Olivia

EUR/USD – 1.0646 Euro's selloff from Monday's 1-month 1.0786 high to 1.0680 Tuesday and yesterday's break there to as low as 1.0628 in New York on rally in usd in tandem with US yields suggests correction from May's 5-year trough of 1.0350 has made a temporary top there and further weakness towards 1.0608 would be seen but oversold condition should keep price above 1.0568 and yield rebound. On the upside, only a daily close above 1.0680 would indicate pullback over and risk stronger gain towards 1.0706 before down. Data to be released on Thursday New Zealand import prices, export prices, Australia trade balance, imports, exports. Swiss CPI, U.K. Market Holiday, Italy Market Holiday, EU producer prices. Canada building permits, U.S. initial jobless claims, continuing jobless claims, labor costs, productivity, durables ex-defense, durables goods, durable ex-transport and factory orders.

Markets US equities were weaker Wednesday, S&P down 0.7%. US10yr yields up 6bps to 2.91%. Bunds up 6bps as well, to 1.18%.  Equities are trading lower again as the employment piece of ISM manufacturing contracted and the prices paid component remains elevated. If investors did not take kindly to Tuesday's higher than expected inflation print in the Eurozone, they were mortified by the sticky US inflation print as the devil is always in the ISM data details. Higher than expected inflation, good new orders and mixed employment data are the perfect cocktails for the market to price in a higher US terminal rate scenario.  Anything that keeps the Fed on a more aggressive rate-hiking path will pull the rug from under any semblance of sure-footed equity markets.  With the FED hikes back on the boil. I expect the Chinese markets to continue shedding recent gains, particularly in the tech sector.   Oil Traders are debating if the likes of Saudi Arabia are becoming worried about demand destruction or, at least, want to reset relations with the US by opening up the doors to swing producers to pump more oil. OPEC and non-OPEC members are meeting later today in a discussion framed… Read More »The Devil is always in the ISM detail and can OPEC deliver more barrels ?

Outlook: This is a big data day, starting with the manufacturing PMI, the ISM version, JOLTS, the BoC and the Beige Book, among other events. Earlier we will have gotten some PMIs from Europe. The overall sense is that economies are doing better than expected or at least that catastrophe is being postponed. This is important because central bankers (and politicians) are making a big stink about inflation and in the background, economic conduct goes on as normally as it can. The one giant problem today is supply chains, getting the blame for inflation in energy, food, and Stuff. But now Covid is mostly behind us, supply chain problems from that source “should” be fading. It’s taking longer than some would have thought. The supply chain is not a rubber band. But it’s not a broken metal chain, either. You can still buy a new refrigerator or water purifier or t-shirts from Asia or a notebook PC or anything else, from Amazon, with free one-day delivery. We recently did all those things. With all the wailing and gnashing of teeth about the supply chain, for the average US consumer, it’s a non-event. Economically it’s a big deal (chips, autos) but… Read More »Economies are doing better than expected or at least that catastrophe is being postponed

The USD made a solid comeback on Tuesday and prompted fresh selling around EUR/USD. Bulls seemed rather unaffected by hotter-than-expected Eurozone consumer inflation data. Investors now eye ECB Lagarde's speech for some trading impetus ahead of the US ISM PMI. The EUR/USD pair witnessed heavy selling on Tuesday and snapped a three-day winning streak to over a one-month high, around the 1.0785 region touched the previous day. The US dollar made a solid comeback amid a sharp spike in the US Treasury bond yields, bolstered by hawkish comments from Fed Governor Christopher Waller. This, in turn, was seen as a key factor that exerted downward pressure on the major. Speaking at an event in Frankfurt on Monday, Waller backed the case for a 50 bps rate hike for several meetings until inflation eases back toward the central bank’s goal. Apart from this, a generally weaker tone around the equity markets further benefitted the safe-haven greenback. The market sentiment remains fragile amid doubts that central banks can hike interest rates to curb inflation without impacting economic growth. This, along with concerns that the global supply chain disruption would push consumer prices even higher, tempered investors' appetite for riskier assets. The fears… Read More »EUR/USD Analysis: Bulls seem to be losing control, remain at the mercy of USD price dynamics

Outlook: The calendar is stuffed full this week, with consumer sentiment a possible star in the US today–but remember that sentiment has been falling back while consumer spending remained robust, even at the expense of savings. And not to sound like a broken record, but that looming recession so many predict is still not in evidence. Last week the Atlanta Fed GDPNow came in at 1.9% for Q2. We get another one tomorrow. And the US is not alone. We get GDP from Australia and Canada this week, likely more robust than earlier feared and in the case of Canada, a cattle prod for two more fat (50 bp) hikes. The BoC remarks tomorrow could be interesting. The point: it ain’t necessarily so that relentless hikes and hawkishness–beating inflation at all costs–will crash economic activity and market sentiment at the same time. We are accustomed to the two things going together. Central bank hikes lead inexorably to the economy contracting and equities falling back, too. There is no law that says you can’t have hikes and hawkishness with the economy (meaning the consumer) fighting back with the same and nearly the same degree of activity, and the stock market seeing… Read More »The looming recession so many predict is still not in evidence

The Australian economy is seen growing by 0.7% in the first quarter of 2022. RBA says the Australian economy is resilient, remains upbeat on the outlook. AUD/USD has limited upside potential even on an Australian GDP beat. AUD/USD is testing bearish commitments near monthly highs in the run-up to the first quarter Australian GDP release due this Wednesday at 0130 GMT. The South Pacific Island nation’s economic activity is likely to be hit at the beginning of the year, courtesy of the Omicron covid variant outbreak and severe flooding in New South Wales (NSW) and Queensland. The Australian economy is seen expanding by 0.7% in the three months to March, on a quarterly basis, after rebounding by 3.4% in the final quarter of 2021. Meanwhile, the country’s GDP rate is seen dropping to 3.0% YoY in the reported period vs. a 4.2% sharp expansion witnessed in the previous quarter. Australia's economy staged a solid turnaround last quarter as the country emerged from its most stringent pandemic lockdowns. Q1 GDP unlikely to alter RBA’s hawkish stance Despite the impact of the further disruptions, accounting for a rocky start to the year, the Australian economic performance for the quarter ending March is unlikely… Read More »Australian GDP Preview: A hit to economic activity ahead of next week’s RBA

EUR/USD – 1.0747 Euro's intra-day strong retreat in Asia on broad-based rebound in usd suggests recent corrective upmove from May's 5-year bottom at 1.0350 has possibly made a temporary top at yesterday's fresh 1-month peak at 1.0786 and further weakness to 1.0727/31 would be seen, below would head towards 1.0698, 1.0663 later. On the upside, only a daily close above 1.0786 would indicate aforesaid pullback over and risk one more rise towards 1.0807. Data to be released on Tuesday : New Zealand building permits, NBNA business outlook, NBNA own activity, Japan unemployment rate , industrial production, retail sales, consumer confidence, construction orders, Australia building permits, business inventories, current account, net exports contribution, China NBS manufacturing PMI, NBS non-manufacturing PMI. U.K. nationwide house price, Swiss exports, imports, trade balance, retail sales, GDP, France consumer spending, GDP, CPI, producer prices, Germany unemployment rate, unemployment change, Italy GDP, CPI, EU HICP, Canada GDP. U.S. monthly home price, Chicago PMI, consumer confidence and Dallas Fed manufacturing business index.

Easing in China may lead to new covid infections and subsequent lockdowns.  The US housing market is weakening, potentially leading to lower long-term rates.  Stocks staged a fierce correction and may be ready to fall. USD/JPY bearish – the broader trend is to the downside, and the most recent rise may prove to be a selling opportunity. Why? *Note: This content first appeared as an answer to a Premium user. Sign up and get unfettered access to our analysts and exclusive content. 1) China has eased restrictions for residents in Beijing and factories in Shanghai, but that has come after covid cases dropped. For policymakers, recent developments only serve as a vindication for their zero covid policy. There would be fresh lockdowns when new cases appear – and with Omicron and its subvariants, contagion is high.  The yen tends to benefit in response to adverse news in China. Investors repatriate funds to Japan, undoing lending in cheap yen. That could happen again in response to the next flare up.  2) US housing weakness: Jumping to the other side of the Pacific, the US economy has recently shown signs of weakness, especially in the housing sector. Both pending and new home sales fell… Read More »Sell opportunity on USD/JPY? Three reasons for a potential fall + levels to watch

Key highlights EUR/USD gained pace and surpassed the 1.0700 resistance. A major bullish trend line is forming with support near 1.0665 on the 4-hours chart. EUR/USD technical analysis Looking at the 4-hours chart, the pair gained pace above the 1.0700 level, the 100 simple moving average (red, 4-hours), and the 200 simple moving average (green, 4-hours). The bulls even pushed the pair above the 1.0750 resistance. On the upside, the bears might remain active near the 1.0800 level. A clear move above the 1.0800 level might push the pair further higher. The next major barrier could be 1.0920, above which EUR/USD could rally towards the 1.1000 level. If not, the pair might correct lower below 1.0720. On the downside, there is a major bullish trend line forming with support near 1.0665 on the same chart. A downside break below the trend line could send the pair towards the 1.0620 support. The next key support is near 1.0500.

The rally is back on after a strong week for equity markets. The main indices avoid an eighth straight down week. US market still has had one of its worst starts to the year in history. The week began with peak fear and ended with optimism high. Surely it can't be that easy to turn things around. But investor sentiment appears markedly improved after a week of promising earnings from the retail sector, coupled with some strong consumption data to end the week on Friday. Interest rate markets also took a noted doveish turn and now have taken down estimates for year-end interest rates by a full 25 bps. One week ago Fed funds futures were pricing in a 2.75-3% year-end rate. Now they are looking at 2.5-2.75% as the rate by December.  Source: CMEGroup.com That curious move enabled equities to breathe a little easier. The dovishness was perhaps added to on Friday with the Fed's favorite measure of inflation, the PCE, coming in as expected and showing a decline versus a month earlier. This welcome decline was seized upon by equity markets which pushed aggressively higher throughout the day. However we must urge caution, inflation is spreading its wings out… Read More »Week Ahead on Wall Street (SPX QQQ): Return of the rally as yields fall and retail remains strong