB with regards to their plans for adjusting interest rates.

Moving forward, hawkish ECB speak continues to favour further rate hikes, although this view appears to be in contrast to some loss of momentum in economic fundamentals in the region.

Key events in the euro area this week: Germany Final Inflation Rate, Economic Sentiment, EMU Economic Sentiment (Tuesday) – EMU Industrial Production (Wednesday) – Eurogroup Meeting, EMU Balance of Trade, ECB Interest Rate Decision, ECB Lagarde (Thursday) – ECOFIN Meeting, Final EMU Inflation Rate (Friday).

Eminent issues on the back boiler: Continuation of the ECB hiking cycle in June and July (and September?). Impact of the Russia-Ukraine war on the growth prospects and inflation outlook in the region. Risks of inflation becoming entrenched.

EUR/USD levels to watch

So far, the pair is gaining 0.52% at 1.0809 and the surpass of 1.0823 (monthly high June 13) would target 1.0878 (55-day SMA) en route to 1.0904 (weekly high May 16). On the other hand, the next support at 1.0635 (monthly low May 31) seconded by 1.0516 (low March 15) and finally 1.0481 (2023 low January 6).

Economists at Société Générale analyze EUR/USD technical outlook.

Next important support zone is located at 1.0510/1.0480

• The US annual CPI dropped in May to 4%, which is the lowest since March 2021.
• The US dollar fell across the board, and no rate hike is expected on Wednesday from the Fed.
• XAU/USD has a bullish momentum but is still limited by $1,970.

Gold Price bounced sharply from $1,950 to the $1,970 area following the release of US inflation data. It is trading near daily highs, supported by a broad-based decline in the US dollar.

The US Consumer Price Index rose 0.1% in May, which was below the expected increase of 0.2%, and the annual rate fell from 4.9% to 4.0%, reaching the lowest level since March 2021. The Core CPI advanced 0.4%, in line with expectations, and the annual rate fell from 5.5% in April to 5.3% in May.

These numbers have cemented expectations of a pause on Wednesday from the Federal Reserve. More inflation data is due tomorrow with the Producer Price Index. After the CPI numbers, US yields dropped sharply and the US dollar tumbled. The 10-year yield fell from 3.74% to 3.69%, and the DXY hit three-week lows near 103.00.

XAU/USD jumped to test the $1,970 resistance area but failed to break higher and pulled back. If it surpasses that level, more gains could be seen, targeting initially $1,975 and then June highs at $1,985. On the downside, support emerges at $1,950 followed by $1,938.

Technical levels

The GBP is firm in the session, rebounding sharply from yesterday’s heavy fall. Economists at Scotiabank analyze GBP/USD technical outlook.

Trend signals are choppy but lean GBP-bullish

See – GBP/USD: Hard to buck the bullish Sterling trend in the near term – ING

Senior Economist Julia Goh and Economist Loke Siew Ting at UOB Group assess the recently published jobs report in Malaysia.

Key Takeaways

• EUR/USD adds to Monday’s gains and surpasses 1.0800.
• Further upside could dispute the 55-day SMA near 1.0880.

EUR/USD extends the bullish momentum north of the 1.0800 hurdle on Tuesday.

A more serious bullish attempt is expected to put the transitory 55-day SMA at 1.0878 to the test ahead of the weekly peak at 1.0904 (May 16).

Looking at the longer run, the constructive view remains unchanged while above the 200-day SMA, today at 1.0527.

EUR/USD daily chart

The CAD is marginally firmer against the USD on the day but remains confined to a now familiar trading range above 1.33. Economists at Scotiabank analyze USD/CAD outlook.

Limited scope for counter-trend corrections

See – US CPI Banks Preview: Headline inflation is moderating, but underlying persists

• DXY resumes the decline and prints new monthly lows near 103.20.
• Further weakness exposes a probable drop to the 103.00 region.

DXY sets aside two consecutive daily builds and embarks on a retracement to fresh monthly lows near 103.20.                                                                                            

If losses pick up pace, then a probable test of the interim 100-day SMA at 103.02 could start shaping up prior to a deeper decline to the transitory 55-day SMA at 102.53.

Looking at the broader picture, while below the 200-day SMA at 105.38 the outlook for the index is expected to remain negative.

DXY daily chart

The USD is trading lower pretty much across the board versus the majors ahead of the US Consumer Price Index (CPI) report. Economists at Scotiabank discuss the greenback outlook ahead of the inflation data.

Data may show soft headline gains

See – US CPI Banks Preview: Headline inflation is moderating, but underlying persists

Economist at UOB Group Enrico Tanuwidjaja and Junior Economist Agus Santoso assess the latest FX reserves figures in Indonesia.

Key Takeaways

• EUR/JPY picks up further pace and approaches 151.00.
• The continuation of the move could see the 2023 top revisited.

EUR/JPY maintains the optimism in the first half of the week and now trades closer to the key barrier at 151.00 the figure.

If the bulls maintain their dominance, they will encounter a significant obstacle at the weekly top of 151.07 (May 29). A successful breakthrough above this level could potentially lead to a rise towards the peak of 2023, which stands at 151.61 (May 2).

So far, further upside looks favoured while the cross trades above the 200-day SMA, today at 144.31.

EUR/JPY daily chart

EUR/USD tests technical resistance at 1.0810. Economists at Scotiabank analyze the pair’s technical outlook.

Push above 1.0810 to target an extension in the rebound to the 1.09 area

See: EUR/USD can consolidate above 1.08 and start rising towards 1.10 on doubts that Fed will hike in July – SocGen

• Oil prices have shown a solid recovery from $67.00, however, the upside seems restricted.
• Solidifying hopes of a recession in the US economy might force the black gold for a nosedive move.
• Consistent weak factory activity in Eurozone has bolstered hopes of a continuation of contraction in the quarterly GDP.

West Texas Intermediate (WTI), futures on NYMEX, have displayed a stellar recovery after finding significant support near $67.00 in the European session. The recovery move in the oil price seems restricted as investors are awaiting the announcement of the interest rate decision by the Federal Reserve (Fed), which will be announced on Wednesday.

The street is cautious about Fed’s policy as further policy-tightening stance by Fed chair Jerome Powell would propel fears of a recession in the United States. The oil price is still going through the pain of bleak demand in China and higher chances of a recession in the Eurozone. And, solidifying hopes of a recession in the US economy might force the black gold for a nosedive move.

The situation of deflation in consumer and producer data in China indicates that weaker domestic demand and exports are weighing significant pressure on factory activity. Firms are underutilizing their capacity despite supportive monetary and fiscal policies by the Chinese administration.

On the Eurozone front, the German economy has already marked a recession. A display of contraction in Gross Domestic Product (GDP) figures consecutively for two times is considered a technical recession. And, in the final reading of Eurozone Q1 GDP, the contraction has been noticed. Consistent weak factory activity in Eurozone has bolstered hopes of a continuation of contraction in GDP.

Before the Fed’s policy, US Consumer Price Index (CPI) data will be keenly watched. Analysts at RBC Economics expect annual growth in the US CPI to slow substantially to 4.1% in May from 4.9% in April. Gas prices were 20% below year-ago levels in May. Oil prices are down after surging in the wake of Russia’s invasion of Ukraine. And soaring food inflation has cooled in recent months with back-to-back MoM declines in grocery prices over March and April.  A case of surprisingly higher US inflation might weigh significant pressure on the oil price.

Economist at UOB Group Ho Woei Chen, CFA, comments on the latest release of Chinese inflation figures.

Key Takeaways

The Mexican Peso rallied to 17.26 against the USD, the strongest level since May 2016. Economists at Société Générale analyze USD/MXN technical outlook.

Signals of a meaningful rebound are not yet visible

Economists at MUFG Bank discuss USD outlook ahead of the Federal Reserve policy meeting.

A surprise Fed rate hike will be required to inject renewed upward momentum into the USD

• GBP/USD has locked gains originated after the release of the solid UK labor market data.
• Investors have started getting precautionary ahead of the United States CPI data.
• More interest rate hikes by the BoE are highly expected as the battle against persistent inflation is far from over.

The GBP/USD pair is holding gains generated after the release of the upbeat United Kingdom Employment data. The Cable is expected to continue its upside journey toward the round-level resistance of 1.2600 as the USD Index (DXY) is struggling to show a solid recovery from 103.30.

S&P500 futures have surrendered the majority of gains added till early London. It seems that investors have started getting precautionary ahead of the United States Consumer Price Index (CPI) data.

The street is convinced that US headline inflation would soften dramatically due to consistently falling energy prices, however, sheer stubbornness in anticipated in core inflation figures as the demand for durables has remained strong and the service sector is still resilient.

The impact of soft inflation numbers would propel the need for a skip in the policy-tightening spell by the Federal Reserve (Fed).

Meanwhile, solid United Kingdom Employment data are demonstrating resilience in the economy. The Claimant Count Change (May) saw a massive decline of 13.6K while the street was anticipating a decline of 9.6K. In the past month, Claimant Count Change soared by 23.4K. Three-month Unemployment Rate (April) slipped to 3.8% vs. the estimates of 4.0% and the former figure of 3.9%

Apart from that, the economic indicator which was crucial for investors was the Average Earnings excluding bonuses data. The economic data soared to 6.5% against the consensus and the former release of 6.1%. UK households equipped with higher earnings for disposal are going to accelerate the overall demand, which eventually will heat up inflationary pressures further.

More interest rate hikes by the Bank of England (BoE) are highly expected as the battle against persistent inflation is far from over.

Gold sold off after reaching $2,060 early in May. Economists at ANZ Bank analyze XAU/USD technical outlook.

At critical trendline support

• Gold price has got acceptance above $1,960.00 ahead of the US inflation data.
• The energy component is expected to keep significant pressure on US inflation.
• A clash of US CPI data and a volatile contraction pattern by the Gold price is going to deliver an explosion.

Gold price (XAU/USD) has shifted its auction above the crucial resistance of $1,960.00 ahead of the release of the United States Consumer Price Index (CPI) data, which will release at 12:30 GMT. The precious metal is expected to show volatile moves as investors are keenly awaiting the US inflation numbers to deduce cues about Federal Reserve’s (Fed) interest rate policy.
S&P500 futures are holding gains added from the Asian session as the odds of a neutral interest rate decision by the Fed are extremely solid. Market sentiment is quite upbeat and the appeal of risk-sensitive assets is stronger.

The US Dollar Index (DXY) is looking vulnerable near its two-week low of around 103.20 as the market participants are anticipating that the energy component will keep significant pressure on the US inflation.

Analysts at NBF expect the energy component may have had a negative impact on the headline index as prices likely fell in both the gasoline and natural gas segments. Expected gains for shelter could still result in a 0.2% monthly increase in headline prices. If we’re right, the annual rate should come down from 4.9% to a two-year low of 4.1%. The core index, meanwhile, could have advanced 0.3% on a monthly basis, something which would translate into a 5.1% annual gain.

The pressure of higher chances for a neutral Fed policy is visible on US Treasury yields. The return delivered on 10-year US Treasury bonds has dropped to near 3.72%.
Gold technical analysis

Investors should be prepared for a sheer volatile action by the Gold price ahead of the US inflation data. Gold price has been forming a Symmetrical Triangle chart pattern on a two-hour scale and a clash of first-tier US economic data and a volatile contraction pattern is going to deliver an explosion, which will be followed by wider ticks and heavy volume.

The 50-period Exponential Moving Average (EMA) at $1,964.48 is sticky with the Gold price, portraying non-directional movements.

Adding to that, the Relative Strength Index (RSI) (14) is oscillating in the 40.00-60.00 range, which indicates that investors await crucial data.

Gold price two-hour chart

The Yuan has weakened in recent weeks. Economists at Commerzbank share their USD/CNY and EUR/CNY forecasts. 

Weakness to stay in the near term

Source: Commerzbank Research

Kit Juckes, Chief Global FX Strategist at Société Générale, analyzes EUUR/USD ahead of US CPI data for May, which are a prelude to tomorrow’s FOMC policy announcement. 

US CPI data matter

See – US CPI Banks Preview: Headline inflation is moderating, but underlying persists

• US Dollar heads lower as China’s central bank cuts one of its benchmark rates.
• Traders are pre-positioning for US inflation numbers, reducing their long- US Dollar positions. 
• US Dollar Index holds just above 103.25 and forms a double bottom with the low of Monday.

The US Dollar (USD) is being sold again against most of its peers as most notable losses for the Greenback are against Korean Won – down 1% intraday – and UK’s Pound Sterling – down 0.60%. The weaker USD has been influenced by a surprise rate cut by China People’s Bank Of China (PBOC) cutting its 7-day Reverse Repo rate to 1.9% from 2% and committing to further stimulus for the much-battered construction sector. Additionally to the move, traders are reducing a bit of risk against the Greenback, maybe anticipating a lower-than-expected US Consumer Price Index (CPI) inflation print later in the trading session. 

For that US CPI release, the market is expecting a drop on all fronts, with the most notable being the headline CPI YoY figure, which is set to drop from previous 4.9% to 4.1%, according to market consensus. Lowest estimate for that number is 4.0% while the highest estimate is for 4.3%. Expect to see a big move downward in the US Dollar Index should the actual number come out at 4.1% or lower. An inverse result of course should US CPI come out at 4.3% or higher, the US Dollar would rally higher in the likelihood that the Fed will need to do more rate hikes than projected at the moment. 

Daily digest: US Dollar facing its first big data point with US CPI

• US Consumer Price Index numbers are set to come out on Tuesday at 12:30 GMT, with headline and core figures for monthly and annual prints. Overall CPI MoM expected at 0.2%, coming from 0.4%, while the YoY is expected to fall from 4.9% to 4.1%. The core inflation MoM should remain steady at 0.4% while YoY drops from 5.5% to 5.3%. 
• The Federal Open Market Committee (FOMC) is set to start its two-day meeting where Federal Reserve board voters will make a rate decision announced on Wednesday. 
• The US Treasury will head to markets again to allot a 30-year and 1-year bond auction. 
• China weighs broader stimulus with property support and more rate cuts after it announced a rate cut in its 7-day Reverse Repo Rate from 2.0% to 1.9%.
• US equity futures rallied substantially on Monday and the party does not look to be over. All major indices in Asia and Europe are in the green while US equity futures are firmly in the green again. Japan’s Nikkei prints even a 33-year high. 
• The US Treasury had to pay a higher yield in order to get its auction allocated in the market on Monday evening. The yield came out at 3.791%, while 3.776% was expected. 
• The CME Group FedWatch Tool shows that markets are pricing in a 27% chance of rate hike for June and an 87% chance for a hike in July. A few market participants still believe that should US CPI surprise to the upside, the Fed could still go for a 25bp hike on Wednesday. 
• The benchmark 10-year US Treasury bond yield trades at 3.73%. Steady for now after the whipsaw move on Monday with the 10-year Treasury yield moving from 3.72% to 3.8% before closing at 3.74%. 

US Dollar Index technical analysis: USD bears focused toward that break below 103

The US Dollar is showing further signs of weakening as almost every currency in the Dollar Index (DXY) is gaining traction against the Greenback. That floor at 103 really comes close now and could see a firm break on the back of the US CPI numbers later this Tuesday. 

On the upside, 105.44 (200-day SMA) still acts as a long-term price target to hit, as the next upside key level for the US Dollar Index is at 105.00 (psychological, static level), and acts as an intermediary element to cross the open space.

On the downside, 103.02 (100-day SMA) aligns as the first support level to confirm a change of trend. In the case that breaks down, watch how the DXY reacts at the 55-day SMA at 102.55 in order to assess any further downturn or upturn. 

Brent downtrend has stalled after forming an interim trough near $70 in March. Economists at Société Générale analyze Brent Crude Oil technical outlook.

$81 must be overcome to affirm a meaningful rebound

Bank of England (BoE) Monetary Policy Committee (MPC) appointee Megan Greene said on Tuesday, “it is important not to allow inflation expectations to become de-anchored.”

Additional takeaways

Related reads

• BoE’s Mann: Wage increases of 4.0% would be a challenge to returning CPI to 2.0%.
• GBP/USD: Hard to buck the bullish Sterling trend in the near term – ING

Bank of England (BoE) policymaker Catherine Mann said on Tuesday, “wage increases of 4.0% would be a challenge to returning CPI to 2.0%.”

Additional quotes

Market reaction

The above comments fail to move a needle around the GBP/USD pair. The spot is trading at 1.2562, adding 0.44% so far.

Ahead of the Fed meeting tomorrow and the ECB meeting on Thursday the FX trade in EUR/USD has become a bit sluggish. Economists at Commerzbank say that shrugging off US inflation data today is the best.

It makes no sense to panic

See – US CPI Banks Preview: Headline inflation is moderating, but underlying persists

Economists at Société Générale analyze how could US inflation data impact the Dollar Index (DXY).

Inflation will drop off sufficiently in May to convince the Fed to deliver a first pause

See – US CPI Banks Preview: Headline inflation is moderating, but underlying persists

• USD/CAD has rebounded from 1.3340 after sensing intermediate stability in the oil price.
• The USD Index is struggling to keep its auction above 103.20 as the risk appetite theme has trimmed its appeal.
• One time weakness in Canadian Employment is insufficient to force the BoC to turn neutral again.

The USD/CAD pair has shown a solid recovery move from 1.3340 in the European session. The Loonie asset has got some strength as the oil price has shown some stability after a sheer sell-off to near $67.00. Also, the US Dollar Index (DXY) is making efforts in defending its immediate support of 103.20 but still looks vulnerable.

S&P500 futures have generated significant gains in Europe as the Federal Reserve (Fed) is expected to sound neutral on interest rate policy while delivering its monetary policy statement. The USD Index is struggling to keep its auction above 103.20 as the risk appetite theme has trimmed its appeal.

Later in the day, the United States Consumer Price Index (CPI) data (May) will be of utmost importance. Analysts at Credit Suisse expect the core CPI inflation to decline to 0.3% MoM in May, a welcome step lower after five consecutive months of registering 0.4% MoM. The YoY reading is likely to decline to 5.2%. Headline inflation is likely to decline to 0.1% MoM.

The effect of a weak USD Index can also be seen in US Treasury yields. The yields offered on 10-year US Treasury bonds have dropped to near 3.72%.

Meanwhile, the Canadian Dollar is showing resilience as investors are hoping that the Bank of Canada (BoC) will raise interest rates again to tighten its grip over stubborn inflation. Recent Canadian Employment data remained weak and posted a higher Unemployment Rate than expected after a few months. The street believes that a one-time weakness in the Employment numbers is insufficient to force BoC Governor Tiff Macklem to turn neutral again.

On the oil front, oil prices were heavily sold as Eurozone has joined China and is expected to show poor demand ahead due to deepening fears of recession. It is worth noting that Canada is the leading exporter of oil to the United States and lower oil prices would impact the Canadian Dollar.

• Germany’s ZEW Economic Sentiment Index unexpectedly improved in June.
• EUR/USD is testing highs above 1.0800 after the mixed ZEW surveys.

The German ZEW headline number showed that the Economic Sentiment Index unexpectedly improved in June, arriving at-8.5 from -10.7 seen in May while beating the market expectation of -13.0.

However, the Current Situation Index slumped to -56.5 from -34.8 prior, missing the market expectation of -40.0 by a wide margin.

During the same period, the Eurozone ZEW Economic Sentiment Index worsened to -10.0 from -9.4, compared with the estimates of -1.5. 

Key points

Market reaction

The EUR/USD pair is gaining upside traction despite the mixed data, hitting fresh monthly highs near 1.0810, up 0.46% on the day.

• NZD/USD regains positive traction on Tuesday and climbs to a nearly three-week high.
• A combination of factors weighs on the USD and remains supportive of the momentum.
• Traders now look to the US CPI for a fresh impetus ahead of the FOMC on Wednesday.

The NZD/USD pair attracts fresh buying near the 0.6100 round-figure mark on Tuesday and builds on its steady intraday ascent through the first half of the European session. The momentum lifts spot prices to a nearly three-week high, around the 0.6155 region in the last hour, and is sponsored by renewed US Dollar (USD) selling bias.

In fact, the USD Index (DXY), which tracks the Greenback against a basket of currencies, dives to its lowest level since May 18 and continues to be weighed down by expectations that the Federal Reserve (Fed) will skip raising interest rates in June. In fact, the recent dovish rhetoric by a slew of FOMC members lifted bets for an imminent pause in the US central bank's year-long policy tightening cycle. This, in turn, leads to a fresh leg down in the US Treasury bond yields, which is seen undermining the buck and acting as a tailwind for the NZD/USD pair.

Apart from this, a generally positive tone around the equity markets is seen as another factor weighing on the safe-haven USD and benefitting the risk-sensitive Kiwi. That said, worries about a global economic slowdown, particularly in China, might keep a lid on the optimism. Furthermore, surprise rate hikes by other major central banks - the Reserve Bank of Australia (RBA) and the Bank of Canada (BoC) - last week suggested that the fight against inflation is not over yet. This, in turn, has been fueling speculations about another 25 bps lift-off by the Fed in July.

This, along with the Reserve Bank of New Zealand's (RBNZ) explicit signal that it was done with its most aggressive hiking cycle since 1999, might hold back bulls from placing aggressive bets around the NZD/USD pair. Investors might also prefer to wait on the sidelines ahead of the release of the latest US consumer inflation figures, due later during the early North American session. The crucial US CPI report will influence the next policy move by the Fed, which is scheduled to announce the outcome of the highly-anticipated two-day monetary policy meeting on Wednesday.

Technical levels to watch

USD/CNY is back closer to the highs from last year when it briefly traded above the 7.20 level last autumn. Economists at MUFG Bank discuss the pair’s outlook.

PBoC is now being more proactive to support growth

Economists at Société Générale discuss USD outlook ahead of US Consumer Price Index (CPI) data and FOMC.

Dollar down vs Euro last four FOMC meetings 

See – US CPI Banks Preview: Headline inflation is moderating, but underlying persists

Today’s CPI release in the US is arguably the biggest risk event of the week. Economists at ING discuss how Core CPI numbers could impact the Dollar.

Small deviations in core inflation can have huge implications

See – US CPI Banks Preview: Headline inflation is moderating, but underlying persists

Economists at ING discuss GBP outlook after upbeat UK employment data.

UK jobs markets stays hot

• Silver catches fresh bids on Tuesday and recovers a major part of the overnight losses.
• The technical setup favours bullish traders and supports prospects for additional gains.
• A convincing break below the 200-hour SMA is needed to negate the constructive setup.

Silver regains strong positive traction on Tuesday and reverses a major part of the previous day's slide to sub-$23.00 levels. The white metal maintains its bid ton through the first half of the European session and is currently placed near the top end of its daily trading range, around the $24.20 region, up over 0.50% for the day.

From a technical perspective, the XAG/USD, for now, seems to have stalled its retracement slide from its highest level since May 11 touched on Friday. Meanwhile, oscillators on the daily chart are holding in the bullish territory and have again started gaining positive traction on hourly charts. This, in turn, supports prospects for a further appreciating move and move towards retesting the $24.50-$24.55 resistance zone, representing the 50% Fibonacci retracement level of the downfall witnessed in May.

Some follow-through buying will be seen as a fresh trigger for bullish traders and set the stage for the resumption of a nearly three-week-old upward trajectory, from the $22.70-$22.65 area, or a two-month low touched in May. The XAG/USD might then aim to reclaim the $25.00 psychological mark and accelerate the positive momentum further towards the $25.35-$25.40 hurdle. Bulls might then make a fresh attempt towards conquering the $26.00 round figure.

On the flip side, the 38.2% Fibo. level, around the $24.00 mark, also representing a strong horizontal barrier breakpoint, should protect the immediate downside. This is closely followed by the overnight swing low, around the $23.90-$23.85 region, nearing the 200-hour Simple Moving Average (SMA), which should now act as a pivotal point. A convincing break below the latter will expose the 23.6% Fibo. level, around mid-$23.00s. before the XAG/USD drops to the monthly low, around the $23.25 region.

Silver 1-hour chart

Key levels to watch

UOB Group’s Senior Economist Julia Goh and Economist Loke Siew Ting review the latest foreign portfolio figures in Malaysia.

Key Takeaways

Economists at Société Générale analyze EUR/CNY technical outlook.

7.65/7.64 should now be an important support near term

• USD/JPY is continuously oscillating below 140.00 as the focus shifts to US Inflation.
• More downside in the USD Index looks solid, facing pressure from the risk-appetite theme and the hopes of further US inflation easing.
• BoJ Ueda is expected to keep the interest rate policy unaltered as he has been reiterating the need for further monetary stimulus.

The US/JPY pair is constantly trading sideways in a narrow range below the crucial resistance of 140.00 in the European session. The asset is demonstrating topsy-turvy moves as investors have sidelined ahead of the United States inflation release.

S&P500 futures have added significant gains in London as investors are hoping that the Federal Reserve (Fed) would skip raising interest rates this time but will open doors for further rate hikes in July. Market sentiment is highly positive and has trimmed appeal for the US Dollar.

The US Dollar Index (DXY) has printed a fresh two-week low at 103.21 as the odds for a neutral interest rate policy by the Fed are extremely solid. More downside in the USD Index looks solid, facing pressure from the risk-appetite theme and the hopes of further softening of US inflation.

Analysts at Wells Fargo expect the overall consumer price inflation is likely to moderate in May. We forecast the headline CPI was flat during the month, as gasoline prices fell and food prices appeared to hold steady. Core inflation, on the other hand, likely remained firm. Auction data suggest used vehicle prices rose again last month, and we look for ongoing strength in core services. Specifically, we suspect the core CPI rose 0.4% for the third consecutive month, which would leave the YoY change little improved at 5.3% in May.

On the Japanese Yen front, the interest rate decision by the Bank of Japan (BoJ) will be keenly watched. BoJ Governor Kazuo Ueda is expected to keep the interest rate policy unaltered as he has been reiterating the need for further monetary stimulus to keep inflation steadily above 2%. The central bank is working on raising wages and the overall demand.

• EUR/USD finally pierces the key 1.0800 hurdle.
• Germany, EMU Economic Sentiment comes next in the docket.
• US CPI results are due later in the NA session.

The single currency extends the auspicious start of the new trading week and lifts EUR/USD to fresh 3-week highs past 1.0800 the figure on Tuesday.

EUR/USD focused on domestic data, US CPI

EUR/USD trades with gains for the second session in a row amidst the broad-based optimism in the risk complex and the renewed weakness hitting the buck ahead of the release of US inflation figures tracked by the CPI later in the NA session.

Spot gathers extra steam as investors seem to anticipate another soft US CPI print, which should bolster a Federal Reserve pause at its event on Wednesday vs. the largely telegraphed quarter-point increase of the interest rate by the European Central Bank (ECB) on Thursday.

In the euro docket, Economic Sentiment in both Germany and the broader Euroland are due next seconded by Germany’s Current Account.

What to look for around EUR

EUR/USD manages to surpass the key 1.0800 barrier on the back of the persistent selling bias in the US dollar.

In the meantime, the pair’s price action is expected to closely mirror the behaviour of the US Dollar and will likely be impacted by any differences in approach between the Fed and the ECB with regards to their plans for adjusting interest rates.

Moving forward, hawkish ECB speak continues to favour further rate hikes, although this view appears to be in contrast to some loss of momentum in economic fundamentals in the region.

Key events in the euro area this week: Germany Final Inflation Rate, Economic Sentiment, EMU Economic Sentiment (Tuesday) – EMU Industrial Production (Wednesday) – Eurogroup Meeting, EMU Balance of Trade, ECB Interest Rate Decision, ECB Lagarde (Thursday) – ECOFIN Meeting, Final EMU Inflation Rate (Friday).

Eminent issues on the back boiler: Continuation of the ECB hiking cycle in June and July (and September?). Impact of the Russia-Ukraine war on the growth prospects and inflation outlook in the region. Risks of inflation becoming entrenched.

EUR/USD levels to watch

So far, the pair is gaining 0.39% at 1.0798 and the surpass of 1.0807 (monthly high June 13) would target 1.0878 (55-day SMA) en route to 1.0904 (weekly high May 16). On the other hand, the next support at 1.0635 (monthly low May 31) seconded by 1.0516 (low March 15) and finally 1.0481 (2023 low January 6).

Economists at ING discuss EUR/USD outlook.  They expect the pair to be driven by US data and Fed policy decision.

Don't look at the Eurozone, look at the US

See – US CPI Banks Preview: Headline inflation is moderating, but underlying persists

Extra gains in USD/CNH could initially extend to the 7.1800 region, comment Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at UOB Group.

Key Quotes

24-hour view: Yesterday, we noted that “while the risk is on the upside, any advance is unlikely to break above 7.1800”. While USD strengthened, it rose less than expected (high of 7.1600). The risk for USD still appears to be on the upside even though lackluster momentum continues to suggest 7.1800 is unlikely to come into view. Support is at 7.1500, followed by 7.1400.

Next 1-3 weeks: There is not much to add to our update from yesterday (12 Jun, spot at 7.1520). As highlighted, “while upward momentum has been rejuvenated, it remains to be seen if USD has enough momentum to rise to 7.1800 and 7.2000”. On the downside, a break of 7.1220 (‘strong support’ level previously at 7.1100) would indicate that the USD strength from late last week has run its course.

Considering advanced prints from CME Group for natural gas futures markets, open interest shrank for the fourth session in a row on Monday, this time by almost 8K contracts. Volume, instead, went up by around 9.7K contracts, reversing the previous daily drop.

Natural Gas: Initial resistance emerges near $2.40

Prices of natural gas climbed modestly at the beginning of the week. However, the uptick was on the back of diminishing open interest and rising volume, exposing the continuation of the current multi-week consolidation range. In the meantime, occasional bullish attempts should meet the initial up-barrier around monthly highs near the $2.40 mark per MMBtu (June 8).

In May, the Indonesian Rupiah weakened against the US Dollar from 14,671 to 14,988. Economists at MUFG Bank analyze USD/IDR outlook.

Supportive current account fundamentals for the IDR

AUD/USD gains traction for the fourth straight day and climbs to over a one-month top.

• A sustained strength above the 100-day SMA supports prospects for additional gains.
• A convincing break below the 0.6600 mark is needed to negate the positive outlook.

The AUD/USD pair scales higher for the fourth successive day on Tuesday - also marking the eighth day of a positive move in the previous nine - and jumps to over a one-month high during the early part of the European session. The pair currently trades near the 0.6770-0.6775 region, up nearly 0.35% for the day, and seems poised to prolong its recent strong recovery move from the YTD low touched on May 31.

Firming expectations that the Federal Reserve (Fed) will skip hiking interest rates in June trigger a fresh leg down in the US Treasury bond yields and exert some downward pressure on the US Dollar (USD). Apart from this, a generally positive tone around the equity markets further undermines the safe-haven Greenback. This, along with the Reserve Bank of Australia's (RBA) surprise 25 bps rate hike last week and a more hawkish policy statement, continues to boost the risk-sensitive Aussie and acts as a tailwind for the AUD/USD pair.

From a technical perspective, the overnight close above the 100-day Simple Moving Average (SMA) was seen as a fresh trigger for bullish traders. The subsequent move up on Tuesday validates the constructive setup, which, along with positive oscillators on the daily chart, support prospects for a further near-term appreciating move. Hence, some follow-through strength beyond the 0.6800 mark, towards testing the May monthly top around the 0.6815-0.6820 region, looks like a distinct possibility ahead of the release of the US consumer inflation figures.

On the flip side, the 100-day SMA, currently pegged around the 0.6735-0.6730 area, now seems to act as immediate support ahead of the 0.6700 mark. This is closely followed by the very important 200-day SMA, currently around the 0.6680 area, which if broken might prompt some technical selling and make the AUD/USD pair vulnerable. Spot prices might then accelerate the fall further below the 0.6645 intermediate support, towards retesting the 0.6600 round-figure mark. A convincing break below the latter will shift the bias in favour of bearish traders.

AUD/USD daily chart

Key levels to watch

USD/JPY is now expected to trade within the 138.50-141.00 range in the short-term horizon, suggest Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at UOB Group.

Key Quotes

24-hour view: We expected USD to trade between 139.00 and 139.90 yesterday. USD then traded in a narrower range than expected (139.05/139.76). The price movements still appear to be part of a range-trading phase. Today, we expect USD to trade between 139.10/139.95.

Next 1-3 weeks: Our most recent narrative was from last Thursday (08 Jun, spot at 139.95) wherein USD “is likely to trade between 138.50 and 141.00”. There is no change in our view for now.

• Euro has attracted significant bids as a decline in the Fed-ECB policy divergence is widely anticipated.
• An interest rate hike by the ECB is expected despite fears of a recession in Europe.
• The energy component is expected to soften the US headline inflation while core inflation could turn out more persistent.

The Euro has driven the major currency pair closer to the round-level resistance of 1.0800 after a sharp recovery from 1.0743. The EUR/USD pair has attracted investors’ attention amid a firmer risk-appetite theme and hopes of a decline in the Federal Reserve (Fed)-European Central Bank (ECB) policy divergence.

A volatile action is expected this week from the Euro as ECB President Christine Lagarde will announce its June interest rate decision. While the scale of volatility from the US Dollar will also higher as the Federal Reserve will also announce its interest rate policy on Wednesday. But before that, heavy action is anticipated from the major currency pair ahead of the release of the United States Consumer Price Index (CPI) data (May), which will release at 12:30 GMT on Tuesday.

Daily digest market movers: Euro looks solid on hopes of a hawkish ECB policy

• The market participants are entirely focusing on the US Inflation data as it will provide significant guidance about the Fed’s policy.
• Monthly headline inflation is expected to accelerate at a pace of 0.2%, slower than the 0.4% pace being recorded for April. However, the monthly pace in core CPI that excludes oil and food prices is seen steady at 0.4%.
• Headline inflation is seen softening sharply amid a negative impact from the energy component while core CPI is expected to show persistence due to solid demand for durables and services.
• A soft reading of US CPI would bolster the case of a neutral interest rate policy announcement by the Federal Reserve as other catalysts such as Employment and economic activities are supporting the unaltered interest rate decision case.
• US Unemployment Rate has climbed to 3.7% and weekly Initial Jobless Claims have been increasing straight for the past three weeks. US Factory activities have been contracting straight for the past seven months and the service sector is hardly showing any expansion.
• Former Dallas Fed Bank President Robert Kaplan said in an interview early Tuesday, he would support a "hawkish pause" at this week's meeting.
• Fed chair Jerome Powell announced that more interest rate hikes are less certain as tight lending conditions by United States commercial banks are barricading inflationary pressures.
• US President Joe Biden is going to announce Federal Reserve Vice Chair and will fill the vacant Fed Board seat on June 21 before the Senate Banking Committee. Fed Governor Philip Jefferson is expected to be the next vice chair, and an open Fed Board seat would be equipped by economist Adriana Kugler.
• ECB President Christine Lagarde is expected to raise interest rates by 25 basis points (bps) to 4.25% despite deepening fears of a recession in Europe.
• The final reading of the Eurozone’s Q1 Gross Domestic Product (GDP) contracted by 0.1%. led by constantly declining factory activities.
• The German economy has already registered a recession after reporting two consecutive quarters of contraction.
• An interest rate hike by the ECB and an unchanged policy stance by the Fed would trim the ECB-Fed policy divergence.
• The US Dollar Index is making efforts in defending its immediate support of 103.35 amid positive market sentiment.

Technical Analysis: Refreshes three-week high around 1.0800

The Euro is confidently driving the major currency pair higher in a Rising Channel chart pattern on a four-hour scale in which each corrective move is considered a buying opportunity by the market participants. EUR/USD has refreshed its three-week high around 1.0800, however, the 200-period Exponential Moving Average (EMA) at around 1.0800 might act as a barricade for the Euro bulls.

Buyers could show more interest if the EUR/USD manages to sustain comfortably above 1.0800. The upside bias could be ruined if the major currency pair drops below June 12 low of 1.0733.

Open interest in crude oil futures markets increased by around 10.6K contracts after three consecutive daily pullbacks at the beginning of the week according to preliminary readings from CME Group. In the same line, volume resumed the uptrend and set aside the previous daily drop and went up by nearly 286K contracts.

WTI could revisit the 2023 low

WTI prices retreated markedly on Monday against the backdrop of increasing open interest and volume. That said, further decline appears in store in the very near term with the immediate target at the 2023 low in the suib-$64.00 mark per barrel (May 4).

The continuation of the upside bias could put NZD/USD en route to revisit the 0.6180 region in the near term according to Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at UOB Group.

Key Quotes

• The index appears offered near monthly lows around 103.30.
• US CPI is expected to extend the downward bias in May.
• The Fed starts its 2-day meeting later on Tuesday.

The USD Index (DXY), which tracks the greenback vs. a basket of its main rival currencies, resumes the downtrend and trades at shouting distance from monthly lows near 103.30 on turnaround Tuesday.

USD Index looks at US CPI, Fed

The index slips back to the lower end of the recent range and leaves behind two consecutive daily advances on Tuesday on the back of the firmer tone in the risk complex and ahead of the publication of crucial US inflation figures for the month of May.

On the latter, investors expect the disinflationary pressures to have remained unchanged during the last month, which in turn underpins the most likely pause in the Fed’s tightening campaign.

So far, FedWatch Tool sees the probability of an impasse at the FOMC event on Wednesday at nearly 76%, while a 25 bps rate hike remains the preferred scenario at the July 26 gathering.

Other than the Inflation Rate, the US docket includes the NFIB Business Optimism Index.

What to look for around USD

The index remains under pressure and challenges the area of June lows around 103.30/20.

In the meantime, bets of another 25 bps at the Fed’s next gathering in June reversed course in spite of the steady resilience of key US fundamentals (employment and prices, mainly) and have dented the recent rally in the dollar.

Bolstering a pause by the Fed instead appears to be the extra tightening of credit conditions in response to uncertainty surrounding the US banking sector.

Key events in the US this week: Inflation Rate (Tuesday) – MBA Mortgage Applications, Producer Prices, FOMC Interest Rate Decision, Powell press conference (Wednesday) – Initial Jobless Claims, Philly Fed Manufacturing Index, Retail Sales, NY Empire State Index, Industrial Production, Business Inventories, TIC Flows (Thursday) – Flash Michigan Consumer Sentiment (Friday).

Eminent issues on the back boiler: Persistent debate over a soft/hard landing of the US economy. Terminal Interest rate near the peak vs. speculation of rate cuts in late 2023/early 2024. Fed’s pivot. Geopolitical effervescence vs. Russia and China. US-China trade conflict.

USD Index relevant levels

Now, the index is losing 0.30% at 103.31 and faces the next support at at 103.24 (monthly low June 12) seconded by 103.02 (100-day SMA) and finally 102.53 (55-day SMA). On the flip side, the breakout of 104.69 (monthly high May 31) would open the door to 105.38 (200-day SMA) and then 105.88 (2023 high March 8).

• EUR/JPY scales higher for the second straight day and climbs to a two-week high on Tuesday.
• The ECB-BoJ policy divergence favours bulls and remains supportive of the ongoing move up.
• Traders now await the ECB decision and the BoJ meeting before placing fresh directional bets.

The EUR/JPY cross builds on the previous day's positive move and gains some follow-through traction for the second successive day on Tuesday. The steady intraday ascent extends through the early part of the European session and lifts spot prices to over a two-week high, around the 150.70-150.75 region in the last hour.

The shared currency continues to draw support from rising bets for a further policy tightening by the European Central Bank (ECB) and is seen as a key factor pushing the EUR/JPY cross higher. In fact, ECB President Christine Lagarde indicated last week that additional interest rate rises were likely as, so far, there was no clear evidence that underlying inflation has peaked. This, along with the recent hawkish remarks by several ECB policymakers, suggests that the central bank has still way to go to raise borrowing costs despite a fall in the headline Eurozone CPI to 6.1% in May.

In contrast, the Bank of Japan (BoJ) is universally expected to stick to its dovish stance to support the economy and ensure that the recent positive signs are sustained. In fact, BoJ Governor Kazuo Ueda has stressed the need to maintain the ultra-loose policy until durable wage growth accompanies the price rises. Moreover, BoJ Deputy Governor Masazumi Wakatabe said on Monday that there are overwhelming cases for the continuation of the ultra-easy monetary policy measures. This, in turn, is seen as another factor providing an additional boost to the EUR/JPY cross.

That said, the prospect of Japanese authorities intervening in the markets to support the domestic currency, along with worries about a global economic slowdown, could lend some support to the safe-haven JPY. Traders might also refrain from placing aggressive bullish bets around the EUR/JPY cross and prefer to wait for this week's key central bank event risks - the ECB decision on Thursday, followed by the BoJ meeting on Friday. Nevertheless, the aforementioned fundamental backdrop suggests that the path of least resistance for spot prices is to the upside.

Technical levels to watch

• USD/IDR sticks to mild losses for the second consecutive day as Indonesia Retail Sales growth eases.
• Broad US Dollar weakness amid Fed concerns, China news weighs on Indonesia Rupiah.
• US CPI, Fed bets and risk catalysts eyed for clear directions.

USD/IDR holds lower ground near 14,858 as it drops for the second consecutive day amid broad US Dollar weakness. In doing so, the pair ignores downbeat Indonesia Retail Sales. It’s worth noting, however, that the Indonesia Rupiah (IDR) struggles to extend the two-day downtrend amid cautious markets ahead of the US Consumer Price Index (CPI) data for the stated month.

That said, Indonesia Retail Sales for April report a softer growth of 1.5% versus 4.9% previous readings.

On the other hand, US Dollar Index (DXY) snaps a two-day uptrend with a 0.30% intraday loss to near 103.32 by the press time. In doing so, the greenback’s gauge versus six major currencies bears the burden of the downbeat bets on Wednesday’s Federal Open Market Committee (FOMC) monetary policy meeting.

Softer US data and unimpressive Fed talks allow traders to remain dovish on the US central bank. While portraying the same, the CME’s FedWatch Tool suggests more than a 70% chance of the Fed’s inaction on Wednesday while suggesting nearly 80% odds favoring the 0.25% rate increase in July.

It should be noted that the upbeat sentiment in the Asia-Pacific zone, mainly due to the People’s Bank of China’s (PBoC) rate cut, exert downside pressure on the USD/IDR price.

Against this backdrop, the S&P500 Futures print mild gains at the highest level since April 2022, marked the previous day, whereas the US 10-year and two-year Treasury bond yields register minor downside during the second consecutive day to around 3.72% and 4.56% in that order.

Moving on, the USD/IDR pair traders should keep their eyes on the US Consumer Price Index (CPI) figures for May as it bears the market forecasts of witnessing no change in the Core CPI MoM figure of 0.4%. The same could push back the July rate hike concerns and may not allow the Fed to sound hawkish, which in turn keeps the pair sellers hopeful.

Technical analysis

Repeated failure to cross the 21-DMA hurdle, currently around 14,910, keeps USD/IDR bears hopeful.

FX option expiries for June 13 NY cut at 10:00 Eastern Time, via DTCC, can be found below.

- EUR/USD: EUR amounts        

• 1.0600 1.4b
• 1.0675 510m
• 1.0700 598m
• 1.0735 602m
• 1.0750 1.2b
• 1.0775 660m
• 1.08 1.3b

- GBP/USD: GBP amounts     

• 1.2500 400m
• 1.2775 431m

- USD/JPY: USD amounts                     

• 137.50 451m
• 139.50-60 659m
• 141.00 361m

- AUD/USD: AUD amounts

• 0.6870 655m

- USD/CAD: USD amounts       

• 1.3255 500m
• 1.3330 690m

- NZD/USD: NZD amounts

• 0.6210 358m

- EUR/GBP: EUR amounts        

• 0.8605 655m
• 0.8870 356m

In the opinion of Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at UOB Group, the breach of the 1.2450 level is expected to mitigate the upside pressure in GBP/USD.

Key Quotes

24-hour view: Yesterday, we held the view that “there is room for GBP to edge higher”. GBP then eked out a fresh high of 1.2600 and then plummeted to end the day at 1.2512 (-0.54%). The rapid decline appears to be overdone and GBP is unlikely to weaken much further. Today, GBP is more likely to trade in a range of 1.2475/1.2575.

Next 1-3 weeks: After GBP soared at the end of last week, we highlighted on Friday (09 Jun, spot at 1.2555) that while GBP “is likely to rise further, it remains to be seen if it has enough momentum to revisit last month’s high near 1.2680”. Yesterday, GBP rose to 1.2600 and then dropped sharply to close lower by 0.54% (1.2512). Upward momentum is beginning to fade and a break below 1.2450 (no change in ‘strong support’ level) would indicate that 1.2680 is not coming into view.

Here is what you need to know on Tuesday, June 13:

The US Dollar stays on the back foot early Tuesday, with the US Dollar Index falling below 103.50, as investors gear up for the release of the May Consumer Price Index (CPI) data. ZEW Survey for the Eurozone and Germany will be featured in the European economic docket. Later in the day, Bank of England Governor Andrew Bailey will speak before the House of Lords Economic Affairs Committee.

US stock index futures trade modestly higher and the benchmark 10-year US Treasury bond yield fluctuates between 3.7% and 3.75% early Tuesday. Investors expect the annual CPI to rise 4.1% in May, down sharply from 4.9% increase recorded in April.

CPI Data Expectations: Analyzing May US inflation.

Following Monday's indecisive action, EUR/USD gathered bullish momentum early Tuesday and climbed toward 1.0800.

GBP/USD fell sharply during the American trading hours on Monday but regathered bullish momentum in the European morning. The data published by the UK's Office for National Statistics revealed that the ILO Unemployment Rate declined to 3.8% in April from 3.9% in March. Additionally, wage inflation, as measure by the Average Earnings Excluding Bonus, climbed to 7.2% from 6.8%. With this report highlighting tight labor market conditions in the UK, Pound Sterling started to outperform its rivals.

Gold price continues to move up and down at around $1,960 for the second straight day on Tuesday. Despite the broad USD weakness, the lack of action in the US T-bond yields makes it difficult for XAU/USD to find direction.

USD/JPY registered small gains on Monday but went into a consolidation phase during the Asian trading hours. The pair stays relatively calm at around 139.50. 

AUD/USD extended its uptrend toward 0.6800 and touched its highest level in a month on Tuesday. 

USD/CAD snapped a five-day losing streak on Monday but lost its bullish momentum before reaching 1.3400. The pair edges lower early Tuesday and trades near 1.3350. 

Bitcoin continues to trade in a tight channel slightly above $26,000 and Ethereum clings to modest recovery gains near $1,750.

• GBP/JPY jumps 50 pips as strong UK employment report bolsters hawkish BoE bets.
• Upbeat UK data joins pair’s rebound from 100-HMA to lure buyers.
• Fortnight-old ascending resistance line can prod bulls; sellers have a long road to travel before retaking control.

GBP/JPY reverses the previous day’s pullback from the highest levels since January 2016 with a quick jump to refresh intraday high near 175.20 amid the early hours of Tuesday’s London open. In doing so, the cross-currency pair justifies a strong UK employment report, as well as a rebound in the US Treasury bond yields.

That said, the GBP/JPY pair jumps nearly 50 pips as the UK Claimant Count Change for May drops -13.6K versus -9.6K expected and 46.7K prior, whereas the ILO Unemployment Rate for three months to April 3.8% compared to 3.9% previous readings and 4.0% market forecasts.

On a different page, the US 10-year and two-year Treasury bond yields bounce off intraday low during a two-day losing streak, mildly offered near 3.74% and 4.57% respectively at the latest.

Technically, the GBP/JPY pair bounces off the 100-Hour Moving Average (HMA) following the upbeat UK data. The recovery from the key HMA also takes clues from the bullish MACD signals and upbeat RSI (14) line to keep the buyers on board.

However, an upward-sloping resistance line from May 28, close to 175.70 by the press time, can challenge the GBP/JPY bulls as the RSI (14) line approaches the overbought territory.

On the flip side, a clear break of the 100-HMA, around 174.55 as we write, isn’t an open welcome to the GBP/JPY bears as the 61.8% Fibonacci retracement level of its May 31 to June 12 upside, near 173.65, prod the pair’s further downside.

Even if the quote breaks the 173.65 Fibonacci retracement support, the monthly low near 172.65 and the October 2022 peak of around 172.15 can restrict the quote’s south-run.

GBP/JPY: Hourly chart

Trend: Further upside expected

CME Group’s flash data for crude oil futures markets noted traders trimmed their open interest positions for the second straight day on Monday, this time by around 2.5K contracts. Volume followed suit and went down for the second consecutive session, now by around 6.6K contracts.

Gold: Decent support remains around $1930

Gold prices started the week on a negative foot amidst shrinking open interest and volume. Against that, further retracements appear not favoured for the time being, giving way instead to some near-term rebound. So far, the precious metal remains well underpinned around the $1930 region per ounce troy.

• Gold price attracts some buyers on Tuesday and draws support from a softer US Dollar.
• Bets for a pause in the Fed’s rate-hiking cycle weigh on the US bond yields and the buck.
• Economic woes further lend support to the XAU/USD ahead of the crucial US CPI report.

Gold price edges higher on Tuesday, for the first day in the previous three, and sticks to a mildly positive tone heading into the European session. The XAU/USD is currently placed around the $1,960 region, up over 0.20% for the day, though lacks follow-through buying and remains well within a familiar trading range held over the past three weeks or so.

Renewed US Dollar selling benefits Gold price

The US Dollar (USD) struggles to capitalize on its modest gains registered over the past two days and comes under fresh selling pressure in the wake of expectations for an imminent pause in the Federal Reserve’s (Fed) year-long policy tightening cycle. This, in turn, is seen as a key factor lending some support to the US Dollar-denominated Gold price. It is worth recalling that the markets are pricing in a greater chance that the US central bank will keep interest rates on hold at the end of a two-day Federal Open Market Committee (FOMC) meeting on Wednesday. The bets were lifted by the recent dovish rhetoric by several Fed officials, which leads to a fresh leg down in the US Treasury bond yields and continues to undermine the Greenback.

Uncertainty over  Federal Reserve’s rate-hike path caps gains

That said, surprise rate hikes by other major central banks - the Reserve Bank of Australia (RBA) and the Bank of Canada (BoC) - last week suggest that the fight against inflation is not over yet. Moreover, inflation in the United States (US) is still trending above the 2% target, which, along with a robust labor market, supports prospects for further tightening by the Fed. In fact, the CME FedWatch tool point to a 20% chance of another 25 basis point (bps) lift-off at the July FOMC meeting. Adding to this, rising bets for additional rate hikes by the European Central Bank (ECB) and the Bank of England (BoE) contribute to capping gains for the non-yielding Gold price. Traders also seem reluctant to place aggressive bets ahead of the key macro data/event risks.

Economic woes to limit losses for XAU/USD ahead of key data/event risks

A rather busy week kicks off the release of the latest US consumer inflation figures, due later during the early North American session. A stronger US Consumer Price Index (CPI) print would revive hopes for a more hawkish Fed, which is scheduled to announce its policy decision on Wednesday. This will be followed by the ECB meeting on Thursday and the BoJ monetary policy update on Friday. The latter is expected to maintain its ultra-loose policy, while the ECB is set to hike its benchmark rates by 25 bps. In the meantime, worries about a global economic slowdown, particularly in China, might continue to benefit the safe-haven Gold price and help limit any meaningful downside, warranting some caution for aggressive traders.

Gold price technical outlook

From a technical perspective, any subsequent move up is more likely to confront stiff resistance near Friday's swing high, around the $1,973 region. This is followed by the $1,983-$1,985 supply zone, which if cleared decisively might trigger a short-covering move and lift the Gold price to the $2,000 psychological mark. The XAU/USD could extend the upward trajectory and eventually climb to the next relevant hurdle near the $2,010-$2,012 region.

On the flip side, any meaningful slide might continue to attract fresh buyers and find decent support near the 100-day Simple Moving Average (SMA), currently pegged around the $1,942-$1,941 area. A convincing break below will make the Gold price vulnerable to accelerate the fall towards the $1,900 mark. Some follow-through selling will expose the very important 200-day SMA, around the $1,842 area, with some intermediate support near the $1,876-$1,875 horizontal zone.

Key levels to watch

Apart from that, Average Earnings excluding bonuses have soared to 6.5% against the consensus and the former release of 6.1%. Investors should note that higher earnings have remained a major concern for the Bank of England (BoE) while battling against stubborn inflation.

UK firms have been facing issues of labor shortages and are offsetting the same through higher payouts. Brexit and early retirements by individuals have remained major catalysts behind labor shortages.

Considering the resilience in the UK Employment data, BoE Governor Andrew Bailey would definitely go for further policy-tightening by 25 basis points (bps) to 4.75%.

Meanwhile, S&P500 futures added decent gains in the Asian session. US equities also found significant interest from the market participants on Monday as investors are hoping that the Federal Reserve (Fed) would skip raising interest rates this time. However, hawkish guidance cannot be ruled out as the inflation rate is still more than double the desired rate of 2%.

Before the Fed policy, the United States Consumer Price Index (CPI) data will be keenly watched. Monthly headline inflation (May) is expected to accelerate at a pace of 0.2%, slower than the 0.4% pace being recorded for April. However, the monthly pace in core CPI that excludes oil and food prices is seen steady at 0.4%.

• EUR/GBP eases from intraday high as Pound Sterling rises past UK data.
• UK Claimant Count Change slumps, ILO Unemployment Rate eases.
• Final readings of Germany’s inflation, per HICP, remains unchanged to 6.3% YoY in May.
• Market’s cautious mood ahead of US inflation limits reaction to the British job numbers, German inflation data.

EUR/GBP reverses from intraday high as it pares the daily gains to around 0.8590, with a quick 20-pip fall, heading into Tuesday’s European session. In doing so, the cross-currency pair suffers from unimpressive statists Germany and price favoring UK jobs report.

That said, the UK Claimant Count Change for May slumped to -13.6K versus -9.6K expected and 46.7K prior, whereas the ILO Unemployment Rate for three months to April 3.8% compared to 3.9% previous readings and 4.0% market forecasts.

Earlier in the day, the UK Incomes Data Research (IDR) came out with the research paper, shared via Reuters, which said, “The median pay settlement awarded by major British employers had increased to 5.6% in the three months to April, the highest in records dating back to 2005 and up from 5.0% in the three months to the end of March.”

While the aforementioned news should have weighed on the EUR/GBP price, another survey from the Chartered Institute of Personnel Development (CIPD) showed British workers were feeling less optimistic about work than in 2019 and considered their jobs to be more "transactional" and just a means to earn money compared with before the COVID-19 pandemic hit. The same seems to have put a floor under the cross-currency pair’s price.

On the other hand, final readings of Germany’s inflation for May, per the Harmonized Index of Consumer Prices (HICP), remain unchanged to 6.3% YoY. Given the easing inflation pressure in the bloc’s powerhouse, the odds of the ECB’s dovish hike gain acceptance and exert downside pressure on the EUR/GBP price.

Looking ahead, a speech from the Bank of England (BoE) Governor Andrew Bailey becomes more important after today’s UK data. Following that, the UK’s monthly data dump and second-tier EU statistics may entertain ahead of Thursday’s European Central Bank (ECB) monetary policy meeting. Also important to watch will be the German and European ZEW Survey details for June.

Technical analysis

EUR/GBP rebound appears elusive unless it stays within a seven-week-old bearish trend channel, currently between 0.8515 and 0.8620.

• The UK Unemployment Rate unexpectedly drops to 3.8% in the three months to April.
• The Claimant Count Change for Britain arrived at -13.6K in May.
• The UK Average Earnings excluding bonuses rose 7.2% YoY in April vs. the 6.9% increase expected.

According to the latest data published by the Office for National Statistics (ONS) on Tuesday, the United Kingdom’s (UK) ILO Unemployment Rate inched lower to 3.8% in the quarter to April from the 3.9% recorded in the three months to March, beating the market consensus of a 4.0% print.

The Claimant Count Change also showed a bigger-than-expected decline. The number of people claiming jobless benefits dropped by 13.6K in May, compared with the expected decrease of 9.6K. The Claimant Count Change unexpectedly jumped by 23.4K (an upward revision from 46.7K) in the previous month.

The UK’s average weekly earnings, excluding bonuses, arrived at 7.2% 3Mo/YoY in April versus 6.8% prior and 6.9% expected. The gauge including bonuses came in at 6.5% 3Mo/YoY in the fourth month of the year versus 6.1% previous and 6.1% expected.

It’s worth noting that the April data includes the impact of a 9.7% rise in the minimum wage and, therefore, will be closely analyzed by the Bank of England (BoE) as it stays committed to tame inflation.

Key points (via ONS)

GBP/USD reaction

GBP/USD extends its recovery momentum and scales 1.2550 after the mixed UK employment data. The pair is trading 0.40% higher on the day at 1.2558, as of writing.

About UK jobs

The UK Average Earnings released by the Office for National Statistics (ONS) is a key short-term indicator of how levels of pay are changing within the UK economy. Generally speaking, positive earnings growth anticipates positive (or bullish) for the GBP, whereas a low reading is seen as negative (or bearish).

• Annual Consumer Price Index in the US is seen rising 4.2% in May, slowing from April’s 4.9% increase.
• Core CPI inflation is foreseen at 5.6% YoY in May, rising a tad faster than April’s 5.5 growth%.
• US CPI inflation data is set to influence the Fed’s rate outlook and stir US Dollar markets.

The highly-anticipated Consumer Price Index (CPI) inflation data for May will be published by the US Bureau of Labor Statistics (BLS) on June 13 at 12:30 GMT. 

The United States Dollar (USD) has been trading quite choppy in the lead-up to the crucial US inflation report, following a mixed May Nonfarm Payrolls report. The recent series of discouraging US economic data have underpinned expectations of a US Federal Reserve (Fed) interest rate hike pause this Wednesday when the Fed concludes its two-day policy meeting.

The US CPI inflation data could influence the Fed’s decision, throwing fresh light on whether the world’s most powerful central bank will meet the market expectations and bring a halt to its tightening cycle. Therefore, this top-tier US economic data release is likely to have a significant bearing on USD valuations.

What to expect in the next CPI data report?

The US Consumer Price Index data, on a yearly basis, is expected by market consensus to rise 4.2% in May, a deceleration when compared with the 4.9% increase recorded in April. On the other hand, the Core CPI figure, which excludes volatile food and energy prices, is expected to advance 5.6%, at a slightly faster pace than April’s 5.5% growth.

The monthly Consumer Price Index is forecast to rise 0.3% in May, having inched 0.4% higher in the fourth month of the year. However, the Core CPI is expected to increase 0.4%, the same pace as the previous month.  

Speaking at the Fed’s annual Thomas Laubach Research Conference last month, Fed Chairman Jerome Powell said it would take “some time” for inflation to moderate and that the central bank would continue to look at data as it considers whether to raise rates next month.

Based on recent Fed communication and sluggish economic performance, the central bank is widely expected to skip a rate hike at this meeting and potentially resort to tightening more later. The recently released US ISM Services PMI and the weekly Initial Jobless Claims data disappointed and raised economic concerns. Expectations for further cooling of US inflationary pressures further cemented a Fed pause this week, with markets pricing roughly 80% probability for the same.

Last week, however, markets weighed the prospects of a coordinated effort by the major central banks to tame inflation especially after the Bank of Canada (BoC) followed the Reserve Bank of Australia (RBA) to announce an unexpected rate lift-off. The BoC unexpectedly raised the policy rate by 25 basis points (bps) to 4.75% at its June meeting after being on pause since March. The Fed pause bets dropped to around 60% following the BoC’s hawkish surprise.

When will be the Consumer Price Index report and how could it affect EUR/USD?

The CPI inflation data is slated for release at 12:30 GMT, on May 10. A below-forecast reading, especially in the monthly core inflation, could push back against the market expectations that the Fed could return to tightening later this year after skipping at the June meeting.

Last week’s mixed US Nonfarm Payrolls (NFP) and wage inflation data left markets scouting for more cues on the Fed’s interest rates outlook. The US economy added 339K jobs in May vs. 190K expected and the upwardly revised previous reading of 294K. The Average Hourly Earnings, the wage inflation component in the jobs report, softened to 4.3%, while the Unemployment Rate ticked higher to 3.7% last month, compared with expectations of 3.5%.

Softer-than-expected CPI inflation data will reinforce dovish Fed expectations, adding extra legs to the ongoing correction in the US Dollar. The EUR/USD pair should therefore extend its renewed upside toward the 1.0800 level and beyond. Conversely, surprisingly hot inflation data from the United States could rescue the US Dollar bulls, as it will bring Fed rate hike bets back on the table. Irrespective of the outcome, the US CPI data is likely to generate intense volatility around the US Dollar, eventually impacting the main currency pair.

Meanwhile, Dhwani Mehta, Asian Session Lead Analyst at FXStreet, offers a brief technical outlook for the major and explains: “EUR/USD is approaching the horizontal 100-Daily Moving Average (DMA) at 1.0806. Meanwhile, the 14-day Relative Strength Index (RSI) is looking to pierce the midline from below, suggesting that the tide could turn against Euro bears.” 

Dhwani also outlines important technical levels to trade the EUR/USD pair: “On the upside, EUR/USD buyers need a sustained break above the 100 DMA at 1.0806, above which the May 22 high of 1.0831 could be put to test. Further up, doors will open toward the 1.0900 barrier. Alternatively, acceptance below the 21 DMA at 1.0752 will trigger a fresh downswing toward the 1.0700 round figure. The last line of defense for Euro bulls is seen at the previous week’s low of 1.0667. “

About the Consumer Price Index

The Consumer Price Index released by the US Bureau of Labor Statistics is a measure of price movements by the comparison between the retail prices of a representative shopping basket of goods and services. The purchase power of USD is dragged down by inflation. The CPI is a key indicator to measure inflation and changes in purchasing trends. Generally speaking, a high reading is seen as positive (or bullish) for the USD, while a low reading is seen as negative (or Bearish).

Further upside could motivate EUR/USD to revisit the mid-1.0800s in the next few weeks, note Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at UOB Group.

Key Quotes

24-hour view: We noted yesterday, “the price actions are likely part of a consolidation” and we expected EUR to “trade between 1.0730 and 1.0775”. After dipping to a low of 1.0731, EUR rebounded to 1.0790 before closing little changed at 1.0757 (+0.09%). Despite the rebound, there is no clear increase in upward momentum. EUR could continue to consolidate for now, likely in a range of 1.0735/1.0800.

Next 1-3 weeks: Our most recent narrative was from last Friday (09 Jun, spot at 1.0780) wherein upward momentum is building tentatively but “it is not clear for now if EUR has enough momentum to rise to 1.0850”. Yesterday (12 Jun), EUR fell to within one pip of our ‘strong support’ level of 1.0730 (low of 1.0731). There is still a slight upward bias but EUR has to break and stay above 1.0800 in the next 1-2 days or the odds for further EUR strength will diminish quickly. Conversely, a breach of 1.0730 (no change in ‘strong support’ level) would suggest the build-up in momentum has faded.

• USD/CHF takes offers to refresh intraday low, snaps two-day winning streak.
• Bearish MACD signals, downside break of key moving average tease Swiss Franc pair bears.
• Convergence of 50-HMA, immediate rising support line challenge sellers.

USD/CHF stands on slippery grounds as it drops to 0.9060 heading into Tuesday’s European session. In doing so, the Swiss Franc (CHF) pair prints the first daily loss in three while breaking the 200-Hour Moving Average (HMA) support.

Adding strength to the downside bias are the bearish MACD signals, as well as the RSI (14) reversal from the overbought territory. However, the RSI line’s current place is below the 50.0 level and suggests limited downside room for the USD/CHF pair.

With this, a convergence of the 50-HMA and an ascending trend line from the last Friday, around 0.9045 at the latest, gains the market’s attention as the key downside support.

Should the bears manage to break the stated strong support, a quick slump to the 0.9000 psychological magnet can’t be ruled out. However, the monthly low of 0.8985 and the previous monthly low of 0.8820 can challenge the USD/CHF pair sellers afterward.

Meanwhile, USD/CHF recovery needs to portray a successful trading beyond the 200-HMA level of 0.9065 at the latest.

Also acting as the short-term upside hurdle is the 61.8% Fibonacci retracement of the pair’s downturn from May 31 to June 09, near 0.9085.

Above all, the double top formation around 0.9110 appears crucial resistance for the USD/CHF bulls to cross to retake control.

USD/CHF: Hourly chart

Trend: Limited downside expected

• USD/CAD rebounds from intraday low even as it struggles after snapping four-day downtrend the previous day.
• US Dollar stays pressured as markets brace for Fed’s status quo ahead of US CPI.
• Oil price fails to cheer China-inspired optimism, Saudi-OPEC optimism amid fears of more supplies, slower economic growth.

USD/CAD picks up bids to pare intraday loss as it bounces off the daily low to 1.3365 heading into Tuesday’s European session. In doing so, the Loonie pair struggles to justify the latest US Dollar weakness amid the sluggish price of Canada’s main export item, WTI crude oil. That said, the quote’s latest inaction could also be linked to the market’s cautious mood ahead of the top-tier data/events, like the US inflation and Federal Reserve (Fed) monetary policy meeting.

US Dollar Index (DXY) prints the first daily loss in three, down 0.20% intraday to near 103.43 by the press time. It’s worth noting that the greenback’s gauge versus six major currencies bears the burden of the downbeat bets on Wednesday’s Federal Open Market Committee (FOMC) monetary policy meeting.

The previously softer US activity and job clues joined unimpressive Fed talks to allow traders to remain dovish on the US central bank. While portraying the same, the CME’s FedWatch Tool suggests more than a 70% chance of the Fed’s inaction on Wednesday while suggesting nearly 80% odds favoring the 0.25% rate increase in July.

On the other hand, WTI crude oil picks up bids to print mild gains around $67.70 as it consolidates the biggest daily slump in two weeks during sluggish markets. fears that China is losing economic momentum also weigh on the WTI price as Beijing is one of the world’s biggest energy consumers. People’s Bank of China (PBoC)  cuts the Repo Rate to 1.9% from 2.0% and confirms the previous fears suggesting slower economic growth in the world’s biggest industrial player. With this in mind, Bloomberg said, “China’s central bank cut a short-term policy interest rate, easing its monetary stance to help aid the economy’s recovery.” Additionally, hopes of the US-Iran deal unveiling more energy output at a time of slower economic recovery contrasts with the hawkish bias of Saudi Arabia and the OPEC+ to prod the Oil traders.

Amid these plays, the S&P500 Futures print mild gains at the highest level since April 2022, marked the previous day, whereas the US 10-year and two-year Treasury bond yields drop for the second consecutive day to around 3.72% and 4.56% in that order.

Looking ahead, USD/CAD pair traders should keep their eyes on the US Consumer Price Index (CPI) figures for May as the Fed decision looms on Wednesday is bearing expectations of no rate change. It’s worth noting that the market forecasts of witnessing no change in the Core CPI MoM figure of 0.4% is in the spotlight as softer figures could push back the July rate hike concerns and may not allow the Fed to sound hawkish.

Also read: US Inflation Preview: Why the US Dollar is more likely to fall than rise, three scenarios

Technical analysis

The below 50.0 levels of the RSI (14) line joins an upward-sloping support line from mid-November 2022 to restrict the short-term downside of the USD/CAD pair around 1.3330. However, the bearish MACD signals and the Loonie pair’s sustained trading below the 200-day Exponential Moving Average (EMA), close to 1.3410 by the press time, keeps the sellers hopeful.

• NZD/USD is aiming to reclaim the 0.6150 resistance as the focus shifts to US Inflation.
• Kiwi’s quarterly GDP is seen contracting by 0.1% against a prior contraction of 0.6%.
• NZD/USD has climbed above the 0.6111 resistance, which has turned into a cushion for the Kiwi bulls.

The NZD/USD pair is looking to recapture the previous day’s high of 0.6150 in the early European session. The Kiwi asset is getting strength as the US Dollar Index (DXY) is showing a non-directional performance ahead of the release of the United States Consumer Price Index (CPI) data.

This time, the US CPI (May) data has become a much-anticipated one as it will provide crucial guidance for the Federal Reserve (Fed) policy. US labor market conditions have started releasing heat now, economic activities remained weak and further softening of US inflation would bolster the case of a neutral policy with hawkish guidance.

Meanwhile, New Zealand’s Q1 Gross Domestic Product (GDP) will remain spotlight. Quarterly GDP is seen contracting by 0.1% against a prior contraction of 0.6%. On an annualized basis, the economic data is expected to expand by 2.6%, higher than the prior contraction of 2.2%.

NZD/USD has climbed above the horizontal resistance plotted from April 26 low at 0.6111, which has turned into a cushion for the Kiwi bulls. The downward-sloping trendline plotted from May 11 high at 0.6385 is acting as a barricade of the New Zealand Dollar.

Also, the 200-Exponential Moving Average (EMA) at 0.6147 is restricting the New Zealand Dollar from any upside move.

The Relative Strength Index (RSI) (14) has shifted into the bullish range of 60.00-80.00, which indicates that upside momentum has been triggered.

A confident break above May 01 low at 0.6160 will drive the Kiwi asset toward the round-level resistance at 0.6200 followed by May 17 high at 0.6261.

Alternatively, a downside move below the intraday low at 0.6015 will expose the asset for a fresh six-month low toward 11 November 2022 low at 0.5984. A slippage below the latter would expose the asset toward 02 November 2022 high at 0.5941.

NZD/USD four-hour chart

• Natural Gas Price extends week-start rebound, grinds near intraday high of late.
• US Dollar suffers from dovish Fed bets, downbeat inflation expectations.
• Challenges to sentiment emanating from China prod XNG/USD bulls.
• US Core CPI, risk catalysts eyed amid hopes of US Dollar weakness and further Natural Gas Price recovery.

Natural Gas Price (XNG/USD) remains on the front foot around $2.34 as it makes rounds to intraday high while extending the previous day’s rebound from a one-week low ahead of Tuesday’s European session. In doing so, the XNG/USD benefits from the softer US Dollar, as well as the market’s cautious optimism, as markets await the key US inflation numbers for May and the Federal Reserve (Fed) monetary policy meeting.

US Dollar Index (DXY) snaps a two-day uptrend with 0.20% intraday loss to near 103.43 by the press time. In doing so, the greenback’s gauge versus six major currencies bears the burden of the downbeat bets on Wednesday’s Federal Open Market Committee (FOMC).

It should be noted that the recently softer US data and unimpressive Fed talks allow traders to remain dovish on the US central bank. While portraying the same, the CME’s FedWatch Tool suggests more than 70% chance of the Fed’s inaction on Wednesday while suggesting nearly 80% odds favoring the 0.25% rate increase in July.

.Apart from the US dollar weakness, the People’s Bank of China’s (PBoC) rate cut and hopes of more energy demand due to the hot summer in the West also underpin the XNG/USD run-up.

Alternatively, the cautious mood ahead of the key US Consumer Price Index (CPI) figures joins the latest US-China tension to weigh on the Natural Gas Price.

That said, the market forecasts of witnessing no change in the Core CPI MoM figure of 0.4% is in the spotlight as softer figures could push back the July rate hike concerns and may not allow the Fed to sound hawkish. On the other hand, the US expands its ban on imports from Xinjiang and China vows to protect domestic firms against any US sanctions, per Reuters. On the same line, Bloomberg released prepared remarks of US Treasury Secretary Janet Yellen’s scheduled Testimony in front of the House Financial Services Committee as she said that the International Monetary Fund (IMF) and the World Bank (WB) serve as important counterweights to non-transparent, unsustainable lending from others, like China.

Technical analysis

Although the 10-DMA puts a floor under the Natural Gas Price near $2.31, downward-sloping resistance lines from late May, around $2.35 and $2.37, limit the XNG/USD rebound.

• USD/JPY meets with some supply on Tuesday and snaps a two-day winning streak.
• Sliding US bond yields weighs on the USD and exerts some pressure on the major.
• The Fed-BoJ policy divergence to help limit losses ahead of the key US CPI report.

The USD/JPY pair struggles to capitalize on its gains registered over the past two days and comes under some selling pressure during the Asian session on Tuesday. The pair currently trades just below mid-139.00s, down nearly 0.15% for the day and well within a familiar trading range held over the past two weeks or so.

Firming expectations that the Federal Reserve (Fed) will more likely skip hiking interest rates in June drags the US Dollar (USD) to its lowest level since May 22 and turns out to be a key factor dragging the USD/JPY pair lower. It is worth recalling that a slew of influential Fed officials recently lifted bets for an imminent pause in the US central bank's year-long policy tightening cycle. This, in turn, triggers a fresh leg down in the US Treasury bond yields and continues to weigh on the Greenback.

Furthermore, the prospect of Japanese authorities intervening in the markets to support the domestic currency, along with worries about a global economic slowdown, underpins the safe-haven Japanese Yen (JPY). This is seen as another factor that contributes to the offered tone surrounding the USD/JPY pair. That said, expectations that the BoJ will stick to its dovish stance might keep a lid on any meaningful upside for the JPY and help limit losses for the major, at least for the time being.

In fact, BoJ Deputy Governor Masazumi Wakatabe said on Monday that there are overwhelming cases for the continuation of the ultra-easy monetary policy measures. In contrast, Fed funds futures indicate that the markets have been pricing in the possibility of another 25 bps lift-off at the July FOMC meeting. The bets were lifted by surprise rate hikes by the Reserve Bank of Australia (RBA) and the Bank of Canada (BoC) last week, which suggested that the fight against inflation is not over yet.

Hence, the focus will remain glued to the release of the latest consumer inflation figures from the US, due later during the early North American session. A stronger US CPI print will support prospects for further policy tightening by the Fed, which, in turn, should provide a modest lift to the buck and the USD/JPY pair. The immediate reaction, however, is likely to remain limited ahead of the key central bank event risks - the FOMC decision on Wednesday and the BoJ meeting on Friday.

Technical levels to watch

• Market sentiment remains mildly positive, upbeat in the Asia-Pacific region.
• PBoC cuts Reverses Repo but fears of China’s slower recovery prods optimists.
• Fed bets suggest no rate hike in June FOMC but US CPI is the key to confirm hawkish halt.
• Aussie, Japan data came in mixed and challenge the risk-on mood amid Sino-American tension.

Equities in the Asia-Pacific region trace their global counterparts on early Tuesday as market players appear mostly positive of witnessing no rate hikes from the US Federal Reserve (Fed) while also cheering the Chinese rate cut.

That said, MSCI’s Index of Asia-Pacific shares outside Japan renews monthly high with around 1.0% intraday gains heading into Tuesday’s European session. On the same line, Japan’s Nikkei 225 also portrays the upbeat sentiment as it rises nearly 2.0% to 33,072.

Elsewhere, Australia’s ASX200 and New Zealand’s NZX50 are both benefiting from the People’s Bank of China’s (PBoC) rate cut and hopes of no rate hike from the Fed while posting mild gains despite mixed data at home. It should be noted that the PBoC cuts the Repo Rate to 1.9% from 2.0% and propels the Chinese equities, as well as risk-on mood in Asia.

On a broader front, the S&P500 Futures seesaw around 4,345 as it struggles to cross the highest level since April 2022, marked the previous day. That said, the US 10-year and two-year Treasury bond yields drop for the second consecutive day to around 3.72% and 4.56% in that order.

Alternatively, fears of China’s slower rebound gain momentum as   Bloomberg said, “China’s central bank cut a short-term policy interest rate, easing its monetary stance to help aid the economy’s recovery.”

On the same line are the market’s fears of the US-China tussles as the US expands its ban on imports from Xinjiang. China vows to protect China firms against any US sanctions, per Reuters. Recently, Bloomberg released prepared remarks of US Treasury Secretary Janet Yellen’s scheduled Testimony in front of the House Financial Services Committee as she said that the International Monetary Fund (IMF) and the World Bank (WB) serve as important counterweights to non-transparent, unsustainable lending from others, like China.

Above all, receding odds of the Federal Reserve’s (Fed) hawkish move during Wednesday’s Federal Open Market Committee (FOMC) weigh on the US Dollar and improve the market’s mood.

That said, the CME’s FedWatch Tool suggests more than 70% chance of the Fed’s inaction on Wednesday while suggesting nearly 80% odds favoring the 0.25% rate increase in July.

Also read: S&P500 Futures hesitates tracing Wall Street at yearly top, yields drop as markets await US inflation

• AUD/USD picks up bids to refresh intraday high amid broad US Dollar weakness, cautious optimism.
• PBoC cuts benchmark Repo Rate to 1.9%, market sentiment improves amid dovish Fed bets.
• Statistics from Australia have been mixed of late but markets cheer hopes of downbeat US inflation and no rate from FOMC.

AUD/USD justifies the market’s cautious optimism, as well as cheering the rate cut from the Chinese central bank, as it renews its intraday high near 0.6765 heading into Tuesday’s European session. That said, receding odds of the Federal Reserve’s (Fed) hawkish move during Wednesday’s Federal Open Market Committee (FOMC) weigh on the US Dollar and improve the market’s mood.

That said, the CME’s FedWatch Tool suggests more than 70% chance of the Fed’s inaction on Wednesday while suggesting nearly 80% odds favoring the 0.25% rate increase in July.

It should be noted that the People’s Bank of China (PBoC) cuts the Repo Rate to 1.9% from 2.0% and confirms the previous fears suggesting slower economic growth in the world’s biggest industrial player. With this in mind, Bloomberg said, “China’s central bank cut a short-term policy interest rate, easing its monetary stance to help aid the economy’s recovery.”

At home, Australia’s Westpac Consumer Confidence improves to 0.2% for June versus 0.0% expected and -7.9% prior. However, sentiment figures from the National Australia Bank (NAB) came in downbeat for May and prod the Aussie pair buyers.

It’s worth mentioning that the latest fears of the stiff US-China tension also should have challenged the AUD/USD bulls. On Monday, the US expands its ban on imports from Xinjiang. China vows to protect China firms against any US sanctions, per Reuters. Recently, Bloomberg released prepared remarks of US Treasury Secretary Janet Yellen’s scheduled Testimony in front of the House Financial Services Committee as she said that the International Monetary Fund (IMF) and the World Bank (WB) serve as important counterweights to non-transparent, unsustainable lending from others, like China.

Above all, the Reserve Bank of Australia’s (RBA) hawkish surprise contrasts with the dovish bias of the Fed to keep the AUD/USD buyers hopeful amid a lackluster market before the key data/events.

Looking ahead, AUD/USD traders should pay attention to today’s US Consumer Price Index (CPI) figures for May as the Fed decision looms on Wednesday is bearing expectations of no rate change. It’s worth noting that the market forecasts of witnessing no change in the Core CPI MoM figure of 0.4% is in the spotlight as softer figures could push back the July rate hike concerns and may not allow the Fed to sound hawkish.

Also read: US Inflation Preview: Why the US Dollar is more likely to fall than rise, three scenarios

Technical analysis

A daily closing beyond the four-month-old previous resistance line, now immediate support around 0.6735, directs the AUD/USD bulls towards the previous monthly high of near 0.6820.

• WTI crude oil pares the biggest daily loss in a fortnight at the lowest levels in five weeks.
• US Dollar suffers from dovish Fed bets ahead of US inflation.
• Fears of slower economic recovery in China gain momentum after PBoC rate cut.
• API inventories, risk catalysts eyed for clear directions.

WTI crude oil picks up bids to print mild gains around $67.70 as it consolidates the biggest daily slump in two weeks amid early Tuesday. In doing so, the black gold recovers from the lowest levels since early May amid sluggish markets.

That said, the US Dollar’s weakness takes clues from the market’s heavy bets on the Federal Reserve’s (Fed) inaction during Federal Open Market Committee (FOMC). That said, the CME’s FedWatch Tool suggests more than 70% chance of the Fed’s inaction on Wednesday while suggesting nearly 80% odds favoring the 0.25% rate increase in July.

Even so, fears of witnessing a hawkish halt from the US Federal Reserve (Fed) and cautious mood before today’s US Consumer Price Index (CPI) figures for May prod the market sentiment, as well as weigh on the Oil price. Recently, Former Dallas Federal Reserve Bank (Fed) President Robert Kaplan said in an interview that he would support a "hawkish pause" at this week's meeting. Previously, ex-Fed vice chair Richard Clarida came out with comments that it may be more difficult to get inflation near 2% than in the past 15 years. Further, “Expect a hawkish skip this week,” Former President of Boston Federal Reserve Bank, Eric Rosengren, tweeted early Monday.

Additionally, fears that China is losing economic momentum also weigh on the WTI price as Beijing is one of the world’s biggest energy consumers. People’s Bank of China (PBoC)  cuts the Repo Rate to 1.9% from 2.0% and confirms the previous fears suggesting slower economic growth in the world’s biggest industrial player. With this in mind, Bloomberg said, “China’s central bank cut a short-term policy interest rate, easing its monetary stance to help aid the economy’s recovery.”

Additionally, the market’s fears of more tension between the US and China escalate as the US expands its ban on imports from Xinjiang. China vows to protect China firms against any US sanctions, per Reuters. Recently, Bloomberg released prepared remarks of US Treasury Secretary Janet Yellen’s scheduled Testimony in front of the House Financial Services Committee as she said that the International Monetary Fund (IMF) and the World Bank (WB) serve as important counterweights to non-transparent, unsustainable lending from others, like China.

Looking ahead, the US CPI data for May and private Oil inventory data from the American Petroleum Institute (API) will be important to watch for energy traders.

Technical analysis

WTI crude oil’s recovery remains elusive unless the quote rises past the previous support line stretched from early May, around $68.40 by the press time.

• EUR/USD attracts buyers for the second successive day in the wake of fresh USD selling.
• The Fed rate hike uncertainty drags the US bond yields lower and weighs on the Greenback.
• The prospects for further tightening by the ECB underpin the Euro and remain supportive.
• Traders now look to the German ZEW survey for some impetus ahead of the US CPI report.

The EUR/USD pair regains positive traction following the previous day's late pullback from a two-and-half-week top and builds on its steady intraday ascent through the Asian session on Tuesday. Spot prices, however, remain below the 100-day Simple Moving Average (SMA) resistance and currently trade around the 1.0780 region, up over 0.20% for the day.

The US Dollar (USD) comes under some renewed selling pressure and drops to its lowest level since May 22, which, in turn, is seen as a key factor pushing the EUR/USD pair higher for the second straight day. Dovish rhetoric by a slew of influential Federal Reserve (Fed) officials boosted market expectations for an imminent pause in the US central bank's year-long rate-hiking cycle. This, along with a fresh leg down in the US Treasury bond yields, continues to exert some downward pressure on the Greenback.

The shared currency, on the other hand, draws support from rising bets for a further policy tightening by the European Central Bank (ECB) and is seen as another factor acting as a tailwind for the EUR/USD pair. In fact, ECB President Christine Lagarde indicated earlier last week that additional interest rate rises were likely as, so far, there was no clear evidence that underlying inflation has peaked. This, in turn, suggests that the ECB  is not done raising rates despite a fall in consumer inflation and favours bullish traders.

Investors, however, might refrain from placing aggressive bets and prefer to wait on the sidelines ahead of this week's key central bank event risks. The Fed is scheduled to announce the highly-anticipated monetary policy decision on Wednesday, which will be followed by the ECB meeting on Thursday. In the meantime, traders on Tuesday will take cues from the release of the German ZEW Economic Sentiment and the latest US consumer inflation figures to grab short-term opportunities around the EUR/USD pair.

Technical levels to watch

• USD/INR clings to mild gains during the first daily run-up in four.
• Convergence of 200-SMA, bottom of monthly symmetrical triangle restricts immediate downside.
• 100-SMA, triangle’s top line challenge Indian Rupee bears.
• Softer India inflation lures USD/INR buyers ahead of US CPI.

USD/INR prints mild gains around 82.45 as it extends the early-day rebound from the short-term key support confluence heading into Tuesday’s European session. In doing so, the Indian Rupee (INR) pair justifies downbeat India Consumer Price Index (CPI) data ahead of US inflation releases.

That said, India's CPI eased to 4.25% in May versus 4.42% expected and 4.70% prior, which in turn justifies the Reserve Bank of India’s (RBA) latest pause in rate hike and suggests some more inactions to come from the Indian central bank. On the other hand, the early signals for the US inflation numbers have been downbeat and hence prod the USD/INR bulls.

Also read: US Inflation Preview: Why the US Dollar is more likely to fall than rise, three scenarios

Technically, the USD/INR pair bounces off a convergence of the 200-SMA and the lower line of a one-month-old symmetrical triangle, around 82.33 by the press time.

The recovery moves also take clues from the RSI (14) line’s rebound from the oversold territory, suggesting further weakness of the Indian Rupee (INR).

Hence, the USD/INR price is likely to rise towards the short-term key upside hurdle of 82.60 comprising the 100-SMA and top line of the aforementioned triangle.

It should be noted, however, that the USD/INR pair’s run-up beyond 82.60 won’t hesitate to challenge the previous monthly high of around 83.00 whereas a downside break of 82.33 needs validation from the mid-May swing low of around 82.15 to convince the pair sellers.

USD/INR: Four-hour chart

Trend: Limited upside expected

• GBP/JPY attracts some buyers on Tuesday and stalls the overnight pullback from a multi-year top.
• The BoE-BoJ policy divergence acts as a tailwind and supports prospects for further near-term gains.
• Investors now look forward to the monthly UK employment details for some meaningful impetus.

The GBP/JPY cross edges higher during the Asian session on Tuesday and stalls the overnight retracement slide from its highest level since January 2016, albeit lacks follow-through. Spot prices remain below the 175.00 psychological mark as traders now look to the US monthly employment details for a fresh impetus.

The UK jobs report is expected to show that the number of people claiming unemployment-related benefits fell by 9.6K in May. Furthermore, the ILO Unemployment Rate is seen ticking higher to 4% during the three months to April, while Average Hourly Earnings likely accelerated during the reported period, pointing to signs of persistence in underlying price pressures. Hence, any positive surprise will reaffirm bets that the Bank of England (BoE) will be far more aggressive in policy tightening to contain stubbornly high inflation, which, in turn, should provide a goodish lift to the British Pound and the GBP/JPY cross.

In the meantime, the prospect of Japanese authorities intervening in the markets to support the domestic currency, along with worries about a global economic slowdown, lends some support to the safe-haven Japanese Yen (JPY). This, in turn, is holding back traders from placing aggressive bullish bets around the GBP/JPY cross. That said, expectations that the BoJ will stick to its dovish stance might keep a lid on any meaningful gains for the JPY. In fact, BoJ Deputy Governor Masazumi Wakatabe said on Monday that there are overwhelming cases for the continuation of the ultra-easy monetary policy measures.

The aforementioned fundamental backdrop suggests that the path of least resistance for the GBP/JPY cross is to the upside and supports prospects for an extension of the recent upward trajectory witnessed over the past month or so. Traders, however, now prefer to wait on the sidelines ahead of this week's key UK macro data, including the monthly GDP print on Wednesday, and the BoJ monetary policy meeting on Friday.

Technical levels to watch

• USD/CAD ticks higher for the second straight day, albeit lacks follow-through buying.
• Bearish Crude Oil prices undermine the Loonie and act as a tailwind for the major.
• The emergence of fresh USD selling bias caps gains ahead of the crucial US CPI report.

The USD/CAD pair gains some positive traction for the second successive day on Tuesday and looks to build on the overnight bounce from the 1.3315-1.3310 area, or a one-month low. The pair trades around the 1.3375 region during the Asian session, up less than 0.10% for the day, and draws support from the recent slump in Crude Oil prices.

Worries that a global economic slowdown, particularly in China, will dent fuel demand drag Crude Oil prices to the lowest level since early May on Monday, which, undermines the commodity-linked Loonie and acts as a tailwind for the USD/CAD pair. The upside, however, remains capped in the wake of a fresh US Dollar (USD), led by firming expectations that the Federal Reserve (Fed) will more likely skip hiking interest rates in June.

In fact, the recent dovish rhetoric by a slew of influential FOMC members reaffirmed market expectations about an imminent pause in the US central bank's year-long policy tightening cycle. This represents a divergence in comparison to the Bank of Canada's (BoC) surprise 25 bps rate hike last week, which might further contribute to capping gains for the USD/CAD pair and warrants some caution before placing aggressive bullish bets.

Traders might also prefer to wait on the sidelines ahead of the release of the latest US consumer inflation figures, due later during the early North American session. A stronger US CPI print will further lift bets for another 25 bps lift-off at the July FOMC meeting and provide a goodish lift to the buck. The immediate market reaction, however, is likely to remain limited ahead of the highly-anticipated Fed decision on Wednesday.

Apart from this, a modest downtick in the US Treasury bond yields might continue to act as a headwind for the Greenback. This further makes it prudent to wait for strong follow-through buying before confirming that the USD/CAD pair has formed a near-term bottom ahead of the 1.3300 mark and positioning for any meaningful appreciating move.

Technical levels to watch

• GBP/USD picks up bids to reverse the week-start retreat from monthly high, pares the biggest daily loss in over a week.
• Bullish MACD signals, sustained trading within fortnight-long ascending trend channel keeps Cable buyers hopeful.
• UK employment numbers need to defend hawkish BoE bias to push back the Pound Sterling bears.
• Cable pair’s bearish momentum hinges on 1.2420 break and the FOMC.

GBP/USD clings to mild gains around 1.2520 as the Cable traders await the UK employment report on early Tuesday. In doing so, the Pound Sterling reverses the previous day’s pullback from the highest level in a month while consolidating the biggest daily loss in seven days.

That said, the 10-DMA level joins the bullish MACD signals to restrict short-term GBP/USD downside within a two-week-old rising channel. However, the UK’s job numbers and the US inflation data, as well as Wednesday’s Federal Open Market Committee (FOMC), appear more important catalysts to watch for clear directions.

Also read: GBP/USD trades with modest gains above 1.2500 mark ahead of UK jobs data, US CPI

Technically, the Cable pair’s rebound from the short-term DMA support of 1.2488 gains back-up from the upbeat oscillator to lure short-term buyers. However, the aforementioned bullish channel’s top line, close to 1.2610 at the latest, restricts the GBP/USD pair’s further upside.

It should be noted that multiple hurdles marked since late April also challenge the GBP/USD bulls around 1.2580.

Even if the pair buyers manage to defy the stated bullish channel formation by crossing the 1.2610 hurdle, the yearly top marked in May around 1.2680 appears the last defense of the bears.

On the contrary, a downside break of the 10-DMA can quickly fetch the GBP/USD price to the stated channel’s bottom line, close to 1.2430 as we write. However, an upward-sloping support line from early March, near 1.2420, holds the ticket for the seller’s entry.

GBP/USD: Daily chart

Trend: Limited upside expected

• USD/MXN extends its consolidative price move near a multi-year low touched on Monday.
• The formation of a descending channel points to a well-established short-term downtrend.
• A sustained strength beyond the mid-17.00s is needed to negate the near-term negative bias.

The USD/MXN pair continues with its struggle to register any meaningful recovery and oscillates in a range near its lowest level since May 2016 touched on Monday. The pair remains confined in a narrow band, around the 17.30-17.25 area, through the Asian session on Tuesday and the lack of any buying interest suggests that the downward trajectory witnessed over the past three weeks or so is still far from being over.

From a technical perspective, the USD/MXN pair has been drifting lower along a downward-sloping channel extending from the vicinity of the 18.00 mark touched on May 23. This points to a well-established short-term bearish trend and supports prospects for a further depreciating move. That said, the Relative Strength Index (RSI) on the daily chart has moved on the verge of breaking into the oversold territory and warrants some caution.

Hence, it will be prudent to wait for some near-term consolidation or a modest recovery before placing fresh bearish bets around the USD/MXN pair. Nevertheless, spot prices remain on track to challenge support marked by the lower end of the trend channel, currently around the 17.15 region, which is followed by the 17.00 round figure. A convincing break below the latter will mark a fresh breakdown and pave the way for further losses.

On the flip side, any meaningful recovery attempt is likely to confront stiff resistance ahead of the mid-17.00s, representing the top end of the aforementioned channel. A sustained strength beyond might trigger a short-covering rally and lift the USD/MXN pair towards the 17.70 intermediate resistance en route to the 18.00 round figure. The latter should act as a pivotal point, which if cleared decisively will suggest that spot prices have formed a near-term bottom.

USD/MXN 4-hour chart

Key levels to watch

• Market sentiment portrays typical anxiety ahead of top-tier data/events.
• S&P500 Futures dribble around the highest levels since late April 2022, yields extend week-start pullback from monthly top.
• PBoC rate cut, US-China tension challenge optimism as US CPI looms.
• Dovish Fed bets keep risk catalysts firmer amid dicey Asian session.

The risk profile remains cautiously optimistic during early Tuesday as traders keep their eyes on the US inflation data. That said, hopes of the Federal Reserve’s (Fed) hawkish halt join the recent rate cut from the People’s Bank of China (PBoC) to underpin firmer sentiment. However, fears surrounding China’s economic growth, the Sino-American tension and the cautious mood ahead of the top-tier catalysts prod the optimists.

While portraying the mood, the S&P500 Futures seesaw around 4,345 as it struggles to cross the highest level since April 2022, marked the previous day. That said, the US 10-year and two-year Treasury bond yields drop for the second consecutive day to around 3.72% and 4.56% in that order.

PBoC cuts the Repo Rate to 1.9% from 2.0% and confirms the previous fears suggesting slower economic growth in the world’s biggest industrial player. With this in mind, Bloomberg said, “China’s central bank cut a short-term policy interest rate, easing its monetary stance to help aid the economy’s recovery.”

Elsewhere, the market’s fears of more tension between the US and China escalate as the US expands its ban on imports from Xinjiang. China vows to protect China firms against any US sanctions, per Reuters. Recently, Bloomberg released prepared remarks of US Treasury Secretary Janet Yellen’s scheduled Testimony in front of the House Financial Services Committee as she said that the International Monetary Fund (IMF) and the World Bank (WB) serve as important counterweights to non-transparent, unsustainable lending from others, like China.

Above all, fears of witinessing a hawkish halt from the US Federal Reserve (Fed) and cautious mood before today’s US Consumer Price Index (CPI) figures for May prod the market sentiment. Recently, Former Dallas Federal Reserve Bank (Fed) President Robert Kaplan said in an interview that he would support a "hawkish pause" at this week's meeting. Previously, ex-Fed vice chair Richard Clarida came out with comments that it may be more difficult to get inflation near 2% than in the past 15 years. Further, “Expect a hawkish skip this week,” Former President of Boston Federal Reserve Bank, Eric Rosengren, tweeted early Monday.

Amid these plays, US Dollar Index remains pressured and the commodities, as well as Antipodeans, edge higher. That said, stocks in the Asia-Pacific zone also remain firmer but gains are mild at the latest.

Also read: US Inflation Preview: Why the US Dollar is more likely to fall than rise, three scenarios

Former Dallas Federal Reserve Bank (Fed) President Robert Kaplan said in an interview early Tuesday, he would support a "hawkish pause" at this week's meeting.

He add that he would “leave the question of a July hike open.”

His former colleague and former Boston Fed Chief, Eric Rosengren, tweeted early Monday, noting that he expects a “hawkish skip this week.”

Market reaction

Despite hawkish messages from former Fed officials, the US Dollar remains on the back foot across the board in sync with the US Treasury bond yields, as markets stay unnerved ahead of the key US Consumer Price Index (CPI) data due later this Tuesday. The US Dollar Index is losing 0.08% on the day to trade at 103.57, as of writing.

• USD/CNH takes the bids to prod the highest levels since late November 2022, up for the third consecutive day.
• PBOC cuts 7-day Repo Rate to 1.9%, fears of slower growth in China intensifies.
• Mixed mood, pre-data consolidation challenge US Dollar traders as US CPI, Fed loom.

USD/CNH renews a multi-day high as China’s central bank surprises market with a rate cut during early Tuesday. That said, the People’s Bank of China (PBoC) cuts the Repo Rate to 1.9% from 2.0% and propel the offshore Chinese Yuan (CNH) price towards 7.1750, the highest level since late November 2022, around 7.1710 by the press time.

With the rate cut from the PBoC confirming the previous fears suggesting slower economic growth in the world’s biggest industrial player, Bloomberg said, “China’s central bank cut a short-term policy interest rate, easing its monetary stance to help aid the economy’s recovery.”

Adding strength to the USD/CNH pair could be the market’s fears of more tension between the US and China as the US expands its ban on imports from Xinjiang. China vows to protect China firms against any US sanctions, per Reuters. Recently, Bloomberg released prepared remarks of US Treasury Secretary Janet Yellen’s scheduled Testimony in front of the House Financial Services Committee as she said that the International Monetary Fund (IMF) and the World Bank (WB) serve as important counterweights to non-transparent, unsustainable lending from others, like China.

It should, however, be noted that the market’s fears of dovish Fed performance in Wednesday’s Federal Open Market Committee (FOMC) join downbeat US Treasury bond yields to cap the USD/CNH upside.

Amid these plays, the S&P500 Futures struggles to trace Wall Street’s gains while the US 10-year and two-year Treasury bond yields drop for the second consecutive day to around 3.72% and 4.56% in that order.

Looking forward, USD/CNH traders should pay attention to today’s US Consumer Price Index (CPI) figures for May as the Fed decision looms on Wednesday. It’s worth noting that the market forecasts of witnessing no change in the Core CPI MoM figure of 0.4% gain major attention as softer figures could push back the July rate hike concerns and may not allow the Fed to sound hawkish.

Technical analysis

The overbought RSI (14) line can challenge USD/CNH bulls within a three-week-old rising trend channel, currently between 7.2030 and 7.1300.

Bank of Japan (BoJ) Governor Kazuo Ueda said on Tuesday, “2.0% actual inflation would make price expectation 2.0%.”

No further comments are being reported, at the moment. 

Market reaction

USD/JPY was last seen trading at 139.54, modestly flat on the day.

• Gold price is jammed in a coil and traders await key US events. 
• The US CPI and Fed are critical events for Gold price this week. 

The Gold price is flat ahead of key events that are taking place today and Wednesday on the US calendar. With all eyes on Wednesday's Federal Reserve meeting, shorts in gold were recently covered on profit-taking following the blockbuster Nonfarm Payrolls jobs report.  At the time of writing, XAU/USD is trading at $1,958 and remains coiled between a triangle formation on the charts as the technical analysis shows below. 

''For Gold price traders,'' analysts at TD Securities said, ''it is becoming increasingly apparent that participants are acknowledging that we are at 'near-terminal rates', which constrains the bearish case.''

''Still,'' the analysts said, ''discretionary traders are shying away from deploying their capital hoard into Gold, in line with the market's recent pricing out of cuts on a 12m forward basis.''

''However,'' they explained, ''this occurred in response to strong lagging indicators, whereas leading economic indicators still suggest that pricing for cuts should firm on this horizon, which should ultimately support discretionary trader positioning in the yellow metal. CTA trend followers have recently shed some length, which is increasingly limiting the implications of a surprise hike this meeting.''

Meanwhile, Fed tightening expectations have fallen ahead of the FOMC decision Wednesday. ''WIRP suggests only 60% odds of a 25 bp hike, rising to nearly 100% for the May 2-3 meeting,'' analysts at Brown Brothers Harriman said. ''We believe the ECB showed the way forward and so the Fed should follow suit and hike rates despite ongoing tensions in the banking system. Only that one 25 bp hike is priced in, while three 25 bp rate cuts are still priced in by year-end. With inflation still running hot, we do not think an easing cycle will be seen this year.'' 

Eyes on the banking crisis

Besides the US calendar, the UBS deal to take over Credit Suisse is in focus. The Fed along with five other central banks announced a coordinated move to boost liquidity in their existing USD swap arrangements. ''While these developments might help quell some concerns, we think First Republic likely remains under the microscope and until its situation has been resolved, markets are likely to remain extremely unsettled,'' analysts at Brown Brothers Harriman said. 

Gold technical analysis

The price is trapped between key breakout support and resistance as illustrated in the daily and 4-hour charts above. The events this week may have the power to move the needle one way or the other. 

• USD/CHF struggles to capitalize on its strong gains registered over the past two days.
• The Fed rate hike uncertainty keeps the USD bulls on the defensive and caps the upside.
• Traders also seem reluctant to place aggressive bets ahead of the crucial US CPI report.

The USD/CHF pair oscillates in a narrow band below the 0.9100 mark during the Asian session on Tuesday and consolidates its strong gains recorded over the past two days.

Firming expectations that the Federal Reserve (Fed) will more likely skip a rate hike this month continue to weigh on the US Dollar (USD) and act as a headwind for the USD/CHF pair. It is worth recalling that a slew of influential Federal Reserve (Fed) officials recently reaffirmed market expectations for an imminent pause in the US central bank's year-long policy tightening cycle.

The Fed fund futures, however, indicate the possibility of another 25 bps lift-off at the July FOMC meeting. The bets were lifted by surprise rate hikes by other major central banks - the Reserve Bank of Australia (RBA) and the Bank of Canada (BoC) - last week, which suggested that the fight against inflation is not over yet. This, in turn, limit the USD losses and lends support to the USD/CHF pair.

Traders also seem reluctant to place aggressive bets and prefer to wait on the sidelines ahead of the release of the latest US consumer inflation figures, due later during the early North American session. The crucial US CPI report will influence the Fed's policy outlook and drive the USD demand, providing some meaningful impetus to the USD/CHF pair ahead of the FOMC policy decision on Wednesday.

In the meantime, a generally positive tone around the equity markets could undermine the safe-haven Swiss Franc (CHF) and offer some support to the USD/CHF pair. That said, a modest downtick in the US Treasury bond yields might hold back traders from positioning for any meaningful USD recovery, suggesting that the major is more likely to extend its subdued/range-bound price action on Tuesday.

Technical levels to watch

US inflation expectations can be held responsible for the market’s dicey mood and downbeat US Dollar performance during early Tuesday.

That said, the inflation expectations, as per the 10-year and 5-year breakeven inflation rates from the St. Louis Federal Reserve (FRED) data, drop to the lowest levels in a week while printing a three-day losing streak at the latest.

It should be noted that the 5-year and 10-year inflation expectations per the aforementioned calculations drop to 2.09% and 2.17% at the latest, which in turn raise speculations of witnessing a downbeat US Consumer Price Index (CPI) figure for May. The same will back the dovish Fed bias and can recall the US Dollar bears who have been avoiding the entry of late.

Also read: US Dollar Index: DXY fades recovery below 104.00 on downbeat Fed bets, US inflation eyed

Apart from the likely weakness in the US inflation data and an anticipated fall of the US Dollar ahead of Wednesday’s Federal Open Market Committee (FOMC), the US inflation expectations also justify the recent retreat in the headline Treasury bond yields, as well as sluggish S&P500 Futures.

Amidst rife expectations of interest rates cut by the People’s Bank of China (PBOC), the Chinese central bank cut the 7-day Reverse repo rate from 2..0% to 1.90% on Tuesday.

Markets are expecting the PBOC to announce a cut to the rates on the  Medium-term lending facility (MLF) on Thursday.

Analysts at Nomura noted, “We believe the cut in banks’ deposit rates sends a strong signal that the PBOC is paving the way for a cut in benchmark lending rates (MLF) to guide down LPR.”

“This new round of deposit rate cuts, as well as rapidly worsening exports, broadening property distress, ongoing disinflation, and a likely Fed pause, raise our conviction of this call on rate cuts,” they added.

Market reaction

The PBOC rate cut puts a fresh  bid under the Chinese Yuan, lifting the USD/CNY pair to near 7.1650, at the press time.

• NZD/USD remains pressured after reversing from three-week high.
• Bearish Doji candlestick at multiple resistance joint keeps Kiwi bears hopeful.
• Fortnight-long rising support line, upbeat oscillators challenge downside moves as US inflation data looms.

NZD/USD holds lower ground near 0.6115-20 as the markets await the all-important US Consumer Price Index (CPI) data on early Tuesday. In doing so, the Kiwi pair keeps the previous day’s pullback from a three-week high while making rounds to the intraday low.

Also read: US Inflation Preview: Why the US Dollar is more likely to fall than rise, three scenarios

The Kiwi pair’s latest weakness justifies the Doji candlestick on the Daily chart formation. The bearish candlestick gains even more important as it marks the reversal in the NZD/USD price from the key 0.6150 resistance comprising the 200-DMA and previous support line stretched from early March.

It should be noted that a one-month-old falling trend line, currently around 0.6145, also added strength to the aforementioned key upside hurdle.

Hence, the quote is likely to remain on the bear’s radar unless crossing the 0.6150 hurdle.

Even if the NZD/USD buyers manage to cross the 0.6150 resistance, the mid-May swing low of around 0.6185 and the 0.6200 round figures can challenge the Kiwi bulls before giving them control.

With this, the quote is likely to remain pressured toward the 0.6100 threshold. However, an ascending support line from May 31, close to 0.6045 by the press time, could challenge the NZD/USD bears afterward.

In a case where the Kiwi pair remains bearish past 0.6045, the odds of witnessing its fall towards the yearly low marked in May around 0.5985 can’t be ruled out.

NZD/USD: Daily chart

Trend: Further downside expected

In recent trade today, the People’s Bank of China (PBOC) set the yuan at  7.1498 vs. the estimate at 7.1490 and the closing price of 7.1479.

About the fix

China maintains strict control of the yuan’s rate on the mainland.

The onshore yuan (CNY) differs from the offshore one (CNH) in trading restrictions, this last one is not as tightly controlled.

Each morning, the People’s Bank of China (PBOC) sets a so-called daily midpoint fix, based on the yuan’s previous day's closing level and quotations taken from the inter-bank dealer.

• WTI consolidates the overnight slump to the lowest level since early May.
• A sustained break below $67.00 should pave the way for additional losses.
• Attempted recovery might confront stiff resistance near the $68.00 mark.

Western Texas Intermediate (WTI) Crude Oil prices enter a bearish consolidation phase during the Asian session on Tuesday and oscillate in a narrow band near the lowest level since early May touched the previous day. The commodity remains on the defensive for the fourth straight day and currently trades just below the mid-$67.00s, down less than 0.20% for the day.

Investors remain worried that a global economic slowdown, particularly in China, will dent fuel demand. Moreover, the 
Organization of Petroleum Exporting Countries (OPEC) and the International Energy Agency (IEA) are expected to cut demand forecasts in their respective market updates on Tuesday. This continues to weigh on Crude Oil prices ahead of the crucial US CPI report, which might influence the Fed's policy outlook and drive the US Dollar (USD) price dynamics.

From a technical perspective, a sustained break and acceptance below the $67.00 mark will confirm a fresh bearish breakdown for Crude Oil prices. The black liquid might then accelerate the slide towards the $66.55 intermediate support before eventually dropping to the $66.00 round figure. The downward trajectory could get extended further towards sub-$66.00 levels en route to the $65.45 area, the $65.00 psychological mark and the $64.40-$64.30 region, or the YTD low touched in May.

On the flip side, any attempted recovery might now confront some resistance near the $68.00 round figure, above which a bout of a short-covering has the potential to lift Crude Oil prices to the $68.50-$68.55 resistance zone. Some follow-through buying could pave the way for an additional recovery towards the $69.00 mark. The black liquid could eventually climb further beyond the $69.40-$69.45 region, towards reclaiming the $70.00 psychological mark.

WTI daily chart

Key levels to watch

• AUD/USD bears eye a downside correction around key US events.
• US CPI and the Federal Reserve are coming up as a major risk to AUD/USD.

AUD/USD is flat on Tuesday in anticipation of key events from the US this week, starting with today's Consumer Price Index.   The May US inflation rate will be a key focus while the Federal Reserve interest rate decision follows on Wednesday as investors remained cautious on Monday.

The Federal Reserve is expected to keep rates on hold for the first time since January 2022. Analysts at TD Securities explained that a decision is likely to come down to the wire, ''but we maintain our long-held view that the Fed will tighten rates by a final 25bp in June to a range of 5.25%-5.50%.''

''If the Fed decides to 'skip' the June meeting, we expect the decision to be accompanied by communication that leans hawkish (ie. statement, dot plot, and presser), signaling a likely hike in July,'' the analysts argued. 

As for the Consumer Price Index today, the analysts said, ''core prices likely stayed firm in May, with the index rising a strong 0.4% MoM for a second straight month, also matching the m/m avg since June 2022.''

''Goods inflation likely stayed positive, with shelter prices remaining the key wildcard (expect slowing). Retreating gas prices (-6% MoM) will drag non-core inflation. Our MoM forecasts imply 4.0%/5.3% YoY for total/core prices.''

RBA is hawkish

Meanwhile, as for the Reserve Bank of Australia, Standard Chartered notes that the central bank\ has now turned decidedly hawkish again, after being clearly dovish as recently as March and April, which caused us to tone down our rate-hike calls.

''It then reverted to a hawkish stance in both May and June. June’s meeting statement indicated that upside risks to inflation have increased and removed the reference to medium-term inflation expectations being well anchored''

''While the door is open for more hikes, it remains difficult to assess if the RBA will continue to hike consecutively. Since the April pause, the central bank has hiked by 25bps each in May and June. Given that RBA meets every month (except for January) and it is still trying to achieve a soft landing, we think it may skip in July to assess the key quarterly inflation print (26 July). Thereafter, we think it will hike by 25bps each in August and September, to bring the policy rate to 4.6% (our previous projection was 3.85%).,'' the analysts concluded.

AUD/USD daily chart

A bearish correction could come into play as the chart above shows. From a 4-hour perspective, the pair is on the backside of the prior bullish trendlines and this leaves a bearish bias on the charts for the days ahead:

• USD/JPY picks up bids to pare intraday losses, the first in three days.
• Downbeat Japan data defends BoJ doves but Fed concerns prod Yen pair’s rebound.
• US inflation needs to confirm market’s rate bias for June FOMC and to favor USD/JPY bears.
• BoJ Officials have ruled out hopes of any policy change but markets stay doubtful.

USD/JPY bounces off intraday low as it consolidates the first daily loss in three as Tokyo opens for Tuesday’s trading. Even so, the Yen pair remains mildly offered on a day around 139.55 by the press time.

That said, the Yen pair’s latest run-up could be linked to the downbeat Japan data that justifies the Bank of Japan (BoJ) Officials’ dovish bias. Earlier in the day, Japan’s Business Sentiment Index (BSI) Large Manufacturing Conditions Index for the second quarter (Q2) dropped to -0.4 versus 0.1 expected and -10.5 prior.

On Monday, Japan’s Producer Price Index (PPI) for May dropped for the fifth consecutive month to 5.1% YoY from 5.8% previous readings and 5.5% market forecasts. That said, monthly figures also disappointed Yen traders with -0.7% MoM outcome, versus -0.2% expected and 0.2% prior.

It should be noted that Bank of Japan (BoJ) policymaker Masazumi Wakatabe said in a Bloomberg TV interview early Monday, “It’s still too early to call that this inflation has been sustainable and stable.” That said, BoJ’s Wakatabe clearly ruled out options of any move by the Japanese central bank in the June meeting as he guessed that at the June meeting, there would be nothing.

Elsewhere, the US Dollar Index (DXY) struggles to defend the two-day winning streak while fading the week-start rebound from the lowest levels since May 23 as market players place dovish bets on the US Federal Reserve (Fed) ahead of Wednesday’s Federal Open Market Committee (FOMC). Even so, the increase in the bets favoring the Federal Reserve’s (Fed) 0.25% rate hike in July prod the sentiment and put a floor under the US Dollar, as well as the USD/JPY price. It should be noted that the CME’s FedWatch Tool suggests nearly limited scope for the US central bank to act.

A trade dispute is developing after the US expands its ban on imports from Xinjiang, which in turn weigh on the risk profile and the USD/JPY price. China vows to protect China firms against any US sanctions, per Reuters. Recently, Bloomberg released prepared remarks of US Treasury Secretary Janet Yellen’s scheduled Testimony in front of the House Financial Services Committee as she said that the International Monetary Fund (IMF) and the World Bank (WB) serve as important counterweights to non-transparent, unsustainable lending from others, like China.

It should be noted that the cautious mood ahead of the US inflation data and the looming $3.0 trillion worth of bond issuance from the US Treasury Department, due to the debt-ceiling deal, also exert downside pressure on the sentiment and the USD/JPY price. Amid these plays, the US 10-year and two-year Treasury bond yields keep the late Monday’s retreat near 3.73% and 4.58% at the latest.

Moving on, the bond market moves and risk catalysts will be important to determine the short-term moves of the USD/JPY pair. That said, the US Consumer Price Index (CPI) figures for May will be in the spotlight as the Fed decision looms on Wednesday. It’s worth noting that the market forecasts of witnessing no change in the Core CPI MoM figure of 0.4% gain major attention as softer figures could push back the July rate hike concerns and may not allow the Fed to sound hawkish. The same will weigh on the US Dollar and can please the Yen pair bears.

Also read: US Inflation Preview: Why the US Dollar is more likely to fall than rise, three scenarios

Technical analysis

The RSI (14) line’s retreat joins the increasing strength of the bearish MACD signals to challenge the USD/JPY buyers within a two-week-old symmetrical triangle, currently between 139.90 and 138.85.

• EUR/USD picks up bids to extend week-start rebound as markets await German/US inflation data.
• 200-EMA, fortnight-long rising trend line together restricts immediate downside.
• Bullish MACD signals, gradually rising RSI line keeps Euro buyers hopeful.
• Key Fibonacci retracement levels can prod the EUR/USD upside, depending upon the CPI/HICP data.

EUR/USD remains firmer for the second consecutive day, refreshing intraday high near 1.0765 during the mid-Asian session on Tuesday, as traders brace for the rollercoaster week comprising the US inflation and the key central bank events.

In doing so, the Euro pair extends the previous day’s rebound from the 10-day Exponential Moving Average (EMA) while justifying the bulish MACD signals and upbeat RSI (14) line, not overbought.

With this, the EUR/USD buyers are capable enough to mark another battle with the 50% Fibonacci retracement of the pair’s January-April upside, near 1.0790.

Following that, the late May swing high of near 1.0830 and the 38.2% Fibonacci retracement level of around 1.0865 act as extra upside filters for the Euro bulls to smash for conviction.

On the flip side, the EUR/USD pair’s pullback remains elusive unless the quote stays beyond the 10-EMA support of around 1.0745. More importantly, a convergence of the 200-EMA and a fortnight-old rising support line, near 1.0690, appears a tough nut to crack for the EUR/USD bears.

In a case where the Euro bears manage to smash the 1.690 support an ascending support line stretched from January 2023, close to 1.0645, will be in the spotlight.

Overall, EUR/USD is likely to remain firmer unless breaking 1.0690. Also supporting the Euro buyers is the divergence between the market’s bias about the European Central Bank (ECB) and the Federal Reserve (Fed).

Also read: EUR/USD edges higher past 1.0750 as ECB garners more hawkish bets than Fed, German/US inflation eyed

EUR/USD: Daily chart

Trend: Further upside expected

• GBP/USD regains some positive traction on Tuesday and draws support from fresh USD selling.
• The uncertainty over the Fed’s rate hike path and a positive risk tone undermines the Greenback.
• Traders now look to the UK jobs data and the crucial US CPI report for some meaningful impetus.

The GBP/USD pair attracts some buying during the Asian session on Tuesday and reverses a part of the previous day's sharp retracement slide from the 1.2600 mark, or a one-month peak. Spot prices currently trade just above the 1.2500 psychological mark as market participants now look forward to the UK monthly employment details and the latest US consumer inflation figures for a fresh impetus.

In the meantime, expectations that the Federal Reserve (Fed) will more likely skip a rate hike this month continue to weigh on the US Dollar (USD) and lends some support to the GBP/USD pair. It is worth recalling that a slew of FOMC members recently reaffirmed market expectations for an imminent pause in the US central bank's year-long policy tightening cycle. In contrast, the Bank of England (BoE) is expected to be far more aggressive in policy tightening to contain stubbornly high inflation. Moreover, market participants see a greater chance that rates in the UK will peak at 5.5% later this year.

The downside for the USD, however, seems cushioned in the wake of rising bets for another 25 bps lift-off at the July FOMC meeting. Surprise rate hikes by other major central banks last week - the Reserve Bank of Australia (RBA) and the Bank of Canada (BoC) - suggested that the fight against inflation is not over yet and support prospects for additional rate hikes by the Fed. Hence, the market focus will remain on the crucial US CPI report, due later during the North American session. The data will influence the USD ahead of the June FOMC policy decision, scheduled to be announced on Wednesday.

Investors on Tuesday will further take cues from the UK jobs data, which is expected to show that the number of people claiming unemployment-related benefits fell by 9.6K in May. Furthermore, the ILO Unemployment Rate is seen ticking higher to 4% during the three months to April, while Average Hourly Earnings likely accelerated during the reported period, pointing to growing signs of persistence in underlying price pressures. This might be enough to provide a fresh lift to the British Pound and assist the GBP/USD pair to capitalize on its modest intraday gains ahead of the key data/event risks.

Technical levels to watch

• US Dollar Index struggles to extend the previous day’s corrective bounce off three-week low, snaps two-day winning streak.
• Markets remain nearly sure of witnessing no rate hike from Fed in June but concerns about July stay dicey.
• Bond market moves, challenges to sentiment prod DXY bears ahead of the key US CPI.
• Core CPI will be closely observed as high inflation can allow FOMC to remain hawkish despite no rate hike decision.

US Dollar Index (DXY) remains pressured around 103.60 as it fades the previous two-day winning streak on Tuesday as the key US inflation data looms. That said, the greenback’s gauge versus the six major currencies rose in the last two consecutive days amid the market’s positioning for the Federal Reserve’s (Fed) pause to the rate hike trajectory. However, the recently mixed concerns about the US central bank’s future moves join the challenges to the sentiment to prod the DXY buyers ahead of an important data point for the markets.

It’s worth noting that a study from the San Francisco Fed about the correlation between wage growth and inflation could be cited as the reason for the US central bank to remain less hawkish, which in turn weighs on the DXY, apart from the pre-data anxiety. The survey concluded that wage growth has a very small impact on inflation, which in turn raises doubts about the central bankers’ emphasis on wage cost numbers as a source of information to gauge inflation pressure.

Talking about the latest challenges to sentiment, a trade dispute is developing after the US expands its ban on imports from Xinjiang. China vows to protect China firms against any US sanctions, per Reuters. Recently, Bloomberg released prepared remarks of US Treasury Secretary Janet Yellen’s scheduled Testimony in front of the House Financial Services Committee as she said that the International Monetary Fund (IMF) and the World Bank (WB) serve as important counterweights to nontransparent, unsustainable lending from others, like China.

Elsewhere, global institutions like the International Monetary Fund (IMF) and the Organisation for Economic Co-operation and Development (OECD) earlier flagged concerns about the global economic challenges emanating from higher interest rates.

Additionally, the increase in the bets favoring the Federal Reserve’s (Fed) 0.25% rate hike in July also prod optimism and put a floor under the US Dollar Index. It should be noted that the CME’s FedWatch Tool suggests nearly limited scope for the US central bank to act on Wednesday’s Federal Open Market Committee (FOMC).

That said, challenges for the US central bank and grim concerns about the same also prod the US Dollar. Former Fed vice chair Richard Clarida came out with comments that it may be more difficult to get inflation near 2% than in the past 15 years. Further, “Expect a hawkish skip this week,” Former President of Bosteon Federal Reserve Bank, Eric Rosengren, tweeted early Monday.

Amid these plays, US Treasury bond yields and the stock futures struggle for clear directions after rising in the last week, which in turn portrays the market’s cautious mood and put a floor under the DXY due to its haven allure.

Looking ahead, the US Consumer Price Index (CPI) figures for May will be in the spotlight as the Fed decision looms on Wednesday. That said, the market forecasts of witnessing no change in the Core CPI MoM figure of 0.4% gain major attention as softer figures could push back the July rate hike concerns and may not allow the Fed to sound hawkish, which in turn can drown the US Dollar.

Also read: US Inflation Preview: Why the US Dollar is more likely to fall than rise, three scenarios

Technical analysis

While the 21-DMA restricts immediate upside of the US Dollar Index near 103.70, a downward-sloping resistance line from May 31, close to 104.00 at the latest, appears the key upside hurdle for the DXY bulls to cross to retake control.